BROWN SHOE CO. v. UNITED STATES
Legal provision: 15 U.S.C. 29
Argument of Arthur H. Dean
Chief Justice Earl Warren: -- Brown Shoe Company Incorporated, Appellant, versus United States.
Mr. Arthur H. Dean: May it please the Court.
This is an appeal by the Brown Shoe Company, the appellant from a judgment of the Eastern District Court in Missouri rendered by the late Judge Webber in December 1959.
Justice Charles E. Whittaker: (Inaudible)
Mr. Arthur H. Dean: He passed away Mr. Judge -- Justice Whitaker just a week or so ago.
Justice Charles E. Whittaker: (Inaudible)
Mr. Arthur H. Dean: Yes.
He died very suddenly just about a week or 10 days ago.
The Brown Shoe Company which is -- I will describe -- whose business I will describe in just a moment, acquired by merger the G.R. Kinney Company.
Justice Felix Frankfurter: I want all -- as you know, I want all.
Mr. Arthur H. Dean: The judgment of the lower court was that the acquisition by Brown of Kinney violated Section 7 of the Clayton Act as was amended in 1950.
Section 7, as the Court is well aware provides that if as a result of any acquisition and any line of commerce, in any section of the country or the effect maybe to substantially lessen competition depends -- the acquisition is in violation of the statute.
We believe that the District Court was in error in regard to the lines of commerce, it selected.
The sections of the country it concluded existed in shoe retailing and it's appraisal of the effect of the acquisition upon the lessening of competition.
I would like first to describe to the Court the operations of the two firms and the type of business in which each of them were engaged, the results on competition as set forth in the evidence and then go to the -- what the District Court held.
Some of you who -- many years ago who read funny papers may recall Buster Brown and his dog Tige.
This was for many years, the trademark of the Brown Shoe Company, although the company itself has founded under the name of Brown in 1878.
The -- most of the evidence, most of the -- of the statistical evidence in the record is for the fiscal year ending October 31, 1955.
In that year, the Brown Shoe Company produced some 25,600,000 pairs of shoes.
The national production was 642,507,000 so that Brown had roughly 4% of the national production in pairs of shoes.
For that period, it was the fourth largest manufacturer in the United States in leather shoes.
As the Court will see as I go on I am going to draw some of distinction between leather shoes and rubber soled upper -- where the uppers are made of canvass which is also a very fast growing part of the shoe business.
The Kinney Company, the company that was acquired by Brown in this period ending in 1955 produced 2.9 million pairs out of the 642 odd million pairs.
In other words, the Kinney Company had four-tenths of 1% of the national production of shoes.
So that together, as far as the production of leather shoe is concerned, after the acquisition, Brown and Kinney produced 4.4% of the national production.
The District Court conceded that as far as the manufacturing, effects on competition of the manufacturing was concerned, it was only slight and I believe that the Government in its brief has conceded that the effect on competition as far as production is concerned is very slight.
Let me turn now to -- to go from the production of shoes to the shoe retailer.
Brown has been, for many years, primarily a manufacturer of shoes.
Starting some time in this country before -- after the turn of the century, there began to be experienced by local merchants, a competition in various cities of the so-called chain store.
So that the big function of the chain store as far as the consumer is concerned is to try it to give a good quality merchandise, not necessarily at least in the merchandising field, but the highest quality, in tremendous volume could cut out the wholesaler, cut out the jobber, could cut out the middleman to try to carry on his -- the business at a very low rate of profit per unit of sale and to try to pass these benefits on to the consumer.
Brown had built up its manufacturing business in the medium price field, which I will tell you in dollar terms in just a moment.
They bought the highest grade materials in every respect.
They taught their workman to produce the highest quality shoes in every respect and they advertised their shoes under national brand names in national magazines and they sold and still continue to sell the bulk of their production through some 7000 independent dealers to whom they sell these shoes at wholesale.
Now Brown has endeavored to help all of these 7000 independent dealers to compete with the so-called retail chains by advising them with respect to their inventories, their methods of merchandising, their methods of stocking shoes, their methods of advertising and their methods of pricing.
They have tried to bring to these 7000 independent local retail dealers by advising them how to compete with these retail shoe chains.
Now the most successful of the retail shoe chains are not integrated with any manufacturer.
The three largest and most successful, the Sears Roebuck in its retail store, it also sells shoes by mail order but in in its retail stores, shoes -- Sears does not own any manufacturing facilities.
The second largest is Edison Brothers, again, does not own any manufacturing facilities.
J.C. Penney then there are very large -- the largest outlet west to the Mississippi is in the Famous Bar and store in St. Louis, again, it does not own manufacturing facilities.
Then there are great outlets in New York, in Macy's and Marshall, Chicago, Marshall Field and other leading department stores, but the most successful of the chain stores selling at retail are not themselves integrated with the manufacturer.
Brown found that it could not sell its manufactured shoes where it used only the best quality materials and tried to have only the best quality workmanship because the chains wanted to sell their own brand of shoes and they weren't interested in the national brands and they also wanted to sell shoes at a price so that the -- these big retail chains buy their shoes made up to their own specifications.
They select the materials, select the workmanship and buy these shoes to sell at a price.
Now in order to help some of these 7 odd thousand independent dealers to whom Brown sold in an effort to help these independent merchants compete better with these retail chains, Brown set up the so-called, “Brown franchise plan.”
Now, each of the people operating on this Brown franchise plan are completely independent dealers.
They have their own capital.
They select their own store.
They hire their own employees.
They buy their own stock.
They handle their own merchandiser.
They run these stores entirely for their own account, for their own profit and loss account.
What Brown does is to send out experts in order to help these people in the display of shoes in the window, in the layout of the store.
They teach these independent retailers that in order to compete with the retail chains that you've got to render service and that you have to lay in a complete stock in-depth of each style of shoe and you have to be able to sell the customer in each size and in each width.
One of the ways that some of the chains are able to cut down on their operating expenses is that they don't stock 12 months out of a year all shoes.
They buy these shoes from these manufacturers to meet their specifications and some of the chains only stocked shoes in the most popular sizes or they may stock them only in two widths whereas Brown tries to teach its dealers that the way to compete is to have a stock of each style in-depth, in each size and in its width and to pay attention to the fitting and the comfort --
Justice Felix Frankfurter: Mr. Dean, may I ask --
Mr. Arthur H. Dean: -- of the (Voice Overlap).
Justice Felix Frankfurter: May I ask whether the manufacturers, it supply the chains -- have that as an exclusive market although they compete with Brown as to -- in other market?
Mr. Arthur H. Dean: These -- there are some 11,000 manufacturers of shoes in the United States Mr. Justice Frankfurter.
And some of these people on contract supply shoes to these retail chain stores according to their specifications.
These -- most of these retail chain stores sell this out, as I come to you in a minute and give you the dollar prices, selling what's called the popular price field.
Most of the independent retailers to whom Brown sells, sell in a price above the popular price field and what's called the medium price fields.
There's about -- at various community here, there's about 10% to 15% of Brown's business which has not been profitable for it where it make shoes to specifications.
And I think that to that where they make shoes to specifications, those shoes come at competition on a manufacturing level where the shoes are sold to these retail chains.
It is our contention as I shall try to develop that the shoes -- that Brown manufactures and sells to these independent dealers in this medium price range are not in competition with the shoes in the popular price range which is ranging almost entirely in which Kinney, the company that Brown acquired sold.
Chief Justice Earl Warren: Mr. Dean, what -- approximately what is the price differential between the -- these chains and the Brown's outlets?
Mr. Arthur H. Dean: Well, in the popular price range in -- which is the -- which is the price range that most of the retail shoes sell in, the popular price range for men's is $8.99 retail and down.
For women's --
Chief Justice Earl Warren: In what -- or in the chains or with Brown?
Mr. Arthur H. Dean: That -- no, I'm getting you the popular price, Brown --
Chief Justice Earl Warren: Yes, (Inaudible) --
Mr. Arthur H. Dean: -- the independent dealers to whom Brown sells sell in the medium price range which I will give you --
Chief Justice Earl Warren: Oh yes.
Mr. Arthur H. Dean: -- in a minute.
If I may, I'll give them to you --
Chief Justice Earl Warren: Yes.
Mr. Arthur H. Dean: -- in terms of men's, women's, and children's popular price and then, men's, women's, children's medium price.
And the popular price range for men's is $8.99 and down, in women's, it's $5.99 and down, in children's, it's $3.99 and down and the medium price range which is range that Brown sells the bulk of its shoes, the men's shoes are $8.95 and above, roughly to $14.95.
The women's are $5.99 and above or $7.95 and above and the children's are $5.45 and above.
I shall describe later the -- we have some testimony on the record where we took the medi -- the medium prices of the shoes sold in the Brown independent dealers and those sold in the Kinney popular price and will show you that in a large number of these cities, the prices of the -- these independent dealers to whom Brown had sold are anywhere from 150% to 200% higher than the medium prices in Kinney and by medium prices is you take the gross sales and divide half in the lower half and the other in the upper half.
I might just say Mr. Justice Frankfurter that the number -- the evidence is somewhat varying in the record as to the actual number of shoe manufacturers in the United States, the United States shoe manufacturing company which is you know leases shoe (Inaudible), testified that it had about a thousand customers on its account.
According to the census figures, these -- although we I think these figures are inaccurate there has been some decrease in the total number of shoe manufacturers.
Now, in addition to selling, if I may go back to describe the Brown's retailing again, in addition to selling to this -- about 85% of its shoes that it manufactures are sold at wholesale to these some 7000 dealers, it sells about 20% of this 85%, these independent dealers on the franchise plan.
Justice John M. Harlan: How many of those are there, (Inaudible)?
Mr. Arthur H. Dean: There's 635 --
Justice John M. Harlan: Franchise?
Mr. Arthur H. Dean: -- franchise dealers out about 7000 independent dealers.
Justice Potter Stewart: Doesn't that number fluctuates all the time?
Mr. Arthur H. Dean: Yes, it does sir.
Mr. Justice Stewart.
It's -- it's been up to 650, 625.
I think in 1955, it was about 635 but it fluctuates every week.
Justice Potter Stewart: And these contracts are cancellable on very short notice, (Voice Overlap) --
Mr. Arthur H. Dean: They're -- they're cancellable at any times and anybody can leave the Brown franchise plan but almost invariably, the records shows that they -- they remained --
Justice Potter Stewart: Customers.
Mr. Arthur H. Dean: -- customer of Brown's.
There is no requirement that an independent dealer stay on the Brown franchise plan.
There is no -- some of them buy as much as 40% of their shoes from others, I think the average is about 25% shoes from others.
What Brown does is to attempt to get these people to concentrate on a single line of shoes, Brown's in-depth, so that they won't have -- be charging two or three lines and then have to mark it down at the end of the season then suffer loss.
Justice John M. Harlan: Are they tied to Brown Shoes?
Mr. Arthur H. Dean: They're not tied to Brown Shoes in the sense, they agreed that they will concentrate on Brown Shoes but they're free to leave the Brown Plan at anytime.
Justice John M. Harlan: While they're in the Brown Plan, did they buy from others?
Mr. Arthur H. Dean: Yes.
Justice John M. Harlan: (Inaudible)
Mr. Arthur H. Dean: Some of them buy as much as 40%.
I think on the average, they buy about 25 % from the others, other manufacturers.
Justice William J. Brennan: Are these franchise dealers are widespread throughout the country?
Mr. Arthur H. Dean: Yes they are.
Mr. Justice Brennan.
Now, Brown retails it shoes in -- in three other ways.
In order to help young men, young men who'd been generally speaking, the assistant managers or managers in other stores who want to start out on their own, Brown through its wholly own subsidiary, the Wohl, it's W-A -- W-O-H-L Shoe Company has the so-called Wohl Plan and there a young man who has from $30,000 can open up a shoe store and Brown will set him those shoes on consignment and he remits after he takes out his salary, the proceeds of those shoes sold after expenses.
That constitutes about 2% of Brown's wholesale sales.
That's called the Wohl Plan.
Those shoes are sold at wholesale to this young man starting out in business as independent dealers.
Now, in addition, the Wohl Shoe Company and this is a fairly common thing in the merchandising of shoes in department stores, many department stores find that the merchandising of shoes is a very complicated business and they lease their shoe departments so that they're not operated by the store itself and Wohl operates 100 departments and some 163 independent department and specialty stores throughout the United States.
The -- in these department stores or Wohl generally speaking has no written agreements.
They are cancellable at anytime by the department store owner and the merchandising policy has to conform to the department store.
In these leased departments, Wohl concentrates on women's shoes and generally in both the medium price line and in lines higher than the medium price line, that is higher than $14.95.
Some of the shoes sold by Wohl in these leased departments grow up as highest $25 -- $32.
In addition Wohl itself operates some 18 family shoe stores and nine women's shoe stores.
Brown has one other subsidiary the Regal Shoe Company which both manufactures shoes as plan as equipment Massachusetts and has a retail store mostly on the eastern seaboard.
These two subsidiaries, the Wohl Shoe Company and the Regal Shoe Company, both subsidiary of Brown, together sold about 1.1% of the $37 million combined sales of shoe -- of footwear sold at retail in this year 1955 out of $3,464,000,000.
Now let me turn from a moment to Kinney, the company that was acquired.
Kinney was primarily a retailer.
It did some manufacturing, but its manufacturing was not very important.
Kinney was one of the oldest of the so-called integrated manufacturing and retail shoe stores and in 1929 to 1930, it got into great financial difficulties because as I shall develop later, it is quite impossible for a manager of a shoe store, especially a shoe store selling women's shoes which are -- where the styles change very rapidly and where you have to be completely au courant of what perhaps may be the latest style of shoe worn and the latest texture by the most prominent star, apparently manufacturing part of Kinney is trying to force on the retail stores the shoes that they manufacture and they almost went bankrupt in trying to do it.
As a result, Kinney decreased the emphasis on manufacturing and tried to build up generally in family areas and generally in the very low price field lower than this medium field in which the Brown sells and they developed stores in some 315 cities.
Now, Kinney is a family shoe store, by that I mean it caters to all members of the family and pairs it sold in 1955 in children shoes 51%, in women's shoes 35%, and in men 40%, in other words it has sold in that year about 1.2% of the national retail footwear sales.
As I had just said Wohl and Regal sold about 1.1, sold at retail, Brown and Kinney sold together about 2.3% of the national footwear retail sales.
Now, I want to be clear that the lower court found that these Brown franchise dealers, some 635 out of the 7000 independent dealers, all he found that they used their own capital and -- and run these stores for their own profit and loss, nevertheless, in his finding to which we take exception, he included the retail sales of these Brown franchise dealers and these wholesale sales on this Wohl Plan account, he included those as though they were actually retail outlets of Brown.
Now, from a competitive standpoint, they are not.
One of the great advantages of companies like Edison Brothers, one of the most successful of women's retail chains is that they separate their stores into three classes.
But if they find that sales are depressed in one area because of economic conditions, they can move shoes from say Philadelphia to Washington or Washington to Boston or Boston to Chicago.
You cannot do that with these independent dealers.
Each of these independent dealers buy themselves as he pleases with his own capital at his own profit and loss.
So we believe and I think the economic evidence supports us that the retail sales of these independent dealers should not be regarded as retail sales to Brown.
They also think that to do so, completely distorts the economic evidence because otherwise the wholesale sale of Brown to these independent dealers is included and then the retail sales are included so -- and then the factory sales will be included twice.
These sales, combined sales of Wohl and Regal would be $78 million out of 3.5 billion.
As I said, Brown started primarily as a manufacturer, it sold to these independent retailers in this medium price range which the men's were $8.95 to $14.95, women's $7.95 to $14.95 and children's $5.45 to $7.95 and they tried it every way to help these sales to independent dealers.
