Facts
- Standard Fashion Co., a New York manufacturer of garment patterns, entered a written “agency” agreement with Magrane-Houston Co., a Boston dry-goods retailer, effective for two years and automatically renewable absent timely notice; termination required three months’ notice given within a specified post-term window.
- Standard agreed to sell patterns to Magrane-Houston at a discount, provide advertising materials, allow semiannual exchanges of obsolete stock for credit, and repurchase remaining stock at termination under stated conditions.
- Magrane-Houston agreed to maintain a minimum inventory level, pay on credit terms, and not assign or relocate the “agency” without consent.
- The contract also required Magrane-Houston not to sell any competing patterns on its premises during the contract term and to sell Standard’s patterns only at labeled prices.
- Magrane-Houston began selling a competitor’s patterns; Standard sued in equity to enjoin breach and to recover damages.
- The district court dismissed the bill as unlawful under Clayton Act § 3; the court of appeals affirmed; the Supreme Court granted review.
Issues
- Whether the controversy was moot because the contract had expired or was no longer in force.
- Whether Standard had capacity to sue after ceasing business and winding up its affairs under applicable corporate-survival law.
- Whether the “agency” arrangement was, in substance, a contract for sale of goods within Clayton Act § 3.
- Whether the exclusive-dealing condition probably would substantially lessen competition or tend to create a monopoly, making the contract unenforceable under Clayton Act § 3.
Decision
- The Supreme Court affirmed dismissal of Standard’s suit.
- The case was not moot: under the renewal/notice provisions, the contract continued beyond the initial term, and in any event a request for ascertainable damages prevented mootness upon expiration.
- Standard had capacity to sue because corporate-survival law continued the corporation’s existence for a limited period to prosecute and defend suits after winding up.
- The agreement was treated as a contract of sale under Clayton Act § 3 despite being labeled an “agency,” because the retailer purchased and stocked the goods subject to exchange/repurchase arrangements.
- The exclusivity clause barring sales of competitors’ patterns on the retailer’s premises had a probable effect of substantially lessening competition in the relevant line of commerce and therefore violated Clayton Act § 3.
Legal Principles
- A request for injunctive relief does not become moot upon contract expiration where the pleadings also seek damages capable of ascertainment.
- A dissolved or wound-up corporation may retain capacity to sue or be sued for a statutorily defined period to conclude litigation.
- Courts apply Clayton Act § 3 based on economic substance rather than contract labels; an “agency” may be a sale if the retailer buys and resells the goods under inventory obligations.
- Clayton Act § 3 targets exclusive-dealing conditions attached to sales when, in the circumstances, the agreement probably will substantially lessen competition or create an actual tendency toward monopoly, not merely a theoretical possibility.
- An agreement conditioning purchase on a retailer’s promise not to deal in competitors’ goods can be an unlawful restraint when its probable competitive effect is substantial.
Conclusion
The Court held that the pattern “agency” contract functioned as a sales arrangement conditioned on exclusive dealing, and because its likely effect was to substantially lessen competition, it violated Clayton Act § 3 and was unenforceable, requiring dismissal of the manufacturer’s claims for injunctive relief and damages.