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Klor's, Inc. v. Broadway-Hale Stores, Inc.

Supreme Court of the United States
359 U.S. 207, 1959 U.S. LEXIS 1823, 3 L. Ed. 2d 741 (1959)
ELI5:

Rule of Law:

A group boycott, or a concerted refusal by traders to deal with another trader, is a per se violation of Section 1 of the Sherman Act. A plaintiff does not need to demonstrate that the conspiracy resulted in a broader public injury, such as an effect on market prices, quantity, or quality of goods.


Facts:

  • Klor's, Inc. operated a retail appliance store in San Francisco.
  • Broadway-Hale Stores, Inc., a large chain department store, operated a competing store next door to Klor's.
  • Broadway-Hale used its significant purchasing power to orchestrate an agreement with ten national appliance manufacturers and their distributors, including brands like General Electric, RCA, and Zenith.
  • Pursuant to this agreement, the manufacturers and distributors conspired to either refuse to sell their products to Klor's or to sell to Klor's only at discriminatory prices and highly unfavorable terms.
  • This concerted refusal to deal seriously handicapped Klor's ability to compete with Broadway-Hale.

Procedural Posture:

  • Klor's, Inc. filed a lawsuit in the United States District Court against Broadway-Hale Stores, Inc., and ten appliance manufacturers and their distributors, seeking treble damages and an injunction for violations of the Sherman Act.
  • The defendants moved for summary judgment, arguing the dispute was a 'private quarrel' that did not cause a 'public wrong' because numerous other appliance retailers existed nearby.
  • The District Court granted summary judgment for the defendants and dismissed the complaint.
  • Klor's, Inc., as appellant, appealed to the U.S. Court of Appeals for the Ninth Circuit.
  • The Court of Appeals affirmed the District Court's judgment, holding that a Sherman Act violation requires proof of injury to the public, which it found was absent.
  • The U.S. Supreme Court granted certiorari to review the decision of the Court of Appeals.

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Issue:

Does a conspiracy among manufacturers, distributors, and a large retailer to refuse to sell to a smaller competing retailer, or to sell to it only on discriminatory terms, constitute a violation of the Sherman Act even if there is no proof that the conspiracy affected overall prices, quantity, or quality of goods available to the public?


Opinions:

Majority - Justice Black

Yes. A group boycott that targets a single trader is a per se violation of the Sherman Act, and it is not necessary to show that the conspiracy harmed the public by affecting overall market prices, quantity, or quality of goods. Group boycotts, or concerted refusals to deal, fall into a category of restraints that are inherently anticompetitive and thus forbidden by the statute without further inquiry into their reasonableness. Such agreements cripple the freedom of traders, interfere with the natural flow of commerce, and have a monopolistic tendency. The Sherman Act protects the competitive process itself, and a monopoly can be built by eliminating small competitors one at a time just as effectively as by driving them out in large groups. Therefore, the boycott is not to be tolerated merely because the victim is a single small merchant.


Concurring - Justice Harlan

Justice Harlan concurred in the result. He believed that the allegations in the complaint were sufficient to allow the case to proceed to trial and that the defendants' affidavits did not constitute a complete defense, without fully adopting the majority's broad per se rule.



Analysis:

This decision firmly establishes group boycotts as a per se illegal restraint of trade under the Sherman Act, meaning they are automatically illegal without any analysis of their competitive effects. The Court rejected the lower courts' requirement of demonstrating 'public injury' through effects on market-wide price or supply. This shifts the focus from consumer harm to the inherent harm of exclusionary, collusive conduct that damages the competitive process itself, thereby strengthening protections for individual competitors against concerted action by rivals and suppliers.

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