Now, there is no difference in the terms on which Brown's sales are made to these 7000 independent dealers and those on the franchise.
Those on the franchise get no better credit terms.
They got no greater discounts.
They get no greater payrolls than any independent dealer buying from Brown.
There is at one time, Brown tried to organize a group life insurance for some of these franchise dealers.
And I think about 400 of the 635 still have it, although there is no evidence in the record because of the vast extension of group life to whether its -- practically any organization has it today that there's any benefit in having it and then in the Wohl Plan, these -- the insurance features of the Wohl Plan were cancelled because they couldn't prove any economic benefit to dealer, either from the group life or the fire insurance.
Brown is, as a retailer, through its Wohl subsidiary, sells 80% of women's shoes, and sells men's shoes through its Regal subsidiary.
The Regal subsidiary has never been profitable.
In contrast to the Brown independent dealers, selling these nationally advertised branded shoes, so when the customer comes in, he having had a pair, being satisfied with them, he asks for that pair of shoes which he's had before and which he knows by name.
In the Kinney outlets, they do not have any national advertising.
They do not sell national brands.
In contrast to the -- to the Wohl's operations in leased departments where there are charge accounts, where there is delivery, where there's a liberal plan of return.
In the Kinney retail outlets, it's entirely cash and carry.
There is little service.
The shoes are carried generally only in the popular sizes and then only in two widths.
They're the popular or low priced family shoes.
For the men shoes, I say again, they're $8.99 and down, for the women's $5.99 and down and children's $3.99 and down.
80% of the shoes sold in the Kinney retail stores are made by independent manufacturers.
Starting about, shortly after the end of World War II I'm sure the Court is aware, there was a great trend from the cities where many of the shoe store outlets were located to in the suburbs and about this same time with the passage of the 40-hour week law banks and a great many business establishments closed their offices on Saturdays.
Prior to that time there was a very common occurrence or families, the wife and the children to come in and have lunch with the husband on Saturday and do the shopping in the downtown city areas on a Saturday.
With this great access to the suburbs with this 40-hour a week, the husband no longer in many instances comes in to town on a Saturday.
As a result, there has grown up in the United States several types of shopping centers.
Some of these shopping centers are very vast, they're very large.
They have free parking.
You can get practically anything from medical service or dental service or optical service or clothes to shoes.
Others are -- are neighbor -- neighbor parking centers within three or four minutes driving.
These centers have revolutionized the merchandising of shoes.
The shoe store that Brown had near the stock exchange that used to do several hundred thousand dollars worth the business per annum.
With the stock exchange and banks and offices closed, they were doing practically nothing.
So that Kinney went -- decided to try to go out and get locations in these suburban shopping centers.
They also have built what's called free standing stores.
There is one, a Kinney store, Northeast of Washington in Rockville, Maryland where they build these stores right out on the highways, but no buildings on either side as parking lot and where you can -- put your shoes out on the racks and the customer selects the shoes and the clerk just fits them and wraps them up.
So Kinney started in on this -- trying to get these outlets.
In order to get these outlets, you have to contract for them several years ahead because the insurance companies make the loans to the buildings and they want a lease signed at that time.
Kinney didn't have the necessary capital because of some restrictions in the step financing.
The common stock was owned by a relatively small group who wanted no more common sold and Brown, which did not previously had any outlets in this lower price field and which was becoming concerned about whether there could be a re-urbanization of the urban centers, felt that these retail outlets, especially on these suburban centers offered a possibility of going in to this field.
Now let me be clear Brown did not think that it was going to sell any of the shoes that it manufactured to Kinney.
Now, the reason for that is very clear.
Once you have trained your work to do -- use the best possible workmanship as the evidence shows Brown does and once you have graduated, a workman to hire quality workmanship, smaller stickers.
They get paid more as they go up in the quality of their work and the wages go up, it is almost impossible to teach a workman whom you've trained for several years to do the best quality of workmanship, to do medium quality of workmanship and also it means that he lowers his pay so that in a few times that Brown and its like business carriers has tried to take orders for the manufacturing of a lower price shoe, not with the brand name.
It -- have they have not been profitable, they have had difficulty with their workmen and Brown now knows that it is utterly possible for it to manufacture in its factories a kind of shoe which Kinney can have manufactured.
Now there is an almost constant entry into the shoe manufacturing business.
You can lease your equipment.
You can get contracts from this retail chains who don't have manufacturing facilities of their own.
There are many communities which will build you or give you a factory, tax free for some period of time.
There is a great ease of entry into the shoe manufacturing business and therefore, Kinney wants to be free in its retailer, that's to be able to buy where -- were it leases, whatever styles it wants and at whatever prices economic conditions might make necessary at the time.
So that there is no possibility I believe on an economic standpoint, any feasible economic standpoint of Brown being able to increase its sales of manufactured shoes to Kinney.
That was not the intent of the merger.
It's economic -- not the economic purpose of the merger and I think the economic evidence will clearly show that that cannot come about.
Now, there had been some small sales of Brown to Kinney, but on the other hand, the sales of Kinney from outside people have increased.
There wasn't a single witness who testified that he believed that he -- a single manufacturer who testified that he believed that he would be displaced as a supplier of Kinney by Brown, not a single one.
There isn't -- there isn't one word of evidence in the entire record from anyone indicating any possibility that the present suppliers of Kinney or the suppliers of Kinney in the future will be displaced by Brown.
Justice Felix Frankfurter: Mr. Dean, may I interrupt you again?
Mr. Arthur H. Dean: Yes -- yes please Mr. Justice Frankfurter.
Justice Felix Frankfurter: You indicated a minute ago when you challenged the finding, that leads me to ask whether when you do not say challenge it -- when you do not indicate that what you are telling us is contradicted by findings which you object to or which you take exception to, are we to assume what you've said also is reflected in the findings?
Mr. Arthur H. Dean: Yes.
As far as the -- there is a -- which I think the Government would admit that we -- we say that the Court, there -- there are several figures that the Court uses and I think there's a typographical error in the Court's opinion because the evidence is quite clear that Brown manufactured 4% and the Kinney manufactured four-tenths of 1%.
Justice Felix Frankfurter: I didn't mean as to this last statement of yours, but generally as I follow you --
Mr. Arthur H. Dean: Yes.
Justice Felix Frankfurter: -- am I to infer --
Mr. Arthur H. Dean: Well, let me --
Justice Felix Frankfurter: What in their rate is supported by findings except when you specially say it isn't?
Mr. Arthur H. Dean: Yes that is correct.
Justice Felix Frankfurter: Alright.
Mr. Arthur H. Dean: Let me come to that specific point the exception that we take to the findings.
It is our contention that at retail shoes are retailed in different communities.
I think you would readily agree that a woman or a person living in Falls Church would not normally go to Hyattsville to purchase their shoes.
I mean they normally go to some place that's within five or ten minutes or certainly 20 minutes driving time from where they live.
The Court took some 141 cities.
There isn't anything in the evidence to indicate why he took those 41 cities -- 141 cities.
He took cities of over 10,000 and the immediately contiguous area.
He -- it isn't clear from his opinion whether each of the 141 cities and the immediately contiguous area is a section of the country within the meaning of Section 7 or whether the 141 cities and the immediately contiguous area in the aggregate is the section of the conflict.
There is no -- that's not clear from the judgment of the District Court.
Chief Justice Earl Warren: Was the -- were they concerned that a city like Los Angeles for instance was one of those 141?
Los Angeles plus all of its metropolitan area or Chicago, or New York, would they each be just one city?
Mr. Arthur H. Dean: Yes.
We -- we contend Mr. Chief Justice, we introduced evidence from the census that what the census calls the standard metropolitan area --
Chief Justice Earl Warren: Yes.
Mr. Arthur H. Dean: -- which is derived by statistics from place that has common -- people commonly go to market without regard to political bounds and the Government contended that you should take only the political boundaries of a particular place without regard to where that particular city do trade from the county or the surrounding area.
The Court apparently didn't take either one.
The Court said, he took cities, these 141 cities and this immediately contiguous area, but he didn't say what he meant by the immediately contiguous area.
As far his finding is concerned, you're quite correct for the City of Los Angeles and he said that, “Wherever there was a Kinney retail outlet or a -- anybody operating on the Brown franchise plan or the Wohl Plan in the City of New York, they were in competition with each other.
Thus a store in Staten Island, its 11 miles by ferry and subway from a store in the Bronx would be in competition with each other because they'd be within the same city.”
We maintain that the entire evidence is to the contrary.
We had Professor Joe Dean.
I wish I could claim him as a relative but I can't, of Columbia who testified as to the economic significance.
His -- none of his testimony is mentioned.
We had a Mr. Apple, who was a well-recognized authority on marketing often used by the United States Government who testified that there were various areas in the City of St. Louis where Kinney itself didn't have a retail outlet.
He said that he had to divide these areas up for those within five minutes driving time or 20 minutes driving time where the larger shopping centers and that something at one end of the City of St. Louis as far as retail was concerned would not be in competition with another.
The Court disregarded all of that testimony and held that every retail outlet was in competition with every other retail outlet.
He disregarded style, price, quality or type of merchandise and he simply divided all shoes into three classes, men's shoes women's shoes and children's shoes.
He lumped apparently in the children's shoes, infant's shoes which Brown manufactured and Kinney did not.
Young miss' shoes and boy's shoe, although obviously a growing boy couldn't wear a growing girl's shoes.
He lumped in to this -- there's half a dozen categories in boy's shoes, youth shoes, growing girl's shoes, miss' shoes and the shoe trade that are well-recognized.
He threw those all apparently in the children's shoe.
He completely disregarded all of the economic testimony with respect to the fact that people rarely go out of the price range.
He -- we also and we believe the economic evidence supports us in this that in determining your line of commerce that you have to determine it realistically on the basis of the purpose for which a person is going to buy a shoe at the time he purchases it.
He disregarded that because he said a person could one day buy a shoe as a dress shoe and several years later after it was worn out it might be used for gardening, but we submit that on the evidence and from a standpoint of determining what is proper competition that you have to determine the use as between the two types of shoes as of the time of purchase and not what you're going to do with it when you wear it out.
He therefore disregarded all of the -- of the different classes of shoes which are very common and well-standardized and well-understood in shoe retailing and which are fundamental part of shoe retailing.
Justice Felix Frankfurter: Mr. Dean, I do not want to interrupt or divert the order of your argument in your mind because you thought a lot about this, but even now if it's appropriate or sometimes would you be good enough to state how many findings in number -- how many findings of fact the Court below may and which of those findings you take exceptions to?
I ought to have that mind --
Mr. Arthur H. Dean: Yes sir.
Justice Felix Frankfurter: -- because I do not.
Mr. Arthur H. Dean: Yes sir.
Yes, I'd be very glad to give that to you.
If I may go back just a minute more on these prices in these retail areas, this is covered in our main brief at page 88 and to 90.
Testimony was introduced with respect to some 58 cities and the merchandising of these shoes of retail was broken down in age and sex categories that is men's --
Chief Justice Earl Warren: Mr. Dean, when you say cities, you mean one of these 141 that the Judge --
Mr. Arthur H. Dean: No sir, we took --
Chief Justice Earl Warren: (Inaudible)
Mr. Arthur H. Dean: Our expert took --
Chief Justice Earl Warren: (Inaudible) make another definition of it.
Mr. Arthur H. Dean: Our expert took 58 cities which he regarded as representative.
Chief Justice Earl Warren: Yes.
Mr. Arthur H. Dean: And we took again this standard metropolitan area of the census and we broke them --
Justice Tom C. Clark: (Inaudible) -- what was their average population, (Inaudible) population, 1958, is that?
Mr. Arthur H. Dean: They raised -- Mr. Justice Clark in -- from medium sized cities up to fairly large cities.
I can give you the list of the cities if you'd like.
They were regarded by this merchandising expert as fairly representative cities where you'd find the representative competition in these -- between these various categories.
Justice Tom C. Clark: Now, you said that the Judge took the 141 as those over 10,000 --
Mr. Arthur H. Dean: The judge --
Justice Tom C. Clark: -- so I thought perhaps in 1958 (Inaudible) --
Mr. Arthur H. Dean: Yes, Judge Weber took a 141, each city of over 10,000 and the immediately contiguous or surrounding area.
Justice Felix Frankfurter: And you've said he took those out of the blue.
Mr. Arthur H. Dean: Yes sir.
Other than this qualification of 10,000 --
Justice Felix Frankfurter: Yes, but I mean apart from that (Voice Overlap) --
Mr. Arthur H. Dean: -- and above yes -- yes.
Well let me say he took these 141 cities where he thought there was competition in that there was a Kinney retail outlet and any independent dealer operating under the Brown franchise plan or city where Wohl was operating a leased department store.
Justice Felix Frankfurter: And did I also understand you to say that these -- as to these 141, the issue wasn't either focused or even directed at the client, is that right?
Mr. Arthur H. Dean: That is right.
I think I can give you in the transcript of the record in volume 14 at page 7317 there is an alphabetical listing of the overlapping areas.
They start out with Altoona.
Justice Felix Frankfurter: What's the page Mr. Dean again?
Mr. Arthur H. Dean: 7317 in volume 14 of the transcript of the record.
Justice Felix Frankfurter: Alright.
Mr. Arthur H. Dean: You'll see that those cities go from such cities as Altoona, Pennsylvania, Decatur, Illinois, Glens Falls, New York, Little Rock, Arkansas, Meridian, Mississippi, Muncie, Indiana, Pottsville, Pennsylvania, South Bend, Indiana, Tulsa, Oklahoma, Williamsport, Pennsylvania and Fort Worth, Texas.
Wherever there was an overlap, I understand you to say the judge found that that's perceived through competitions.
Mr. Arthur H. Dean: Yes, he said that -- he said that -- to be precise, he said that they sold in varying percentages but he said these percentages are or could become substantial and he said, “If you take --” -- he said anything in effect over -- the 2% is more than 1% and therefore, he said anything that adds to that which you have is or could be substantial.
Now, I don't think anybody would've disagreed that 2% is more than 1% but I think the issue before the Court is, doesn't meet the test of substantiality in Section 7.
To give you the precise figures Mr. Justice Frankfurter on the number of manufacturing firms in the transcript page 1637, this is according to the census.
In 1947, they were 1077.
In 1954, they were 970 and in 1958, there were 872, but there has been an increase of well over -- from 506,000,000 pairs in 1947 to 643,000,000 pairs in 1955.
From 1939 through 1956, the production share of the largest four has been constant.
It's been 23.2%, that's in a table in our main brief at page 50.
Now, the share of the next largest (Inaudible) above the four to the largest 45 have declined, but the shares of the smaller manufacturers above these eight to -- up to the largest 50 have increased by 5.8%.
Now the Court seemed to feel -- the lower court seemed to feel that there was an inexorable trend towards mergers or inexorable trend towards manufacturers acquiring retail outlets, but the evidence is quite contrary.
Furthermore, if you would take into consideration the growth in canvass-upper rubber soled shoes which has increased from 24 million pairs in 1947 to 125 million pairs in 1961, the four largest shares would be way down.
Now, there'd been various shifts within these groups but within the first four, their aggregate has been about 23.2 and Brown has changed from 3.86 to 3.99.
Now, there has been a great -- on this question of ease of entry there were two companies that entered the shoe manufacturing business for the first time in 1940, the Sudbury Company which has become the ninth largest.
They started in 1940 and today they're ninth largest and the Georgia which started in 1940 and is today the 25th largest.
Now, there is no economy or manufacturer in these -- in these large factories.
Some of the companies including Brown set up factories of 20,000 a day and they found that they had to go back to more medium sized establishments that they were more efficient and that again is something that makes free of entry.
