Federal Trade Commission v. Simplicity Pattern Co.

360 U.S. 55 (1959)

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Federal Trade Commission v. Simplicity Pattern Co.

United States Supreme Court
360 U.S. 55 (1959)

Facts

Simplicity Pattern Co. (defendant) was a manufacturer and seller of tissue patterns. Buyers of these tissue patterns would use them at home to make women’s and children’s clothing. Simplicity had two types of customers: large department variety stores and small fabric stores. The variety stores made up the vast majority of Simplicity’s sales. The fabric stores did not focus primarily on selling tissue patterns—rather, their focus was on yard goods, and typically they sold tissue patterns at a loss of profit. Nevertheless, the fabric stores sold tissue patterns in the hopes of stimulating other fabric sales to their customers. The large department stores, by contrast, sold the tissue patterns at a profit. Because of this, Simplicity provided services and facilities to the large department stores in a manner different from how it provided facilities to the fabric stores. Simplicity gave the tissue patterns to the department stores on consignment, but the fabric stores had to pay cash for all pattern purchases. Simplicity also provided display catalogs and display cabinets to the variety stores for free, but it charged the fabric stores for these materials. In addition, Simplicity paid for all transportation costs associated with shipping materials to the variety stores but did not do the same for the fabric stores. It was undisputed that this difference in treatment did not result in any competitive harm between the two types of stores, and it was also undisputed that this difference in treatment was a cost justification. The Federal Trade Commission (FTC) (plaintiff) alleged and found that this difference in furnishing services and materials violated § 2(e) of the Clayton Act. The FTC rejected Simplicity’s argument that the absence of any competitive injury and the existence of a cost justification were defenses to an alleged violation of § 2(e) of the Clayton Act. Simplicity sought review in the United States Court of Appeals for the District of Columbia Circuit, which reversed and remanded on the issue of cost justification. The FTC petitioned the United States Supreme Court for review.

Rule of Law

Issue

Holding and Reasoning (Clark, J.)

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