Standard Fashion Co. v. Magrane-Houston Co.

Background

A New York company that made and distributed women’s and children’s sewing patterns licensed a Boston dry-goods retailer to sell those “Standard Patterns” under a written two-year agreement that renewed automatically. The retailer bought patterns at a discount, agreed to keep a minimum stock and to return patterns under set terms, and promised not to sell any other brand of patterns on its premises. The dispute began when the retailer stopped selling the company’s patterns and began selling a rival maker’s patterns.

Reasoning

The Court addressed whether the agreement was a sale covered by section three of the Clayton Act and whether the promise not to sell competitors’ patterns unlawfully reduced competition. The Court concluded the contract was in fact a sale, not merely an agency, because title and control passed to the buyer and the contract required purchases and repurchases. Reading the Clayton Act’s language in context, the Court held that agreements barring purchasers from dealing in competitors’ goods are forbidden when, under the circumstances, they probably substantially lessen competition or tend to create a monopoly. Given the seller’s large share of pattern agencies nationally (about two-fifths of 52,000 agencies), the Court agreed the restriction could create local monopolies and affirmed the lower courts’ judgments.

Real world impact

The decision prevents manufacturers from using sale contracts to lock retailers into single-brand sales when that practice is likely to reduce competition, particularly in many small communities. The Court also rejected a mootness argument and allowed assessment of damages where they could be determined.