## Facts

- International Shoe Company, engaged in interstate commerce, acquired substantially all the stock of the W. H. McElwain Company, another shoe manufacturer engaged in interstate commerce, in May 1921.
- The Federal Trade Commission charged that the acquisition violated § 7 of the Clayton Act because the companies were allegedly in substantial competition and the acquisition substantially lessened competition and restrained commerce.
- After hearings, the FTC found substantial competition at the time of acquisition and ordered International Shoe to divest its McElwain stock and cease ownership or control of assets acquired from McElwain.
- The U.S. Court of Appeals for the First Circuit enforced the FTC’s order.
- The Supreme Court granted certiorari to review whether the FTC’s findings were supported by evidence and whether § 7 applied.
- The record indicated that the companies’ shoes differed in appearance and workmanship, appealed to different consumer classes, were sold largely to different dealers, and were distributed in separate markets, with only slight overlap.

## Issues

1. Whether substantial evidence supported the FTC’s findings that the firms were in substantial competition at the time of acquisition and that the acquisition substantially lessened competition and restrained interstate commerce.
2. Whether Clayton Act § 7 applies absent preexisting substantial competition between the acquiring and acquired corporations.
3. What “may be to substantially lessen competition” requires under § 7—minimal theoretical overlap or a probable substantial lessening that would injure the public.

## Decision

- The Supreme Court set aside enforcement of the FTC’s divestiture and cease-and-desist order.
- The Court held the FTC’s findings of substantial pre-acquisition competition and substantial competitive harm were not supported by the evidence.
- The Court construed § 7 to reach only acquisitions that probably will substantially lessen competition to a degree that injuriously affects the public.
- The Court held § 7 was inapplicable on these facts because there was no preexisting substantial competition to be substantially lessened.

## Legal Principles

- FTC findings are not conclusive on judicial review when unsupported by substantial evidence; courts may reject findings that lack evidentiary support.
- The existence and degree of competition is a factual question determined by observed market realities (products, consumer classes, dealers, and markets), not abstract reasoning.
- Clayton Act § 7 (as applied here) prohibits only those stock acquisitions that probably will result in a substantial lessening of competition, measured by likely public injury rather than incidental or theoretical overlap.
- Absent preexisting substantial competition between the acquiring and acquired firms, § 7 does not apply because there is no competitive relationship to be substantially lessened.

## Conclusion

The Court rejected the FTC’s divestiture order because the record did not substantiate substantial competition between the companies or a probable substantial lessening of competition, and it interpreted Clayton Act § 7 to require a demonstrable likelihood of substantial competitive harm to the public based on existing competitive conditions.


International Shoe Co. v. Federal Trade Comm’n, 280 U.S. 291 (1930)