You can lease your machinery and there are no patents or technological barriers and there really isn't a competitive production challenge.
There's also been an enormous increase in shoe imports.
Some -- from 1954 of 6 million they've gone in 1960 to 121 million in pairs, from $10 million to 115 millions of dollars.
And this question of the -- that seemed to concern the court so much below that the independent retailer would not be able to compete with the retail outlets owned by manufacturers, our brief shows on that table 23, that -- that type of distribution is only 7% in dollars and 5% in pairs.
Now, there are some 70,000 outlets -- shoe outlets in retail in the United States, some 70,000.
You'll find through the testimony the figure 22,000 shoe stores that's because in the census, they only include for statistical purposes a shoe store something which has over 50% of its sales in shoes.
As I said earlier, the big retailers of Sears with $104 million, Edison Brothers with 87, and Penney with 85 and Montgomery (Inaudible) at 41, are retail chains but they don't have manufacturing facilities and the department stores again which don't have manufacturing facilities sell 11% and these independent stores, the independent retailers still sell about 49% of the shoes sold in the United States at retail so that no single shoe retailer has any large share of the market.
Justice Felix Frankfurter: I take it that you feel with the suggestions of the fee, finding of the Court that it isn't merely a question of percentage control of manufacturing but that the big fellows in the large mass of manufacturers set the pace and it was psychologically rather than merely quantitatively.
Mr. Arthur H. Dean: Well, actually I think the evidence is Mr. Judge Frankfurter that these big retail stores who don't have manufacturing facilities at least set the pace in style.
The big people in the shoe retailing are Sears and Edison Brothers and Penney and Western Mississippi River, Famous Bar in St. Louis and Macy's, Marshall Field or Jordan Marsh, people like that, they're the one's who really set the pace.
Now, Bro -- Brown has been a -- Brown has been a middle of the road, honest material, honest workmanship, good quality for the money shoe manufacturer.
It is not trying to cheapen its shoe to go on the low price field and it hasn't tried to go on the high price field.
It's trying to give an honest product for an honest dollar.
And it has strived to help the vast bulk of the independent retailers who buy from it at wholesale to continue to sell this type of shoe to the American public in competition with these chain stores who can buy from any manufacturer at a price or any style or by a certain number so that I think it's -- as far as the styling is concerned and as far as the vast amount of the merchandising it is concerned, I think it is these chain retail stores without manufacturing connections who probably set the style.
Justice Felix Frankfurter: Are the manufacturing competitive of Brown as they all -- is there output or named output by Brown?
Mr. Arthur H. Dean: Many of them are.
International as manufactures under brands.
Some of their famous brands are Florsheim.
There's Nettleton and Nunn Bush and various others who sell -- Endicott-Johnson sells under its own name.
General Shoe Company sells under -- their trademark is the Jarman Shoe.
Justice Felix Frankfurter: What way if any did the District Court give to the momentum of good will that comes from a brand name or from what -- have you indicated Brown has a goodwill?
Mr. Arthur H. Dean: Yes, sir.
Justice Felix Frankfurter: Did I (Inaudible)
Mr. Arthur H. Dean: Yes sir.
The District Court did not refer to that at all in his opinion.
Justice Felix Frankfurter: Do you think that's relevant?
Mr. Arthur H. Dean: Yes, I do Your Honor.
Justice Potter Stewart: Was Brown a retailer before the acquisition of Regal and Wohl?
Mr. Arthur H. Dean: Many years ago it was Mr. Justice Stewart and then it gave up their retail store is un -- as unprofitable.
They bought Wohl -- this Wohl on the leased department and shoe stores and this wholesale, Wohl Plan account and then they later bought Regal.
Regal -- Wohl is primarily women's shoes.
Regal is --
Justice Potter Stewart: Primarily men's shoes.
Mr. Arthur H. Dean: -- men's shoes.
Justice Potter Stewart: But before the acquisition of Regal and Wohl with the exception of this unsuccessful experience many years ago, Brown was not a seller or retailer but I suppose did have the Brown franchise plan, did it?
Mr. Arthur H. Dean: Yes.
It had sell -- sold to these independent retailers on the Brown franchise plan but it had no retail outlets of its own.
It was -- it was I think this competition in this shoe retailing has changed enormously by the advent of the chain retail shoe stores, by the movement to the suburbs and the population growth and by the 40-hour week and the development of these suburban shopping centers and the -- or relative decrease and importance of the downtown shopping areas.
Justice Potter Stewart: But doesn't the -- doesn't the record show that chain retail shoe stores are not a new -- are not a new phenomenon, they go back before the --
Mr. Arthur H. Dean: No.
They -- they were -- they started before World War II but (Voice Overlap) --
Justice Potter Stewart: Regal itself for instance, I -- Regal itself goes back to the 1930's at least.
Mr. Arthur H. Dean: Yes.
They -- this -- the chain retail stores started well before World War II but they came into prominence in the earliest 1930's because with the decrease in the economic income and the fact that they were selling shoes, perhaps of lower quality, but nevertheless selling shoes at the vast reduction in price meant that the sales of the chain stores went up and they -- for the quality that they sold were rendering a great service to the consumer and taking a far or less percentage of -- of the consumer's dollar in merchandising methods.
Justice William J. Brennan: Mr. Dean, have you suggested yet what were the economic motivations for Brown's acquisition of Kinney?
Mr. Arthur H. Dean: Yes sir.
We were -- when we were a -- a manufacturer in this medium price field with 85% of our sales at wholesale from our manufactures to these independent retailers.
We were doing our level best to encourage our independent retailers to modernize their stores, to change their locations but since we didn't control them, they had their own capital, we couldn't control what they did.
Many of these independent shoe dealers were men of middle age or sometimes older.
We tried to encourage some of them to go out and take leases in these suburban shopping centers but that meant before the insurance company made the overall loan, they had to sign up several years in advance, many of them were reluctant to do it.
We were concerned just to what the future of shoe retailing might bring.
Justice William J. Brennan: Well in that sense then, was acquisition to hedge against possible loss of the markets to --
Mr. Arthur H. Dean: Yes, yes.
Justice William J. Brennan: -- the independent (Voice Overlap) --
Mr. Arthur H. Dean: But -- but not with the -- not with the idea that we thought we can downgrade our own manufacturing facilities with the idea of selling our manufacturing products of these suburban outlets.
We -- we did feel that it was a -- an appropriate and a proper thing for us to do take cognizance of the changes in the merchandising of shoes that were -- that was taking place and that this was something which we felt we should study and work with and we have advanced this capital to the Kinney people and they have, I think developed some 118 of these suburban outlets or this free standing store.
It's a type of thing which without any reference to try to lessen competition, I would think that any management cognizant of his fiduciary relations to its stockholders would study and would hope to be able to have it workout and in a manner not contrary to the Section 7 and I can't possibly see how there's any tendency of monopoly here.
I mean it's 4% manufacturing for Brown and four-tenths of 1% for Kinney and the retail level approximately 1.3 plus 1%.
So we -- we feel that -- that if you examine this from an economic standpoint and look at it realistically from the manner in which shoes are marketed that it is conclusive that there -- it can't be competition.
And in these studies that we put in on this question of medium -- medium prices or as you take the prices, divide them up in a half, those selling in the lower range and those in the upper range and we go in the great detail on that in our brief of the -- in almost every instance, the medium price levels at retail of the retail outlets, the independent dealers or Wohl are 150% to 200% of the Kinney prices at retail.
Justice Potter Stewart: Before the -- before this merger, did Brown sell to Kinney?
Mr. Arthur H. Dean: No.
Justice Potter Stewart: And it does now?
Mr. Arthur H. Dean: Yes.
I think it has sold some of the -- Kinney sells a large number of children's shoes and I think that Brown is a lower price range than the Buster Brown children's shoe of Brown is the Robin Hood shoes and I believe that Brown has sold some of the Robin Hood brand kiddie -- Robin Hood brand Brown shoes to Kinney.
They may have been a few other sales but they have not been -- I think my -- if my memories serves me correctly, since 1955 sales had gone up about a billion two from Brown to Kinney but at the same time, the sales of Kinney from outside purchasers have increased much more.
Justice William J. Brennan: Did I understand that the composition meet at -- by which I mean the material to go to make up the product that Kinney sells quite different from the material which ought to make up the product that Brown sells.
Mr. Arthur H. Dean: Yes, Mr. Justice Brennan.
The -- the Brown in almost every instance buys the highest grade leather.
They buy the highest grade lines, highest grade soles, highest grade heels.
In every instance, there -- they buy the top quality.
There are practically no common suppliers.
Kinney tries to render a very good value for the money in this lower pocket or price field.
But they don't -- where Brown would buy first grade, they would buy third or fourth grade or where Brown would buy a very high quality synthetic rubber sole they would buy a much lower quality.
They're very few.
They buy very little at the same manufacturers and even where they buy from the same manufacturers they do not buy the same quality.
Mr. Justice -- Judge Webber found also that one of the reasons why they'd be a listing of competition would be because there would be added advantages in buying more materials, but that's not -- the evidence shows that that's not true.
There'd be absolutely no advantage in the merger from buying these additional materials.
Justice Potter Stewart: All this -- or most of what you've said that is an attack on the -- on the District Court's finding of the -- what was the line of commerce, isn't it?
All of which of -- most of what you've told us so far adds up to an attack on the District Court's finding of what was the line of commerce?
Mr. Arthur H. Dean: Yes it does, Mr. Justice Stewart.
We reclaimed that you can't -- the shoes are not sold in the line of commerce men's shoes, women's shoes and children's shoes as such.
You've got to -- we -- we think you've got to examine the -- in each city, we think you got to examine.
There's absolutely no evidence as to how shoes were sold in these 141 cities.
The only place in St. Louis where he completely, we believe, misread the testimony and Kinney didn't have an outlet in St. Louis, but there's absolutely no evidence whatsoever with respect to this 141 cities that he took as to how shoes are merchandized in those cities.
Justice Potter Stewart: Well if you're right, then am I correct in saying that the logical conclusion of your position is that in the retail shoe business there can never be a violation of Section 7?
Mr. Arthur H. Dean: No sir.
No I wouldn't -- I wouldn't say that.
I would say that if you were -- if you were in the same line of business or in the same price range or you're competing with each other in the price range, there possibly could be a violation.
But we were -- these -- these studies of medium prices, these studies on overlaps showed that in practically every category that there has been no overlap.
Justice William J. Brennan: Well if I may rephrase Mr. Justice Stewart's question then you would say there never could be a violation of Section 7 unless at least they were within the same price range.
Mr. Arthur H. Dean: Yes, yes Your Honor.
Justice Felix Frankfurter: What you're saying in effect is that this is no different from your point of view then if Brown had decided not to go also in the lingerie business.
Mr. Arthur H. Dean: That is precisely correct Mr. Justice Frankfurter.
Justice Felix Frankfurter: Now, that turns on -- I should think, (a) what the findings of the court were, (b) the justifications of those findings from the point of view of our necessarily limited review, would you agree to that?
Mr. Arthur H. Dean: Yes.
Justice Felix Frankfurter: As that point of view, what do you say?
Mr. Arthur H. Dean: Well, if I may, I would like to reserve and then look up the answer to your question on these findings and then close.
Justice John M. Harlan: Before you sit down, I have a question --
Mr. Arthur H. Dean: Yes.
Justice John M. Harlan: -- for you Mr. Dean.
The District Court erred in finding this, the question (Inaudible) in terms of the decree it said -- he said in his opinion, he said he can't find any and the judgment itself (Inaudible).
Mr. Arthur H. Dean: Well, there is that possibility, yes Mr. Justice Harlan.
Justice John M. Harlan: Well, I thought (Inaudible) answer to it that medium (Inaudible).
Mr. Arthur H. Dean: The -- there is the final judgment in addition to the judgment of --
Justice John M. Harlan: (Inaudible)
Mr. Arthur H. Dean: Well, I hadn't considered that but may I call your attention to page 79 of volume 1 of the transcript of the record where we made a motion because of the wording which you just read, we made a motion on behalf of Brown Shoe, to stay execution of the final judgment, and we supported it by an affidavit.
And on the December the 28th, Judge Webber ordered that our motion -- that the defendant's motion, that's the Government's motion -- I beg your pardon, that our motion be stayed.
The final judgment was entered on December -- and the final judgment entered on the December the 8th was stayed until the disposition of appeal to the Supreme Court provided that the defendant prosecutes its appeal with due diligence.
Justice John M. Harlan: Well there maybe another (Inaudible)
Justice William J. Brennan: Well Mr. Dean but is -- but there's an outright order of the -- or an order of outright divestiture.
I thought the reservation was in respect with nothing except details of the plan of the divestiture, isn't it, the reservation from more than that?
Mr. Arthur H. Dean: At subdivision 5 on page 78 --
Justice William J. Brennan: The construction or carrying out of this final judgment.
Mr. Arthur H. Dean: Yes.
I think -- I believe that is correct Mr. Justice Brennan.
I think it's further ordered to judge in decree that jurisdiction is retained for the purpose of enabling the parties to apply to the Court for such further orders and directions as maybe necessary for the enforcement of compliance and for punishment of violations.
Justice William J. Brennan: Or the construction or carrying out of the final judgment which in paragraph 4 is an order -- a decree of divestiture.
Justice Tom C. Clark: That's the issue -- maybe different wordings but that's the issue formed, it's an antitrust proceeding?
Mr. Arthur H. Dean: Yes and may I call your attention --
Justice Tom C. Clark: That that enables the Court to dismiss --
Justice John M. Harlan: (Inaudible) -- my troubles is that, (Inaudible)
Mr. Arthur H. Dean: Well in -- if am I may call your attention Mr. Justice Harlan to the final judgment at page 77 where he -- in paragraph 1, he ordered in decree that the acquisition from Brown -- by Brown of Kinney was in violation and he ordered Brown to relinquish and dispose of the stock.
Justice John M. Harlan: My hypothesis is simply this, a practical one, assuming that the (Inaudible) loss of the case and it goes back, (Inaudible)?
Mr. Arthur H. Dean: Yes.
Justice John M. Harlan: Then that question (Inaudible).
Mr. Arthur H. Dean: Well, may I reserve and ask you on that in my remaining time --
Justice Felix Frankfurter: Mr. Dean, isn't the short answer, it doesn't have to be.
Isn't that the short answer?
I should think if -- on the subject to correct you by my Brother or others, but I think if we had no more then paragraph 1 would be properly here.
Chief Justice Earl Warren: Mr. Solicitor General.
Argument of Cox
Mr. Cox: Mr. Chief Justice --
Justice Felix Frankfurter: Didn't you like (Inaudible) of these, they're very often in a minute?
Mr. Cox: My reaction was that in this equity appeal it didn't have to be a final judgment and that I am told although I haven't checked cases myself that there are some cases Justice Harlan, the Hartley Paramount case and others which have come to the Court in substantially this state.
Justice John M. Harlan: Well, I hope you're right.
Mr. Cox: We'll verify that during the noon recess.
Justice Tom C. Clark: We had the (Inaudible) here.
Mr. Cox: I think --
Justice Tom C. Clark: (Inaudible)
Mr. Cox: I think it's very common but I think the answer is this is an equity appeal, interlocutory decrees -- interlocutory injunctions would be appealable, and that takes care of the problem.
Justice Felix Frankfurter: You can tell me I'm wrong but wouldn't -- if we had only paragraph 1, would be properly (Inaudible).
Mr. Cox: That would be our position.
In this case if it please the Court, the Brown Shoe Company, a third or fourth depending of the measure, largest shoe manufacturer in the country and the major factor in the retail markets because of -- on their controlled outlets has bought up the nation's largest independent chain of the retail shoe stores.
For many years, the shoe industry was characterized by small manufacturers and by small independent retailers and by a very great number of each, so that one had a condition approaching very closely to the economist's classical free market.
In recent years, as the District Court found, a trend toward concentration set in, so it is now a danger at both the wholesale or manufacturer sales level and also at retail level that the former classical free market will give way to a condition of oligopoly such as we associate with autos, rubber, some electrical products and the like.
The trend toward domination by the large companies encompasses three developments.
First, the big manufactures are beginning to get more factories at a larger share of the factories.
The large chains are beginning to dominate retail and growing and the big manufactures are now acquiring in increasing numbers, the big chains of retail stores.
The process had not gone so far up to the time of this merger that the statistics showing the trends towards concentration are very startling in combination contrast to the auto industry or steel or the like, but the facts found by the District Court make it plan that the trend is all to evident.
In practical terms therefore, we think that the basic issue before the Court in this case is whether the essential character of the shoe industry, as it had been, will be preserved or the dominant firms like Brown will be allowed to lead it through mergers down the road to domination by biggies.
In legal terms, the question arises under Section 7 of the Clayton Act.
It prohibits one business firm from acquiring the stock or assets of another when the effect in any line of commerce, in any section of the country maybe substantially to lessen competition. So here the ultimate question of course is whether under the circumstances of this industry, it may substantially lessen competition in any line of commerce, in any section of the country for the third or fourth largest manufacturer and the largest important chain of retail stores to be combined.
We think that Brown's acquisition of Kinney's assets violates Section 7 for three reasons.
First, the vertical combination of Brown's manufacturing facilities with Kinney's outlets deprives other manufacturers of a fair opportunity to compete for Kinney's purchasers.
This aspect to the merger in principal that is as to the kind of thing leaving the quantitative question aside is no different of course between -- from the DuPont-General Motors case where you have a supplier and the outlets being combined and therefore creating a tendency to foreclose other suppliers from selling in those companies.
Justice Potter Stewart: Now, while you're right on this aspect of your argument, let me ask you two questions.
I -- I'm right at remembering, am I not, that Kinney also is a manufacturer?
Mr. Cox: Kinney also is a manufacturer and indeed a substantial manufacturer as I shall point out in a moment.
Justice Potter Stewart: And then secondly, a different question.
Mr. Dean told us as I understood him that no witness during this extensive trial testified -- no manufacturer testified that he had any fear that he would be displaced as a supplier of Kinney --
Mr. Cox: I think what Mr. Dean --
Justice Potter Stewart: -- by the act -- but its acquisition by Brown.
Mr. Cox: I think what Mr. Dean said was that no manufacturer testified that he had been displaced by Brown's acquisition of Kinney.
Justice Potter Stewart: I understood him to say what I just --
Mr. Cox: Because the reason I say that, it is perfectly plain that a number of manufacturers testified that they feared that this would displace them and referred the past instances in which the acquisition of a retail chain by a manufacturing company had displaced their sales.
So that in terms of their expectations, it seems to me there's no question, but that there is such testimony from a three-four or half of dozen.
I couldn't --
Justice Potter Stewart: And there is as you tell us --
Mr. Cox: But I don't think anyone said it had happened.
Justice Potter Stewart: -- also a testimony -- that it hasn't happened yet?
Mr. Cox: It hasn't happen yet but remember this --
Justice Potter Stewart: Two or three years, is that it?
Mr. Cox: Two or three years but two or three years in which the case is on trial.
Justice Potter Stewart: It is on litigation.
Mr. Cox: And the --
Justice Felix Frankfurter: Is there a specific finding on this subject?
Mr. Cox: There's a specific finding that that would be likely to happen, yes sir, by the District Judge and he based that finding like most of his other finding upon the testimony of live witnesses that he saw as well as heard.
Justice Felix Frankfurter: Mr. Solicitor --
Mr. Cox: This is unusual if I might just say one word more.
This unusual antitrust case in that respectably at least in my limited experience that a very large part of the testimony is from live witnesses, especially with respect to these retail markets.
Retailers came in and told what the competitive situation was in their town so that it's peculiarly a case in -- at least in respect to subsidiary findings for applying the rule with respect of finality of the District Court's findings.
Now, excuse me Justice Brennan.
Justice William J. Brennan: So when in relation to the merger where this proceeding begun?
Mr. Cox: This proceeding was begun before the merger was actually put through.
It's begun late in 1955 if my memory is right and the merger was put through in 1956.
We applied for a temporary injunction.
It was denied on condition that the books and assets be kept separate and not physically intermingled so that the divestiture would be possible.
Now, I was outlining the three grounds on which we contend that this violates Section 7.
The first was the vertical combination of the manufacturer with the outlet.
We do not contend that the combination of Kinney's manufacturing facilities with Brown's manufacturing facilities standing alone substantially lessens competition.
We think its part of the picture of concentration, but we don't specifically rely on that because the District Court didn't find for us in that respect.
Our second --
Justice Felix Frankfurter: If you asked them -- the Government asked them to find for you?
Mr. Cox: We did.
We didn't press it too hard that it was -- but it was part of our case.
You see Kinney is the 12th largest manufacturer.
It's four or five times --
Justice Felix Frankfurter: (Voice Overlap) --
Mr. Cox: -- as big as the average manufacturer.
Justice Felix Frankfurter: I was going to ask why -- that puzzled me a little bit.
Is Brown -- is one of the -- is the third biggest of these --
Mr. Cox: Brown is third or fourth, it was fourth by most measures.
Justice Felix Frankfurter: Third -- fourth, one of the leaders?
Mr. Cox: Yes -- oh, one of the -- yes sir.
Justice Felix Frankfurter: Right.
Kinney is substantial, but wasn't there a finding that that --
Mr. Cox: Well, the district --
Justice Felix Frankfurter: That marriage was illicit?
Mr. Cox: The District Judge was apparently more impressed and I think rightly by the effects of the vertical combination, perhaps this thing I'd normally speculate.
Perhaps, his thinking was this, that the problem in one sense will be that putting two manufacturers together would not affect the market, the structure of the market nearly as much as foreclosing a large part of the area in which you could sell, which would of course for a short time intensify the competition among the remaining manufacturers until some of them were forced out of business.
Justice Felix Frankfurter: The reason that, I think it's -- it shouldn't be or it ought to bear on what is called a tendency.
Mr. Cox: Its' assert -- and I think there's no question in my mind that the District Judge took it into account with respect -- oh, I meant the trend in the market, you meant the tendency under the statute.
Justice Felix Frankfurter: Yes.
Mr. Cox: But I think it remains a relevant fact Your Honor and so we accept the finding.
Justice Tom C. Clark: Is a finding against you or you're just (Inaudible)?
Mr. Cox: He said that it had but slight effect.
I don't quite know -- I wouldn't say that was against us but it doesn't help us very much.
Justice Potter Stewart: Slightly means it was not substantial I suppose.[Laughter]
Mr. Cox: I guess so, I guess so.
Our second --
Justice Potter Stewart: Well, let's just again -- but I'm sorry to keep you holding up but I'm not (Voice Overlap) --
Mr. Cox: I'm (Voice Overlap) all I aim to do is to outline --
Justice Potter Stewart: Yes.
Mr. Cox: -- the points then I'm going to develop each of these three findings in some length.
Justice Potter Stewart: I understand your argument.
It's true is it not with the respect to this -- to the manufacturing merger, the merger -- the merger of the manufacturers that after this was all over Brown still manufactured -- what was it, 4.4% of the shoes in the country or (Voice Overlap) --
Mr. Cox: The total became 4.4%.
Justice Potter Stewart: 4.4. (Voice Overlap) --
Mr. Cox: Brown was getting a somewhat larger shares of that (Voice Overlap) --
Justice Potter Stewart: It had been 4% then became 4.4% as among what, 700 manufacturers?
Mr. Cox: The number had dropped to 900 and some.
Justice Potter Stewart: Dropped to 900 --
Mr. Cox: Yes.
Justice Felix Frankfurter: In the time --
Mr. Cox: The number of manufacturers in this industry for all Mr. Dean's ease of entry, from 1947 to 1954 had dropped 10% and from 1954 to 1958 dropped another 10%, not at the lower figure but at the higher of total of 20% in 11 years.
Justice Potter Stewart: But there was still --
Mr. Cox: And there was nobody -- the ease of entry is purely theoretical.
No one could name anyone who entered except back in the 1940s.
Justice Potter Stewart: There was still somewhere between 900 to 1000 manufactures in that?
Mr. Cox: Yes sir.
Justice Felix Frankfurter: That's the point.
I was thinking 5% instead of 4%, 5 from (Inaudible) on a nationwide scale, 5% to 5.5%.
Mr. Cox: This depends a little on the exact --
Justice Felix Frankfurter: That's the (Inaudible) --
Mr. Cox: -- universe you -- you select.
It depends whether you include the slippers.
It depends whether your sales or pairs but it ranges from 4.5% to 5%.
Justice Felix Frankfurter: I'm merely suggesting that figures are important at this domain.
Mr. Cox: Yes.
But I'd rather had -- well, I didn't tend to dispute that.
My point was that it -- one must be careful before concluding that there's an inconsistency in being sure that he's using comparable measures and there's a quite number of cases where there's a -- a superficial inconsistency explainable on that ground.
Justice Felix Frankfurter: All I'm suggesting, it's very important for the District Court to have been careful.
Mr. Cox: We think it was.
Justice Felix Frankfurter: Yes.
Mr. Cox: There's -- there is one erroneous figure but --
Justice William J. Brennan: It wasn't (Inaudible), it was careful.
Mr. Cox: Oh.
Our second point of attack on the merger in showing that it violates Section 7 is that we think that the horizontal merger of Brown's and Kinney's retail outlets will lessen competition between them in men's, women's and children's shoes in about 140 existing retail trade areas and prospectively in additional retail trade areas especially in the new suburban areas.
Under the first point -- under the first point, it seems to me that the only real question, so perhaps I can focus the argument a little, is whether the tendency is substantial, whether the figures are big enough to meet the test of substantial.
Under this head, I would think there were two main points to keep in mind.
One is the question whether Brown's franchise dealers should be counted as we think as Brown's outlets in determining whether the merger may lessen retail competition between Brown and Kinney and I'll explain the reasons we think they should be counted in a moment.
And second, there's a technical question whether the 138 cities in their environment, having a population in excess to 10,000 in which competition will be substantially lessen, constitute either singly or collectively a section of the country within the meaning of the statute.
Our third argument is in substance that even if we should not prevail on either of the first two or both standing alone that they are sufficient together to find a violation of Section 7.
In other words, we think that the merger of the fourth largest manufacturer, with a largest retail chain plus the combination of their retail outlet will so increase the relative size of the enterprise as to give it a decisive advantage over small competitor, thus concentrating undue economic power in violating Section 7.
Under this head I think, again the only serious question although others are raised is the question of substantiality.
Each of these three central propositions is incorporated in the ultimate findings and conclusions of the District Court.
Each of those ultimate findings and conclusions rest upon subsidiary area findings effect and there we think in turn are supported by the evidence.
As I said earlier, the evidence comes chiefly from live witnesses and is therefore of a character which -- on which the District Court's finding are entitled to decisive weight unless clearly erroneous.
Now, I tend to develop my argument under the three main heads, and to deal with the question line of commerce section of the country when I come to it under each of those three main heads because then we talk about it not in the abstract but were denied to the purpose or function of the concept in the development of the law and the decision of this case.
Before I come to developing those three propositions however, it seemed appropriate to me since this was the first major case to come before the Court under Section 7 of the Clayton Act to say something about the meaning of that Section and its legislative history so that there maybe a legal background against which to appraise these quite complicated and detailed facts.
It its original form as enacted in 1914, Section 7 of the Clayton Act, you'll recall, prohibited corporation from acquiring a whole or any part of the stock or other share capital of two or more corporations where the effect of such acquisition maybe to substantially lessen competition between such corporations, then it went on with other provisions not relevant here.
The legislative history of the original Section 7 makes it quite plain that Congress thought -- sought even then to halt the trend toward concentration by preventing mergers that might substantially lessen competition, even though the degree of market control resulting did not reach such a stage that there would be a violation of the Sherman Act.
The aim as it was stated at the time was to check restraints of competition in their incipiency.
As matters developed, Section 7 had three short comings.
First, it did not reach corporate mergers like this one which were accomplished through the acquisition of assets.
Second, since Section 7 prohibited one corporation from acquiring stock to the second corporation where the effect of such acquisition maybe to substantially lessen competition between such corporations, it was widely but erroneously assumed that Section 7 did not apply to vertical combinations, but only apply it to a combination between competitors.
Third, this in terms very strict prohibitions against stock acquisition where the effect of such acquisition might be to lessen competition between the competer -- competitors between the acquiring and acquired corporations was so strict that there was a tendency to read into it limitations similar to those applied in interpreting the Sherman Act, notions of market control or unreasonable restraints or restraints in consistent with the public interest.
World War II set off a new wave of corporate mergers.
Economists, I think I should say are still debating their true impact, but it's quite plan that they gave the Federal Trade Commission and the Congress very grave concern.
That concern led directly to the amendment of Section 7 in an effort to halt economic concentration and to preserve the opportunities of small businessmen.
The effort came to a climax when Section 7 was amended.
More particularly, the amendments read against the committee reports and the legislative debate had two main general purposes.
First, many American industries had even then have been transformed by the emergence of a handful of dominant firms.
In those industries, the markets no longer were free at least in the sense of the classical economist.
They were dominant -- there was -- they characterized by price leadership by large dominant firms and either by an absence of opportunities by small -- for small businessmen or by a small businessman who operated under the shelter of the umbrella of the large firms as long as they kept their proper place in the hierarchy.
In other industries, notably in textiles, apparel, and some branches of food and the like, the older classical condition, the ideal of small business continued to prevail.
Now, Section 7 quite clearly was intended to do what Congress could to preserve the latter condition in those industries where it still existed.
Thus the Senate Committee said then I think that it's worth imposing a quotation upon the Court, the type of problem to which the bill was addressed was described by the Federal Trade Commission in these words.
“Where several large enterprises are extending their power by successive small acquisitions, accumulative effect of their purchases maybe to convert an industry from one of intense competition about many enterprises to one in which three or four large concerns produced the entire supply.
This latter pattern, which economists called oligopoly, is likely to be characterized by avoidance of price competition and by respect on the part of each concern for the vested interest of its rival.
In district remember, is what the Committee said was the type of problem to which the bill was directed.
And I may say, it seems to us to be the very type of small acquisition that has taken place in this industry, in this case.
Second, it should be emphasized that Congress was not motivated solely by considerations of economic efficiency.
It was moved by a social philosophy.
It was distressed that the small businesses and small industries were being forced under, were being wiped out by mergers, that the little fellow no longer had the opportunity he had once had in America.
Judge Pope stated the point very effectively in the Crown Zellerbach case in the Ninth Circuit a few months ago, “As the legislation was under consideration by Congress, it was duly appreciated that decentralized and deconcentrated markets are often uneconomic and provide higher cost and prices.
All this it -- it, meaning Congress laid aside in its concern over the Curse of Bigness and the concentration of power, the nation's market which Congress thought advantaged the big man and disadvantaged the little one.
To achieve these two broad purposes partly economic and partly social, Congress made three changes in Section 7 which corrected the three inadequacies or omissions that I pointed out earlier.
In the first place Section 7 was explicitly extended to cover acquisition of assets.
Second, it was made applicable to vertical combinations by eliminating the requirement that the acquisition be shown to substantially lessen competition between the acquired and the acquiring firms.
Instead, Section 7 now pro -- now prohibits acquisitions whereas I said before in any line of commerce, at any section of the country, the effect of such acquisition maybe to substantially lessen competition.
It doesn't say between whom, just competition in the market.
The effect of the latter change as Congress fully realized was to eliminate any possibility that the Sherman Act rule of reasoning or notions of market control or market dominance would apply under Section 7 that the aim was to eliminate any chance if that would happen.
Here again, the Senate Committee report and the House Committee report make this indisputably clear, “by eliminating the provisions of the existing section, which would appear to read situations of little economic significance, it is the purpose of this legislation to ensure a broader construction of the more fundamental provisions that are retained that has been given in the past.”
The intent here as in other parts of the Clayton Act is to cope with monopolistic tendencies in their incipiency and well before they have attained such effects as would justify a Sherman Act proceeding.
Justice Potter Stewart: Now to which specific one of the three Amendments was that language addressed?
Mr. Cox: It was certainly addressed -- I think it was addressed to two changes.
It was addressed to the dropping of the words in any community and focusing in on any section of the country which I perhaps improperly slid over because it wasn't part of my main theme.
It was also quite clearly addressed to the elimination of the requirement that to be -- or rather I should say to the pro -- to the proscription of all mergers which would substantially lessen competition between the acquired and the acquiring firm but as you see, would prohibit practically any merger.
And Congress, it wasn't really -- the Courts to get over that had begun to read qualifications in it and it's quite clear that the aim was to get rid of those qualifications by setting up not quite so strict a test but one which was not as strict as the test of the Sherman Act.
Justice Potter Stewart: Just -- so you mean --
Mr. Cox: You find this over --
Justice Potter Stewart: The elimination of community was a –not a tightening but a loosening of the statute.
Mr. Cox: Yes.
Well, it was -- the aim was to loosen somewhat in these directions or the aim to tighten it – tighten in others.
I take again on the point that I'm trying to concentrate on, it was stated in the House report as well and also frequently on the floor that the result of the changes was to frame a bill which reaches far beyond the Sherman Act.
It wouldn't do it I suppose in the sense in words alone because the words that proscribe any merger that eliminated any competition between the two firms would proscribe all mergers but that had been watered down by reading things into it and the Court -- that Congress that was concerned about backtracking it, if I may put it that way on the watering down.
Justice Felix Frankfurter: You puzzled me by saying it didn't do it in words.
Mr. Cox: Well, it -- it didn't use the words backtrack on watering down.
Justice Felix Frankfurter: No, no, but --
Mr. Cox: Well, all -- I changed the words and changed the words --
Justice Felix Frankfurter: The word -- the word must accomplish your tightening.
Mr. Cox: Well, they do, so quite clearly.
Justice Felix Frankfurter: As -- as Justice Stewart has just pointed out to – prior to change from -- in any community, from any section, it'd be certainly tightened.
Mr. Cox: I didn't mean to suggest that it was tightening geographically.
I meant to suggest --
Justice Felix Frankfurter: Alright.
Mr. Cox: -- that it was tightening in terms of the degree of the fact on the structure of the market or the quantity of competition.
Justice Potter Stewart: Well, the Third Amendment wasn't tightening either because the words used to read in such a way that as you've just said, they would literally forbid any -- if you've read literally, they would forbid any merger, any conceivable merger, wouldn't it?
Mr. Cox: It was tightening when you took the judicial.
In the words of the original statute --
Justice Potter Stewart: The words (Voice Overlap) --
Mr. Cox: -- as judicially interpreted.
Justice Potter Stewart: Right.
Mr. Cox: Again --
Justice Potter Stewart: But the words were made much less restrictive, were they not?
Mr. Cox: Less -- yes.
Justice Potter Stewart: The statutory mergers.
Mr. Cox: Yes, on the face of them, they were less restrictive provided you had competition between the acquired and acquiring company.
Justice Potter Stewart: Yes.
Justice Felix Frankfurter: Well how – how does -- please explain in a word, how does lessening -- liberalizing the language tightening the gloss, I don't understand that.
[Attempt to Laughter]
Mr. Cox: Because it relieved the occasion which had produced the gloss.
Congress had gone manifestly in the words, the Court thought, manifestly too far.
Justice Felix Frankfurter: But it would lead to new liberalizing gloss.
If you liberalize -- if you liberalize the basis of construction, you liberalize the basis for interpreting what the words are.
Mr. Cox: Thus far -- thus far Your Honor, it hasn't.
The Courts -- short of this Court could have considered it reading these change in the light of the previous judicial interpretation of Section 7 and the Committee reports and the natural meaning of words of the amended statutes have precluded that it does lay down a stricter test one falling far short of the -- one far more strict than that which would be imposed under the Sherman Act.
Now, there's another but I'll proceed to another point which I think bears on this so far as the exact words go Mr. Justice Frankfurter.
There is -- there are two farther points that the legislative history makes clear and the first of them at least bears directly on this.
It wasn't chance that Congress used the words where the effect may be to substantially lessen competition.
Section 3 of course had long prohibited, tying clauses and requirements contract where the effect in the same words except that the infinitive split where the effect maybe to substantially lessen competition and a clause had a very -- just before the 1950 Amendment had been written on those words in the Standard Service Station case at 337 U.S. where the Court specifically refused to embark on the kind of broad economic inquiry that would be pertinent under the rule of reason under the Sherman Act referring to the Chicago Board of Trade case, and said that the sole question was whether the qualifying clause of Section 3 and it held that the qualifying clause of Section 3 is satisfied by proof that competition has been foreclosed in a substantial share of the line of commerce effectively.
And so here, it seems plain to us that when Congress used to very words that had -- had that clause put upon them in Section 3, only a year or two before.
And when Congress stated that Section 7, the new language of Section 7 was intended to be given an interpretation similar to those which the courts would apply in interpreting the same language in other sections of the Clayton Act that it must have meant to interpret the attitude or gloss that had been written on those words in the Standard Stations case, and that essentially is the meaning that we claim that should have here.
The one further point in the legislative history, it does show with unusual specificity I think the kinds of mergers which would have the unwanted effect upon the market.
The Committee listed three, I won't read the passage, but which are particularly applicable to this case.
First, it spoke of combinations which establish relationships between buyers and sellers, which deprived the rivals of a fair opportunity to compete and of course, that is a reference to the kind of vertical integration that we have in the present case.
Second, it spoke of eliminating activity which had previously been a substantial factor in competition.
We think that eliminating Kinney as an independent concern in the retail markets eliminates as we shall show what was a substantial factor in competition.
And third, Congress made it very clear that it was concerned about increases in the size of an enterprise, making the acquisition to such a point that its advantage over its competitors threatens to become decisive and that is exactly what the District Court found in virtually those words was happening as a result of this merger.
I turn first then to the effect of the merger of Brown and Kinney, judged vertically its effect in the manufacturers' market where we submit that the result of combining the third or fourth largest manufacturer with the largest independent retail chain will be to substantially lessen competition in the manufacturers nationwide markets for men's, women's and children's shoes.
It's important to remember --
Justice Potter Stewart: You used men's, women's and children's shoes as three lines of commerce, is that right?
Mr. Cox: Yes.
That's what the Distinct Court found and that's the way we refer to it, and I shall specifically deal with that.
As I mentioned a moment ago, this is an industry in which four firms or manufacturers have already become dominant.
Brown is ranked third or fourth of the -- whether you measure it by its assets, its net sales or its total production.
In 1956 -- 1955, Brown had 37 factories and it ranked fourth in production by volume and third by sales.
The big four had a quarter roughly of the national production in volume and 30% in sales.
Justice Potter Stewart: Well, the big four had a quarter of the total national production?
Mr. Cox: In volume, 24.6%.
Justice Potter Stewart: And Brown had --
Mr. Cox: And Brown had --
Justice Potter Stewart: -- four percent.
Mr. Cox: Brown's percentage was about 4%.
Justice Potter Stewart: Four percent.
Mr. Cox: Yes.
Justice Potter Stewart: So the big -- and the big two must have been very big?
Mr. Cox: No -- well, the big two, they came down, the Endicott-Johnson and the International -- they're bigger than Brown.
Justice Potter Stewart: (Voice Overlap) -- together a 20% of it?
Mr. Cox: Oh, no, no.
Justice Potter Stewart: Then I misunderstood you Mr. Solicitor.
Mr. Cox: Because the third and fourth were much closer than that.
Justice Potter Stewart: Which Brown is third or fourth?
Mr. Cox: Yes sir.
In pairage, Brown was in fourth, so that you had three bigger.
The figures are in the record.
They ranged up to 4% or 4 plus percent, 6%, 7% and 10% or something like in figures in my mind.
Brown's production, I should emphasize was two and a half times that of the fifth ranking firm.
In 1955, Brown was five times and in 1956 six times the size of the 11th ranking firm, this pairs on its relative position in the industry and the effect of giving in any added preference in the market.
In 19 --
Justice William J. Brennan: This is now only of production, manufacturing?
Mr. Cox: This is manufacturing --
Justice William J. Brennan: Are you stopped --
Mr. Cox: -- measured by pairs.
Justice William J. Brennan: You stopped at 11 and Kinney was 12?
Mr. Cox: Well, I -- Kinney was 12.
I was going on.
Brown in 1956, Brown's production was equal to the total production of the ten firms ranking 11 through 20.
One last figure in 1955 or 1956, Brown was 48 times the size of the average manufacturer in the industry.
Justice Potter Stewart: So, this argument in which you're making the point that Brown was very big also makes the point that Kinney was quite small, is that it?
Mr. Cox: In comparison to Brown was small in manufacturing, I'm speaking only of manufacturing.
Justice Potter Stewart: Yes, Solicitor, I understand it.
Mr. Cox: It was -- on the other hand, Kinney you see was four times the average, so Kinney was small compared to Brown.
Kinney was -- is big too strong a word in relation to the average, four times in any event, so that it was hardly unimportant.
Brown did not achieve this position simply by manufacturing and selling more shoes.
The list of Brown's acquisitions is important in measuring the trend in the industry.
Brown in 1946 acquired entry in Footkind, in 1948, Milius, in 1950, Spalsbury-Steis, in 1952, Bourbeuse, 1953, Monogram, O'Donnell, and Kaut, Lauman and Winter, in 1954, Regal and then in 1955-1956, it wanted to and did acquire Kinney.
So this has been a matter of successive --
Unknown Speaker: What year was Regal -- Regal was 1954?
Mr. Cox: Regal was 1954.
Justice William J. Brennan: And it's that whole list of retailers?
Is that --
Mr. Cox: No, no.
These are other manufacturers.
Justice William J. Brennan: Other manufacturers.
Mr. Cox: I'm speaking exclusively of manufacturing involved --
Justice Tom C. Clark: The Regal retail --
Mr. Cox: Retail, well -- but I'm talking -- speaking of Regal's manufacturing facilities.
Regal had very considerable manufacturing facilities.
Justice Tom C. Clark: He got -- then they acquired the retail of Regal?
Mr. Cox: They acquired both.
This was just -- I didn't intend to mislead.
It's just a selective process because I was concentrating on the effect in the manufacturer's market.
Justice Tom C. Clark: Well, I used to buy Regal across the department --
Mr. Cox: (Inaudible) College.
Justice Tom C. Clark: -- (Voice Overlap) back in the 1930s.
Mr. Cox: In 1950 -- I turn now to the retailer.
In 1951, Brown begun to move directly under retailing by the purchase of the Wohl Shoe Company which Brown's president described as the first really big acquisition by one of the leading shoe manufacturers and he went on to point out that this brought together one of the largest manufacturers with the largest operator of leased departments in the country.
Wohl was a very considerable retail outlet.
It leased shoe departments and department stores.
There were 250 outlets in 1951, 379 in 1955, 457 in 1958.
These are after Brown's acquisition an increase of 80% in seven or eight years.
Justice Potter Stewart: This is Wohl.
Mr. Cox: This is Wohl.
Justice Potter Stewart: Yes, and this is only the department store outlet.
Mr. Cox: This is department store outlet.
Justice Potter Stewart: Well, that's all Wohl does, isn't it?
(Voice Overlap) --
Mr. Cox: Well no.
Well, Wohl is also a wholesaler.
Justice Potter Stewart: Yes, but (Voice Overlap) --
Mr. Cox: One of the few wholesalers in the --
Justice Potter Stewart: At retail, that is the way it will -- operates --
Mr. Cox: That's -- that's correct.
Justice Potter Stewart: -- in departments.
Mr. Cox: Except possibly one or two stores.
Justice Potter Stewart: Yes, yes, (Voice Overlap) --
Justice William J. Brennan: I thought it was --
Mr. Cox: It's essentially an operator of leased outlet.
Justice William J. Brennan: Well, I thought Mr. Dean told us that also sets young fellows up in business, do you have --
Mr. Cox: Well, this is for the wholesale division.
It -- it sets them up if I may say with strings attached to buying their shoes through Wohl.
Justice Charles E. Whittaker: (Inaudible)
Mr. Cox: That's correct.
Justice Charles E. Whittaker: It gets (Inaudible)
Mr. Cox: It gets an increasing percentage of them from Brown.
It does not -- it does not get all it shoes by any means all it shoes from Brown.
The figures show that Wohl's purchases in 19 -- let me give you the figures, 1950 and 1957.
Wohl purchased from Brown in 1950 that was the year before the acquisition, two million-eight, in dollars.
In 1957, it purchased just over 12 million in dollars.
That's a 320% increase in Brown sales to Wohl following the acquisition.
Chief Justice Earl Warren: We'll recess now.
Argument of Cox
Chief Justice Earl Warren: Continue your argument.
Mr. Cox: Mr. Chief Justice, may it please the Court.
Before the recess, I attempted to describe the manufacturers in the industry and Brown’s position as one of the dominant form in an industry dominated by four concerns.
And then I began to go on to point out that even before acquiring Kinney, Brown had begun to tie up retail outlets because we think that’s a relevant circumstance in determining whether this tying-up more of it was a substantial factor in lessening competition.
I pointed out already that Brown had acquired Wohl, the largest operator of leased outlets and department stores.
It acquired Regal's 98 stores as well as the manufacturing facilities in 1954, where the Wetherby-Kayser's four Los Angeles stores and independents in four Texas cities and in Columbus, Ohio.
Justice Potter Stewart: Wohl and Regal by your own definition were in different lines of commerce, weren't they?
Wohl made --
Mr. Cox: No.
Justice Potter Stewart: -- was primarily in ladies' shoes and Regal primarily in men's shoes, is that it?
Mr. Cox: Well, but, primarily yes.
But we wouldn't say that -- I think I would disagree with what seems to me be the implication that you take what someone is primarily in, then narrow to that and say that is the line of commerce.
Justice Potter Stewart: Well, isn't it true that Regal's retail stores is only one -- sells one shoe, no?
Didn't they have an unsuccessful experience with women's shoes, or no?
Mr. Cox: Regal is a seller of men's shoes --
Justice Potter Stewart: Men's shoes.
Mr. Cox: And the acquisition of Regal looked at vertically would simply tie up, a part of the market for men's shoes, not part of the market for manufacturer selling women's shoes.
Justice Potter Stewart: And those are separate lines of commerce, you told us.
Mr. Cox: Yes, yes.
I was thinking of price --
Justice Potter Stewart: I mean they are not competitive with each other.
Mr. Cox: They're not competitive with each other.
In addition to the owned outlets on through these firms that it acquired, Brown also had 584 franchise dealers at the time of the merger.
Firms which were received assistance from Brown in various forms and in return for which they committed themselves at one time not to purchase from other competing manufacturers.
On advice of counsel as the record puts in, that was eliminated from the written contract and was watered down to a commitment not to carry any conflicting lines.
And if a Brown franchise dealer were to carry a conflicting line, unless it was a casual incident, he would be cut off as a Brown franchise dealer.
There were a number of advantages in being a Brown franchise dealer.
One was that you were able to purchase rubber-soled canvass shoes at a discount from Goodrich and otherwise that you've got the benefits and certain advantages in the form of insurance, both group life insurance and also buyer casualty insurance.
Still another advantage as I understand it was that also some of the outlets might get occasional health and merchandising and inventory control in planning their stocks and architectural design.
There is testimony quoted in that brief to the effect that you got this far more regularly and successfully, if you are a Brown franchise dealer which carried with it, I emphasize, the obligation not to use -- not to -- to concentrate in Brown shoes and therefore to exclude conflicting lines.
Now, it's true you could quit at anytime, but the bait was there, if I may it colloquially.
You got certain advantages that you gave up if you quit and as long as you were a Brown franchise dealer, this was an outlet which was wholly or which was partially foreclosed at least so far as shoes competing with Brown were concerned.
Justice Potter Stewart: There was a considerable turnover --
Mr. Cox: There was --
Justice Potter Stewart: -- turnover every year.
Mr. Cox: Oh yes, there was turnover, and the Brown franchise dealers sold other shoes -- shoes that didn't compete with Brown.
Justice Potter Stewart: And lot of them did quit as you call it, every year.
Mr. Cox: And a number of them -- a number of them quit.
But the total number was --
Justice Potter Stewart: And this would have -- become new.
Mr. Cox: The total number was constantly growing.
There were 470 in 1950, 584 at the time of the merger, 647 in 1958, so that this is an increasing part of the market.
The Kinney Shoe Company, we discussed it's less important manufacturing facilities before.
As a retailer, it was in that capacity that it was important to Brown and is significant here and has its major significance here in this case.
It was the largest retail chain of family shoe stores.
It had 352 stores in 312 cities and it too was rapidly growing. For example, from the time of the merger until 1958, its stores increased to 418, an increase of 80%.
If you look at its outlets and shopping centers, too, there were 50 in 1955, a 118 three years later and 136 -- an increase of a 136%.
In 1955, Kinney's sales were 6,400,000 pairs of shoes purchased from outside sources.
And is other than in addition to its own manufacturer.
It sold, lumping them all together, 1.3% of the national total.
Broken down into the three categories, Kinney sold 1.7% of children's shoes, 1.4% of women's shoes, there was a much smaller factor in the men's shoe market, only 3%.
So that to pull this together, the merger combined the fourth and 13th largest manufacturers.
The fourth largest manufacturer in the market with the most aggressive and largest of the independent retailers having 1.7% of the children's market and 1.4% of the women's and less than one-half of 1% of the market for men's shoes.
And we come to the question whether the vertical effect of this merger would substantially lessen the competition -- might substantially lessen the competition in any line of commerce, in any section of the country.
Our argument which I think I outlined before is that Brown's capture of Kinney's outlets violates Section 7 because its tendency will be to foreclose competition and send -- selling shoes to Kinney and that this segment of the market, the Kinney segment under all the circumstances of this industry is substantial.
So that the three elements, we must attend to.
First, we must define the market in terms of the section of the country and the product or line of commerce.
Second, I have to address myself to the question, is there a reasonably likelihood that the acquisition will lessen the competition.
And then third, I must show, of course, that the substantial share of the market is affected.
Geographically, the market is a matter of common agreement, so far as manufacturer's market is concerned that that's what we're now talking about.
Geographically, we all agree that it's nationwide.
And there's no reason to discuss that any further.
In terms of the product or line of commerce, the District Court found that the relevant market was for men's shoes, women's shoes and children's shoes.
And I turn to the question in a moment whether those findings are supported by the elements.
It seems to me important first to direct our minds and little bit to the question of what are we looking for and why are we looking for it.
When we talk about line of commerce or market, as I see it, that --
Justice Felix Frankfurter: May I break in to ask whether you can break up where in any line of commerce in any section, are those distributed terms or is that a unified collective terms.
In other words, it must have been a line of commerce in any section in any section or is any line of commerce to be detached from that next phrase.
Mr. Cox: I would think it could be the test, if I understand (Voice Overlap) --
Justice Felix Frankfurter: You mean, any lines of commerce in the abstract?
Mr. Cox: No, I think it's --
Justice Felix Frankfurter: Or must it mean any line of commerce in any section?
Mr. Cox: Well, I think that you must have to make the case a substantially -- a tendency to lessen competition in the line of commerce and in the section.
I don't know.
Justice Felix Frankfurter: And in the section, conjunctively.
Mr. Cox: Oh, yes.
But, I would also think that if you had the whole country, a fortiori you had it in the section.
Justice Felix Frankfurter: Well, now that the line of commerce relates to a single community with --
Mr. Cox: No, no, but if one has a nationwide manufacturer's market, then he has satisfied the “section of the country” required.
Justice Felix Frankfurter: But what I'd like to get laid down is whether unrelated 15 cities constitute a “section of the country.”
Mr. Cox: No, I might ask, Your Honor, to defer that until we come to talk -- about the retail markets because it makes more sense in connection -- if we're talking about retail competition, I will address myself to it at the end.
I'm now talking --
Justice Felix Frankfurter: You're now talking, are you now talking between -- are you not talking competition between shoe manufacturers --
Mr. Cox: To sell.
Justice Felix Frankfurter: -- which sell throughout the country?
Mr. Cox: Yes, sir.
Justice Felix Frankfurter: But even as to them, must it not be in any line of commerce in any section.
Mr. Cox: Well, I suggest that if you have a market defined in a term of line of commerce that extends to every section, it necessarily is a line of commerce in some section.
Justice Felix Frankfurter: Isn't it a question of arithmetic or geography, but let me be specific.
Suppose you have two powerful shoe companies competing for a very specialized fancy movie star shoe market in the city of New York exclusively --
Mr. Cox: But --
Justice Felix Frankfurter: -- suppose that's the only city that is an outfit as between two competing manufacturers, that New York women or enough of them care for particular kind of too thick heeled of a special kind, so thin that almost invisible to the eye, yet giving gravitation support.
Mr. Cox: My answer, Your Honor, which I think meets the point is that we have agreement here that so far as manufacturers are concerned, they are competitors in selling all around the country.
And that therefore, we don't need to consider, so far as the manufacturers are concerned, the question that you raised.
Now, we do need to consider it in terms of retailing but I wonder if I might -- can take it up to that point.
Justice Felix Frankfurter: Well, all I can say is you can by agreement, you had a difficulty out of my head.
Mr. Cox: Well, but it's a matter of -- it's a matter of fact and --
Justice Felix Frankfurter: Well, I'm not saying it isn't.
I just want to get enlightened at the outset.
Mr. Cox: Well --
Justice Felix Frankfurter: Take my case of two powerful manufacturers as competing for a specialized New York market in particular kind of shoe, will that be within the Act?
Mr. Cox: We would say -- we would say that this case does not involve that question, but yes, it would be within the Act.
Justice Felix Frankfurter: Well, then I don't understand the Act.
But may well be.
Mr. Cox: And we would say, following the implicit holding in the Maryland-Virginia Milk Producers case that a metropolitan area, such as you mentioned, may be a section of the country.
Their holdings under the Sherman Act saying that tying up movie chains --
Justice Felix Frankfurter: Well, that's a -- I can --
Mr. Cox: -- in metropolitan areas.
Justice Felix Frankfurter: I can understand that answer.
That implies that it is a section of the country --
Mr. Cox: Yes.
Justice Felix Frankfurter: But not because there are 15 unrelated discrete, separate communities.
Mr. Cox: That's quiet true.
Now, in the retailing and in this case, we have the further fact that there are -- not 15, but a 141 --
Justice Felix Frankfurter: Well, I don't think if you multiply discreteness, it makes it a compound.
Mr. Cox: I wonder when one considers whether what Congress was concerned with, was getting something of national importance, then it does not become material unless one puts a very literal meaning on the word “section” that you have cities scattered all over the country.
The alternative as Justice Stewart suggested earlier would be to say that Section 7 does not apply to retail --
Justice Felix Frankfurter: Well what --
Mr. Cox: -- because all the markets are retail markets.
Justice Felix Frankfurter: What troubles to me is when Congress changes a phrase which has limited geographic connotation, the one which has wider geographic connotation, I must face a need to that.
I can't ride off on general vague intentions of the statute.
Mr. Cox: Well, I've -- again --
Justice Felix Frankfurter: I maybe all wrong but I'm just trying to understand this business and --
Mr. Cox: No, sir.
The only difficulty I'm having frankly is that this is irrelevant to the point we're talking about, manufacturers because they don't sell in single cities.
When we come to the retail combination, then they do and while I -- I don't mean to be rude or presuming.
Justice Felix Frankfurter: You're not.
Mr. Cox: It seems to me that the argument would progress far more clearly if we could talk about manufacturing for while, the issues that --
Justice Felix Frankfurter: You see you have -- neither before lunch nor now dealt with what to me is a troublesome thing that Congress for reasons of its own has changed from the phrase in any community to -- in any section.
Mr. Cox: Well, let me defer my argument with respect to manufacturing then and turn to the retailing portion of it and then try to deal with this point because I think, we should deal with it in the context in which it arises.
Now, here I pointed out earlier that Brown had become a significant factor in the retail market.
And that Kinney was also the largest and most aggressive independent retail chain.
Kinney had the eighth largest volume of sales in the entire industry.
It had as I said before, 352 stores in 315 cities.
The District Court found that Kinney and Brown were competitors in the retailing of shoes.
And perhaps, I should emphasize again that I have turned to the retail market and the horizontal effects of the merger. I hope, I will have time to come back to the other.
That testimony that Kinney and Brown were competitors in the retailing of shoes is supported by a large number of detailed facts.
There's evidence that there were 138 cities of over 10,000 population in which Brown and Kinney both had stores.
In the 123 of those 138 cities, the stores were located within two blocks of each other.
In 58 cities, there was a Kinney store and the Wohl department within two blocks.
And in eight cities, Kinney and Regal had stores within two block of subject, of course, to qualification that you make that they weren't competitors and --
Justice Potter Stewart: Well Kinney, as I understand, it sells men's, women's, --
Mr. Cox: Yes.
Justice Potter Stewart: -- and children's --
Mr. Cox: They would -- so they would be competitors in men's shoes, but --
Justice Potter Stewart: They would be competitive of both --
Mr. Cox: That's right.
Justice Potter Stewart: Regal --
Mr. Cox: That's right.
Justice Potter Stewart: -- and Wohl as I understand it.
Mr. Cox: Yes.
Justice Potter Stewart: Although Wohl and Regal are not competitive in most places.
Mr. Cox: Yes, that's true.
The product -- and so far as the evidence showing the competition in addition to location, they sell generally men's, women's and children's shoes in these stores.
There are some specialists but in general, in all stores, either shall sell men's shoes, women's shoes, or children's shoes.
There was testimony, for example, that in the men's line, that Brown's Pedwin and Kinney's men's shoes were very similar in price, style, and appearance and very competitive.
I point out that 48% of Brown's sales of men's shoes and 42% of Kinney's sales were in the $7 to $10 price bracket.
With respect to women's shoes --
Chief Justice Earl Warren: Would you state those figures again, please?
Mr. Cox: That 48% of Brown's sales of men's shoes and 42% of Kinney's sale of men's shoes were in to $7 to 9.99 price bracket, I think I said $10.
Similarly, there were lines of Brown's women's shoes -- Air Steps, Life Strides, Glamour Debs, which were competitive with the shoes sold by Kinney.
27% of Brown's women's shoes and 35% of Kinney's were within the $3 bracket, about $4 to $7.
And among children's shoes, the figures, without taking time to read them were substantially the same.
In addition to the overlap on prices, one of the most persuasive testimonies in my mind was the repeated testimony from my -- string of retailers in perhaps 40 of the -- or more of these cities, testifying from their actual experience that their stores were competitive with Brown and Kinney's.
Sometimes, it would be a Brown retailer and he testified that Kinney was his competitor.
One finds such expressions, as I took Kinney shoes off the soles of my customer.
People told me that they had been shopping down at Kinney and they were coming up in the street and shopping here.
There was testimony from the Brown and Kinney executives which corroborates this.
Brown said that it aimed to the middle income and what we call the lower price market.
And Kinney defined its market as the middle income and lower income group of America.
And the -- Mr. Dean in his brief, stresses wide divergence in merchandising methods, style, advertising, and the like, but of course, when you're selling differentiated products today, those are the heart of competition rather than evidence of a lack of competition.
Now, I come to the application of Section 7.
And again to the key phrase, first, whether the effect of the acquisition maybe to substantially lessen competition.
At first, it seems to me necessary to find the market, both geographically and in terms of the product or line of commerce.
In terms of the line of commerce, the District Court found that the retail products were or lines of commerce were men's, women's and children's shoes.
Now, I point out that the evidence shows that this is the way the trade is organized.
This is the way retailers speak to themselves, they sell men's shoes, they sell women's shoes.
The stores are either men's, women's or children's or family shoe stores.
Again, showing the way the industry is organized.
And Brown's own organization heads up to executives in charge of those branches.
It's true that there can conceivably be finer divisions by style and price but the District Court found, following the testimony that they were quite impracticable.
In the first place, he had testimony from retailer witnesses -- live witnesses that the high prices do compete with the low prices.
He had evidence of an interchangeability of users nor is this one dramatic instance was the president of Brown came in to testify one day, wearing what were called dress shoes and the next day, he came in to testify wearing casual shoes which underscored the point that these classifications do not really indicate the uses or lack of competition.
They are manufacturers' selling gadgets for the most part.
Justice Potter Stewart: He used as direct testimony one day, and cross-examination in the next.
Mr. Cox: I trust that it wasn't the casual when he wore the second.
There was also, as I said, before direct testimony from the retailer witnesses, all of which is outlined in our brief.
Now the District Court found that geographically, the market at retail is the city and the immediate surrounding and contiguous area.
There, again, he had testimony of witnesses describing what was the market, and there are 40 out of the 138 cities.
And I think that this is indisputably a fair sample.
Anyone who suggests that the others of the 138 or somehow, that unique, surely has the burden to do it and the appellants called that no -- called one live retailer witness.
There were good many experts and many, many statistics but only, if my memory is right, one live witness.
The Government's expert testified that normally you find 85 to 90 of the sales in marketing concentrated in the city.
And the Court reviewed the detailed evidence about Saint Louis and found that there, also of course, a retailer on one side of the city does not compete with a retailer way over on the other side of the city but still, they're in competition with each other all the way along the line with theirs in the middle in competition with those on either side of him and that therefore, the most practical line was the city.
The question then arises whether despite the fact that the practical market is the city and it's immediately surrounding area.
This qualifies as a “section of the country.”
As I understand the appellant's argument to which Mr. Justice Frankfurter was adverting or the question that Mr. Justice Frankfurter mentioned, it is in two parts.
First, is Mr. Justice Frankfurter suggesting the statute did take out the word “in any community” and uses simply the term “in any section of the country.”
And the contention is made that that signifies that a city cannot be qualified as a section of the country and as the justice said, “Well, you can't add a lot of separate discrete cities and get a section.”
Then the other point on which appellant relies in this connection is the testimony of Mr. Kelley who was general council of Federal Trade Commission who at one point said the combination of department stores in New York, this was in testifying, would not violate the proposed bill.
He later indicated that New York City might be a market.
This was only testimony and it seems to me that no very firm conclusions can be predicated about it under those circumstances.
Justice Potter Stewart: Well it's true, Mr. Cox, that the statute as it used to be worded would by its literal terms have absolutely prohibited the acquisition of one small shoe -- shoe store in Peoria, Illinois by another small shoe store --
Mr. Cox: That's true.
Justice Potter Stewart: -- in Peoria, Illinois.
Mr. Cox: It's -- that is true and it is also -- I can't direct myself to significant --
Justice Potter Stewart: Assuming that also men's shoes.
Mr. Cox: All I meant to dispose of, if I may put it, is this Kelley's testimony.
Now, I'm coming to the change in the language.
It's unquestionably true that this was intended to make possible some mergers between little fellows that Section 7 would have forbidden before.
And the day the example was given in the senate report, that the use of the term “community” stirred a storm of controversies since it was argued the Act was worded might go so far as to prevent any local enterprise in the small town from buying up a local enterprise the same time.
As the consequence, the word “community” was dropped from subsequent versions of the bill.
Now, I think that one way of stating the question is whether there to indicate that any combination in a town or a city or even in a succession of towns or cities is exempt from the bill.
We say not.
We say first, that one must consider the substantial and meaningful problem that is addressed to not only in the terms of the Congressional Amendment in 1950 but that we're considered with here.
We're concerned with actual markets reflecting business dealings.
Market such as that economists or businessmen would choose regardless of the verbal geographical definition as the area of effective competition.
And one of our troubles is -- well, let me back up just a little, we think this is entirely clear not only for the common sense that you've got to deal with business markets, business practice but also, is -- it's revealed that this is a question from a legislative history in the right approach.
The reported sales said, “What constitutes a section will vary with the nature of the product owing to the differences in size and character of markets.
It would be meaningless from an economic point of view to attempt to apply for all products a uniform definition of section,” but such definition were based on miles, population, income or any other unit of measurement.
The section which would be economically significant for a heavy durable product such as large machines tools might be meaningless for a light product such as milk which certainly sounds in terms of a retail consumers market.
And of course was so applied although this Court didn't pass on the point in the Virginia-Maryland Milk Producers case.
Then it went on as the Supreme Court stated in Standard Oil Company against U.S. Since it is the preservation of competition which is at stake, the significant proportion of coverage is that within the area of effective competition.
And it did went on in the report in very much those terms, so that we think our practical businessman or economist as the expert put it, definition of market, is the decisive thing here.
Now, someone may say in reply, “Well, what effect are you giving then to taking the word “community” out?”
And I would say, “We were giving two effects”.
One is that the bill would longer be applicable to a merger between two little fellows in a single little town, that before a city can qualify as a section, it must be sizable enough to have some interstate or national significance.
Justice Felix Frankfurter: And could have an interstate if it isn't -- in relation to interstate commerce, it isn't within the statute anyhow.
Mr. Cox: When I said interstate, I didn't mean that I should have confined myself to national and not used the word interstate.
It wasn't -- I didn't mean to emphasize across state line.
I meant that it was of national importance.
Second, we think in this case that it is permissible to consider the fact that not just one retail trade area is included but that a number of retail trade areas are included.
The 138, by our computation and according to the evidence because the question after all must have been whether the lessening of competition in a line of commerce was of enough importance for Congress to take note of it.
The argument that a single city and its environment cannot be a section would prove too much.
It would prove that there was no intention to have this amendment applied to retailing at all.
And that is of the slightest evidence that that was the -- in the mind of Congress or was the purpose.
In other words, I think in what my argument comes to in the obstacle I have to get over is that if you can add these together, the section is not something with a single outline on the map.
It becomes more a functional concept, a concept of importance to the whole country rather than a matter of drawing a line on the map that could be called a section.
Justice Potter Stewart: Are these 138 cities in -- in --
Mr. Cox: They're scattered all over.
Justice Potter Stewart: -- located in -- located in every geographic region of the country?
Mr. Cox: They're scattered all over the country whether they're -- and every one would --
Justice Potter Stewart: Well --
Mr. Cox: -- depend a little bit (Voice overlap) --
Justice Potter Stewart: -- that would be a matter of definition, but they are all over?
Mr. Cox: Yes.
They're all over the country.
There's no -- no doubt about that.
Justice Felix Frankfurter: Mr. Cox, you've told us a lot about congressional history and you've talked about the mind of Congress.
Does Congresses mind express or tell us from the legislative history on this change in the face of --
Mr. Cox: Well, in the -- it's -- the expression is in the passage I read just a minute ago.
Justice Felix Frankfurter: I mean, did the report say anything why they made it?
Mr. Cox: Yes --
Justice Felix Frankfurter: I meant the specific --
Mr. Cox: The report says two things.
First, it said that it did not wish to impede mergers between two little concerns in a single town.
Justice Felix Frankfurter: I thought --
Mr. Cox: Second, it goes on as set forth, I read it at pages 79, 80 --
Justice Felix Frankfurter: I thought it was your extrapolation from --
Mr. Cox: It's on pages 79 and 80 of our brief.
Justice Felix Frankfurter: Well, thank you.
Mr. Cox: I would like now, if I may, because I think that is simply a point that I can't add to the test that we got over, it seems to me that what we say is consistent with the interpretation of the statute in light of its purposes.
I would like now, if I may, to go back to the question of the vertical combination between one of the dominant firms, manufacturing facilities and the major independent remaining outlet in the country.
I had pointed that the outlet buys 1.7% of all men's shoes, 1.5%, I think it is of all the children's, and a smaller percentage of -- no, I got it wrong -- 1.7 of women's, 1.5 of children's and a much smaller percentage of all men's shoes.
The claim is that by putting these together, Brown is foreclosing selling opportunities for other manufacturers and thus, substantially lessening competition in the manufacturer's market.
Now, they sell all over the country, this problem about “section of the country” does not arise in connection with the manufacturers' market.
With respect to what is the appropriate line of commerce, I suggest that before looking at the evidence, we consider, why does one look at the line of commerce?
And the reason as I see it is, is that it bears out of the section of substantiality.
Substantiality is a matter of relative as well as absolute size.
And to determine the relative size of the Kinney market, you have to decide in what line of commerce or what market set Kinney sells.
So that the -- so the question of line of commerce in this part of the case boils down to the question, “What is the market in which Kinney purchases?”
The similarities and differences between Brown's production and Kinney's production which cover pages of the appellant's brief are utterly irrelevant because we're concerned with the vertical, not a horizontal merger.
Now, this one other respect in which the distinctions between Brown's production and Kinney's purchases in terms of style, price and so forth, may be important.
The differences may bear on the extent to which Brown can fill Kinney's needs.
And that in turn, of course, would bear on the question whether this may substantially lessen competition.
But in terms of the market in which Kinney buys, I simply submit that if you look at the range in which Kinney buys, which you will conclude that the only possible way of describing it is men's, women's and children's shoes that it covers such a broad price range, the figures are in the brief, that there isn't any other way of putting it and that the propriety of doing that is emphasized by the testimony I mentioned earlier about what ultimately happens on the retail and after the shoes were passed through Kinney.
Justice John M. Harlan: (Inaudible)
Mr. Cox: Then you would find that Kinney buys 1.3.
Indeed, the Government's original argument was that you should take shoes in general.
Justice John M. Harlan: That was rejected?
Mr. Cox: That was rejected and it was narrow.
Of course, I should say that I don't quite understand why Mr. Dean wishes to narrow the line of commerce.
If he does, he hasn't ever stated what his line of commerce is because the more you narrow the line of commerce, while you may find that this little effect in some lines, you will find that there's a much bigger effect in others.
For example, if you said that the line of commerce involved here was women's shoes to the middle and low income groups, that Kinney's proportion would rise a great deal, so would Brown's because neither of them sells the expensive shoe.
And if you narrow it down to a particular price line, you will, without taking the time, find some price line in which Kinney has not 1.7% of the women's shoes but 3% of the women's shoes, and Brown could make them.
And the statute says, “In any line of commerce” so that while we think that the District Court's findings were right, we think that any narrowing would lead to the conclusion that we had a stronger case with respect to some particular line although not to others.
So I come then to the question whether the combination is, one, the effect of which maybe to lessen competition.
As I pointed out earlier, this is in terms of function just like the du Pont General Motors case, and the thesis here is much like the thesis in the du Pont General Motors case, it rest as was in the Columbia Steel case upon the very high probability that a subsidiary will deal only with its parent for goods that the parent could fragment.
And what the other manufacturers in the industry are concerned about, the Government is considered about is that Brown will take over these markets.
Now, can Brown manufacture the shoes needed by Kinney?
In the first place, I should point out that the tables in the back of the appellant's briefs are highly misleading, if they are intended to bear on this point -- if you would turn, for example, to page 7 (a), the next to the last page in Mr. Dean's main brief, you will find that he has set forth the percentage distribution of Brown's production -- using Brown's at the various price ranges, using Brown's production as the total universe and the percentage distribution of Kinney purchases using all Kinney's purchases as the total universe.
With comparing percentages with percentages, doesn't give you any indication worthwhile at least of the extent to which Brown's volume of production are types of shoes it produces are such as Kinney would normally find.
Take for example, just about in the middle of the chart, the manufacturers' price range, -- $5.40 down to $4.81.
And the figures set forth, there are 18.9% of Brown's production is in that range and 31% of Kinney's purchases are in that range.
Now, if you use absolute numbers, Brown produces 640,000 pairs of shoes, men's shoes other than work in that range and Kinney buys 113,000.
So Brown can make all the shoes Kinney would want in that price range so far as price range is bare on this, without any convergence or change whatsoever.
This is one illustration.
Others are equally dramatic, others show that Brown could make only part.
Measured by the existing overlap at 1955 prices, Brown could supply 35% of the men's shoes needed by Kinney, 30% of the women's shoes and 50% of the children's.
But we think the figures should be pushed a great deal higher than that.
In the first place, Brown can adapt its production to Kinney's needs.
It's makeup division, which Mr. Dean tells us he's losing money, sold 19,000,000 shoes in 1950 and 34,000,000 shoes in 1956.
Apparently there, he could've possessed in losing money as they thought it would.
The makeup division is the one that sells manufacturers' other brands.
Brown opened 18 new factories between 1945 and 1955.
When you open a new factory, of course, you have a chance to put in new machinery and to hire a new work force and this problem of piece rates doesn't get involved at all.
It made 13 major changes in machinery in the five year period, 1951 to 1955, again, this sort of thing that lends itself to the adaptation of your production facilities to your market.
And there was from manufacturers, a great deal of -- well, there was testimony -- ample testimony that supports for the District Court's finding that manufacturers are able to convert their production to somewhat different lines up or down.
It is true that the habits of workers in working at a certain piece rate tend to impose some restraint provided you don't open a new factory or put in entirely new machinery.
But at the same time, as these manufacturers explain, there are ways and terms of the kind of material you used, the way you have cut it, and other ways of manufacturing for a particular market.
Furthermore, it should be pointed out that there was a drawing together to train Brown's price ranges at Kinney's because Kinney was beginning to upgrade as it went into the suburban markets.
And Brown was also seeking to emphasize the new markets in the suburban areas.
And in those areas, their lines would naturally tend to merge without any convergence of the machineries.
Would Brown take over Kinney's purchases?
Well, we know something about what would happen from the past.
Brown had acquired other firms.
The appellants at page 188 of their brief make a good deal of the fact that when Brown purchased Wetherby-Kayser, Wetherby-Kayser kept on purchasing from other manufacturers.
They set forth their purchases from other manufacturers.
No, I guess their total purchases and down below it, the purchases from other manufacturer.
You might be interested in writing in under the purchases from all manufacturers.
The purchases from Brown, 28,801 in 1951, before the merger, 23,144 in 1952, the year of the merger, 137,958 in 1953, after the merger, 1954, I can't find, 1955, 282,000 in 1957.
In other words, Wetherby-Kayser's purchases from Brown in those five years increased 10 fold whereas the purchases as a total had only doubled, so that there's a marked tendency.
I pointed out just before the recess in answer to a question from Justice Whittaker that this same kind of thing had happened, when Brown took over Wohl.
Wohl's total purchases between 1950 and 1957 increased 60%.
Wohl's purchases from Brown increased from 2,800,000 to 12,000,000 or 320%.
Brown had been in 1950, doing it quickly, something more than 10% of Wohl's total purchases and it increased to something more than 33% of Wohl's total purchases.
In our brief, we have pointed out that there was the same drawing together of purchases and sales between companies within the unit when Brown took over Regal.
Now, so far as Kinney is concerned, Brown is taking over the Kinney purchases.
And I think that in measuring their effect, one should note first that this isn't the beginning of the merger and second that this has been a litigation all the time.
Nevertheless, Brown had made no sales to Kinney prior to the merger.
The next year, 8% of all Kinney's purchases came from Brown.
Brown had already become Kinney's largest single supplier.
Adding what had happened in the case of other firms, to what had happened in the beginning, in the case of Kinney, and to the probabilities that a manufacturer would use, so far as possible, it's own captive outlet.
It seems to us that it is certainly fair to conclude here that there will be a tendency for Brown to foreclose the Kinney market to other manufacturer.
Now, this is isn't just something that we've thought of.
The President of Brown in buying Kinney had this very thing in mind.
He was asked when he was testified that what was your primary purpose in acquiring the stock of Kinney's.
It was our feeling in addition to getting a distribution into a field of crisis which we were not covered, was also the feeling that if Kinney moved into shopping centers in these freestanding stores, they were going into a higher income neighborhood.
And they would probably find the necessity of upgrading and adding additional lines to their very successful operation that they have been doing.
And it would give us an opportunity we hope to be able to sell them in that category.
Justice John M. Harlan: What page is this?
Mr. Cox: This is page 1323 of the record.
We hope to be able to sell them in that category, and this was stated in answer to the question, “Why did you acquire Kinney?”
It's on that evidence that we think that the Court was amply justified in finding that this may tend to lessen competition in manufacturers' selling opportunities.
Then we come to the question whether the segment of the market is foreclosed.
1.7% in the case of women's shoes, about that for children, and less for men's, is substantial.
What is substantial is of course not simply a quantitative method.
But I think that it's worth pointing out that we are talking about 6.4 million pairs of shoes a year at a cost of $16,000,000 almost $17,000,000.
This acquisition, since substantiality is a matter of relative size as well as absolute size, was an acquisition by one of the giants.
It would have a considerable effect at other manufacturers.
Kinney's purchases, just to indicate this, equal to the total output of the seventh ranking firm.
It's the production -- it equals the production of 12 average-size manufacturers in the industry.
Now, of course, that isn't the way the sales were distributed and it doesn't take the loss of all your production.
Virtually, to ruin a manufacturer.
If you assume that the sudden loss from a tenth to a fifth of the manufacturers' market we're enough to a very seriously injury, and that Kinney's sales were distributed, somewhat that way, the number affected, if all Kinney's purchases were taken over by Brown would come into at least 65 or 100 of the remaining manufacturers in the industry.
Note too, that this is in an industry in which the market is already trending to our concentration.
The number of plants operated by the big four went up 35% in the period 1950 to 1956.
The number of plants operated by Brown rose 62%.
The five largest manufacturers had already acquired 19 independent manufacturers.
Between 1947 and 1954, the number of independent, I guess I pointed this out this before, had declined 10%, and from 1954 to 1958, another 10%.
This easy entry to the industry is theory.
It was an unanswered question, the United Shoe Company witnesses were not able to testify to more than one or two people who had entered and they'd been backed before 1950.
I wonder, Mr. Chief Justice, if I might have just two minutes to --
Chief Justice Earl Warren: You may.
Mr. Cox: -- finish off this point.
Chief Justice Earl Warren: You may.
Mr. Cox: I think that's all it will take.
Chief Justice Earl Warren: You may.
Mr. Cox: The processes of vertical integration were already narrowing the market for independent manufacturers.
Between 1950 and 1955, the big six manufacturers had purchased 13 retail chains with 13,000 outlets.
Between 1948 and 1954, I'm sorry these jumped around so in the years but those were the figures that were available, the percentage of stores owned by chains with 101 stores or more increased 62% so that by the time of the merger, they constituted 33% of all shoe stores, again, evidence of the concentration of buying power in the manufacturer's market.
The franchise program was growing very rapidly, as I pointed out earlier.
Between 1945 and 1956, the big six manufacturers increased their own owned-and-operated outlets and this leaves out the franchise dealers from 14,000 to 38,000, a 170% increase.
Other manufacturers were pursuing this same policy.
Indeed, one of the basic problems is that this is a self-feeding reaction.
When Brown who had been selling shoes in Los Angeles through the (Inaudible), found that the (Inaudible) had been bought up by one of the other big manufacturers, Brown rushed in and bought Wetherby-Kayser.
When Florsheim was brought up by one of the other three big manufacturers, Brown rushed in and bought up Regal.
And indeed, the nature of this interplay or chain reaction was explained by Brown's president in a statement in 1955, which I think chose that this process is likely to continue unless it is stopped here.
My view point can pretty well be summed up like this, “One of our objectives in acquiring retail stores is to protect and guarantee distribution of our products in areas where independent retailers could not give our brands adequate distribution because of their affiliations with other branded manufacturers.”
The gist of the case, as we see it, is that when you take this trend, that if is allowed to continue that this market will cease to be open and competitive to all manufacturers and characterized by a lot of small manufacturers and that in this industry, the opportunities for the small businessmen, as unhappily they have in others, will be lost.
Now, I would just stress one sentence and that is --
Chief Justice Earl Warren: You may -- you may take two or three minutes more.
And I will give Mr. Dean the same amount of time of course?
Mr. Cox: The other point which I won't take time to emphasize in full, thank you Mr. Chief Justice, is that when you note the effect through the vertical integration in the manufacturers' market and note the effect of the horizontal integration in the retail market, and add them together, that they then concentrate economic power and give the combination a leverage, a power in the market that puts everyone else, those independent, at such a disadvantage that even if they were not a violation of Section 7, looking at these things independently, the total effect would most surely be a substantial lessening of competition.
And all we have to show is that it may substantially lessen competition.
Now those advantages are outlined in our brief, and I think really, I shouldn't address this any longer on the Court's time.
Chief Justice Earl Warren: Mr. Dean, you may have a few moments extra also.
Argument of Arthur H. Dean
Mr. Arthur H. Dean: Mr. Chief Justice, and may it please the Court.
I realized that the figures in this case are very large.
And I realized they are very difficult to carry in your mind by understanding -- the Solicitor General said that the manufacturers acquired some 13,000 outlets.
I believe, according to their brief, it should be 1,300.
And that the manufacturer's own increase should go from 1,400 and not 14,000.
Rebuttal of Cox
Mr. Cox: Oh, you're correct.
Rebuttal of Arthur H. Dean
Mr. Arthur H. Dean: It's very difficult, I realized to carry all these figures.
I would like to reply if I may to Mr. Justice Frankfurter's inquiry to me as to the specific findings of the District Court to which we take exception.
Other than the judgment, and the final judgment, there were no specific detailed findings.
Justice Felix Frankfurter: Are you challenging the opinions?
Mr. Arthur H. Dean: We challenge the opinion.
Justice Felix Frankfurter: They are scattered in the opinion.
Mr. Arthur H. Dean: They are scattered in the opinion.
According to the undisputed evidence between the Government and ourselves, the Brown's percentage in manufacturing (Inaudible) and pairs in 1955 was 4% and Kinney was four-tenths so, 1%.
The Court used the figures of five and a half of 1%.
Although there was, as I said earlier, a detailed evidence by merchandising witnesses -- merchandising experts, the Court made no effort whatsoever to analyze the impact of the retail competition in market by market.
There was no attempt to analyze what the market was in any particular situation as to where people shop, as to how they shopped, as to the whether -- our witnesses testified that they stayed in the same price ranges and that they did not normally go beyond certain areas.
The Court, without analyzing that evidence in any of the cities, without going into it any detail, without attempting to find what the actual practices were merely said conclusory that with every shoe store in the same city was in competition with every other shoe store in the same city, and that every shoe store without regard to price or quality or use of merchandize was in competition with every other shoe in the categories of men's, women's and children's.
We believe that it is required by in any economic analysis or any legal analysis or the decisions of this Court as to what is a line of commerce, and I believe it must be a line of commerce and in the “section of the country” that there must be a detailed analysis of the impact of competition in a line of commerce found from the evidence in a community.
Now, there isn't anything -- there isn't anything in the court's opinion that indicates any connection whatsoever between this 141 cities of 10,000 or over and yet they're immediately contiguous in any other state (Voice Overlap) --
Justice Potter Stewart: By the nature of things, Mr. Dean, retailed sales are made in metropolitan communities?
They're not made out in the woods or in the farms somewhere?
Mr. Arthur H. Dean: That is -- that is correct, Mr. Justice Stewart, but they're not made nationally.
Retail sales are not made all over the United States.
It depends upon your climate.
The same type of shoe is not sold in Florida as is sold in Maine, the same price range is not sold --
Justice Potter Stewart: Well, we will go to the line of commerce point.
Mr. Arthur H. Dean: Yes.
Justice Potter Stewart: But, I'm -- I thought you were now addressing yourself to the “section of the country” point.
Mr. Arthur H. Dean: No, I said you had to have a --
Justice Potter Stewart: Both.
You had to have both.
Mr. Arthur H. Dean: You had to have both.
But I believe that the testimony is very clear that there's a vast difference in the economic incomes of the various cities and the prices ranges in these various cities.
The type of competition, the type of shoes that will be bought in Fort Worth, Texas would be quite different than the type of shoes that would be bought in Wilshire Boulevard in Hollywood.
Justice Tom C. Clark: What were the effects?
What were the effects of the merger?
Mr. Arthur H. Dean: Well, it isn't clear, Mr. Justice Clark.
He takes these 141 cities in which Fort Worth is included and simply says that he takes each of the 141 cities of 10,000 or over and immediate or contiguous area.
But there's nothing further.
Justice Tom C. Clark: Do you think -- do you think Texarkana would be -- Fort Worth would be affected under that?
Mr. Arthur H. Dean: It could be.
I believe that there were proper evidence given to it, but there was no analysis of it.
There wasn't any attempt whatsoever made in the opinion to analyze the impact of competition in any one of these cities or how the competition in any one of these cities related to the other 140.
Justice Tom C. Clark: (Inaudible)
Mr. Arthur H. Dean: Well, I think -- I think what Congress meant from the testimony was what we contented for and I believe what most people thought that they meant was in a standard metropolitan area in which there would be normal competition, that is the Government separates out, for example, the City of Texarkana and gives all of its figures for that political boundaries of that city.
Now, everyone knows that Texarkana is within the general shopping range of -- of another larger city in Texas, just as they know that the (Inaudible) is within the larger shopping center of Omaha.
So that if you take all these figures for a very small political unit, as the Government tries to do, ignoring the fact that it's right next to a very large metropolitan area, you can get some terrific distortions as they do in these appendices that they put in their reply brief.
In their appendices, they rely on the 1958 census which were not available till 1961 and were not introduced into evidence.
And they tried to take peerage figures without any regard to the discrepancies in income throughout, and then they get some terrific distortions which we point out at considerable length in our reply brief.
Justice Tom C. Clark: Do you think the (Inaudible)
Mr. Arthur H. Dean: I believe that in certain types, it could be in 10,000 population, but I would think it also have to have evidence as to whether that city was primarily a shopping area all onto itself or whether withdrew a certain percentage of its shopping from a surrounding area.
Justice Tom C. Clark: (Inaudible)
Mr. Arthur H. Dean: Yes.
There were some -- there were some 14 witnesses, not one who testified as to retailers.
And they all testified that depending upon each city, they testified as to the roads and the bridges and the highways as to where the shopping came from.
And they -- I think the evidence is very clear that you cannot use the political boundaries of the city.
Now unfortunately, we don't know precisely what Judge Weber meant by the immediately contiguous area.
So therefore, we don't know whether the figures -- their old figures are -- the figures for the political boundaries and their figures for the standard metropolitan area, but we don't quite know what figures you would use for this rather indefinite area of the immediately surrounding and contiguous area.
You can get some -- some very astounding figures if you try to average your national sale.
We point out that -- that part of the Government's own figures in a town twice the size of Dodge City, they get fewer sales of shoes per capita.
We also point out some other probably fantastic distortions that they get from these appendices that put it in their reply brief.
Justice Potter Stewart: The point there would be the Dodge City draws on a large area for its customers and some other suburb in New York which maybe, too, twice the size of Dodge City draws on a much more compact group of people?
Mr. Arthur H. Dean: Well, on the -- in the --
Justice Potter Stewart: I suppose in certain -- in certain lines of commerce, Denver, Colorado draws on the entire area, the entire rocky mountain area.
Mr. Arthur H. Dean: Yes, it would.
Justice Potter Stewart: It's that whole section --
Mr. Arthur H. Dean: It would for certain type of shoes, Mr. Justice Stewart.
There are certain people in the shoes, let's say, 1295, 1495, 1695 would go long distance as for their shoes.
The evidence in the record is however that for people who shop within the popular price stores of Kinney that they generally don't go more than a few blocks for the purchases of their shoes.
Justice William O. Douglas: I noticed that on page 48 of your reply brief, you state this, “Appellee concedes that the merger of Brown and Kinney's manufacturer does not violate Section 7.”
I've been looking for that -- for that concession, I'm unable to find it.
Can you put yours --
Mr. Arthur H. Dean: Yes.
Yes, Mr. Justice Douglas, it's on page 54 of the -- of the Government's main brief.
In the second paragraph on page 54, “Appellant treats the case chiefly in terms of the manufacturing the market.
It seeks to show that Brown and Kinney do not compete because they have as a matter of fact different lines of shoes.
This now just as might be appropriate, if there were any issue concerning the effect of the combination upon competition for Brown and Kinney as manufacturers.
The District Court found however that the merger would only slightly affect that kind of competition.
The Government accepts that finding.
Since there wasn't any finding of any substantial lessening of competition of manufacturing, I assumed that the Government accepts that finding of the District Court.
Justice William O. Douglas: I thank -- thank you.
Mr. Arthur H. Dean: When I was discussing the -- the difference between the sales to mostly to these younger dealers who started in the business on this Wohl Plan account with a minimum amount of capital and where they, after taken out their salaries and expenses, remitted the weekly proceeds.
I used the term “sales on consignment.”
I should not have used that term because I find that title actually passes in the sales to those dealers on the Wohl plan account.
On the question of this increase of Kinney -- of Brown sales to Wohl after it acquired Wohl, I like to say that most of the acquisitions prior to Wohl were very minor and in many instances were caused by debts or some cases bankruptcy and where the manufacturing plants were taken over with request of Chambers of Commerce or labor people.
But on page 185 of our main brief, second full paragraph, I point out that Wohl's purchasers from its outside shoe suppliers other than Brown have risen from 20,900,000 in 1951, and 23,886,000 in 1957 so that Wohl's purchasers from its outside shoe suppliers.
Several years later replaces much as its shoe purchasers from Brown and it's during this same period, Wohl's purchasers from outsiders increased from 160 to 167.
One further fact and that is that Kinney purchases most of its shoes in as very low price range for the sale in its price range.
And the Wohl however, in these leased departments, sells not only in the medium grade fields but in the, some cases, the higher grade fields.
Although it's very minimal, Mr. Justice Stewart, it could be even about 4% of the sales of men's shoes in the leased departments, it possibly could be that some of them might be selling in the same price range as Regal.
I think it would be minimal but it might be possible.
From the total number of outlets, 70,000, all shoes, Kinney and -- and Brown combined would only be 0.91% of these total 70,000 outlets.
There were no witnesses who testified as to any possibility of their being -- their sales to Kinney being displaced by Brown.
The sole and only witness, there was only one is in Government's Exhibit 251.
That question was not asked by the Government.
And there isn't testimony of any witness or of any implication, incidence of any such testimony.
I just, again, to put Kinney into perspective, its sales and retail were 41,000,000.
Now, it is in this lower the price field.
But the serious sales at retail were 104,000,000. Edison Brothers, all women's, 87,000,000.
Kinney was 85,000,000 and there's testimony that the famous bar store was the largest -- with eleven departments, the largest retail outlet west of the Mississippi River, and the Montgomery Ward was 41,000,000.
All of these are larger than Kinney's.
The court, seemed to us, erred in using the substantive measure.
As the Court knows this was not used by Judge Higgs (ph) in the American Crystal Sugar case or the Transamerica case or by the Federal Trade Commission in the Pillsbury case.
It answered one question, Mr. Justice Whittaker, on these wholesale sales of Wohl -- 75% of Wohl's wholesale sales are made to dealers who are not on the Wohl Plan or were not on the Wohl Plan and 25% are made to those on the Wohl Plan.
I would like to call the Court's attention in conclusion to our reply brief in answer to these appendices of the Government and to the fact that we believed that these appendices include what are wholesale sales to the independent dealers and the retail sales of those same dealers and to what they're trying to -- therefore the numerators and the denominators are in inconsistent basis and they're trying to compare apples and bananas with oranges.
In conclusion, may it please the Court, we submit that there was complete failure to analyze the evidence on the part of the District Court.
The Government has accepted the fact that there was no substantial lessening of competition in manufacturing.
And we believe that our briefs and the evidence will conclusively show that there was no substantial lessening of competition in the retail field or in the manufacturing and retail field combined.
Chief Justice Earl Warren: Mr. Dean, on your opening argument, Mr. Justice Harlan asked you the question as to jurisdiction namely, whether -- whether you thought this case was properly here under -- under 25 U.S.C Section 29, and I wondered if you and the Solicitor General would be willing to submit a memorandum to us on that score.
Mr. Arthur H. Dean: Yes, Mr. Chief Justice.
Chief Justice Earl Warren: Would you that please?
Mr. Arthur H. Dean: Yes.
Chief Justice Earl Warren: So that there won't be any misunderstanding, I'm going to ask Mr. Justice Harlan, if you will restate the question because he'd like it to have it.
Justice John M. Harlan: Well, I wonder if I could restate it because the Solicitor General's answer doesn't satisfy me, that is the answer.
My problem is this, whether or not in view of the fact of this decree, although in paragraph 1, undertook to order an unqualified divestiture, nevertheless, goes on to say in paragraph 4 that the divestiture is to be subject to approval of the court on notice by parties in submission of the plan, whether an appeal at this stage satisfies the particular requirements of 15 U.S.C. in Section 29.
It is perfectly true and what the court said as to the purpose of that Section at page 558 of 279 U.S. United States, California.
While it is perfectly true as the Solicitor General says that ordinarily an appeal to the Court of Appeals in an equity case is reviewable whether -- even though its interlocutory, that is by reason of the particular provisions of Section 28 992 (a) and Section 15 U.S.C. 29 which lays the foundation for this appeal excludes in Government antitrust cases the application of that Section which the Solicitor General, I presume had in mind, in appeal to Government in antitrust cases.
I don't know what the answer is.
That's my problem.
Mr. Arthur H. Dean: We would be very happy to submit a memorandum on that point.
Chief Justice Earl Warren: Mr. Justice Frankfurter would like to add an addendum to it.
Justice Felix Frankfurter: I would like to add if considered whether assuming it cannot be brought here under Section 29 directly, whether it can be brought to -- whether the case can be transferred to the Court of Appeals on this record, or whether neither this Court nor the Court of Appeals has jurisdiction.
Mr. Arthur H. Dean: (Inaudible)
Chief Justice Earl Warren: Thank you gentlemen.