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Klor’s v. Broadway-Hale Stores, Inc.

Supreme Court of the United States
359 U.S. 207, 79 S. Ct. 705, 3 L. Ed. 2d 741 (1959)
ELI5:

Rule of Law:

A group boycott, which is a concerted refusal by traders to deal with another trader, is a per se violation of Section 1 of the Sherman Act, and does not require a showing of public harm such as an effect on price, quality, or quantity of goods.


Facts:

  • Klor's, Inc. operated a retail appliance store in San Francisco.
  • Broadway-Hale Stores, Inc., a large department store chain, operated a competing store next door to Klor's.
  • Broadway-Hale used its significant buying power to persuade ten national appliance manufacturers and their distributors to conspire against Klor's.
  • The manufacturers and distributors, including well-known brands like General Electric, RCA, and Zenith, agreed with Broadway-Hale to either refuse to sell to Klor's or to sell only on highly discriminatory and unfavorable terms.
  • This concerted refusal to deal seriously handicapped Klor's ability to compete in the household appliance market.

Procedural Posture:

  • Klor's, Inc. filed a lawsuit for treble damages and an injunction against Broadway-Hale Stores, Inc. and ten appliance manufacturers and their distributors in the U.S. District Court (a federal trial court).
  • The defendants moved for summary judgment, arguing the complaint failed to state a valid cause of action under the Sherman Act.
  • The District Court granted summary judgment for the defendants, classifying the dispute as a 'purely private quarrel' that did not constitute the 'public wrong' required for a Sherman Act violation.
  • Klor's, Inc. (appellant) appealed the dismissal to the U.S. Court of Appeals for the Ninth Circuit (an intermediate federal appellate court).
  • The Court of Appeals affirmed the trial 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 concerted refusal by manufacturers, distributors, and a retailer to sell goods to another retailer constitute a per se violation of the Sherman Act, even without evidence that the boycott harms the public by affecting prices, quantity, or quality of goods offered?


Opinions:

Majority - Justice Black

Yes. A group boycott, or concerted refusal to deal, constitutes a per se violation of the Sherman Act without any need to demonstrate a broader public injury. This type of agreement is inherently anticompetitive and falls within the class of restraints that the Sherman Act forbids by its very nature. The court's reasoning is that such boycotts cripple the freedom of traders and restrain their ability to sell according to their own judgment, interfering with the natural flow of commerce. The act is intended to protect the competitive process itself, and allowing the piecemeal elimination of small businesses, one by one, would enable monopoly to thrive. Therefore, the boycott is not to be tolerated merely because the victim is a single small merchant whose destruction may not immediately and noticeably impact the overall economy.


Concurring - Justice Harlan

Justice Harlan concurred in the result, agreeing that the allegations in the complaint were sufficient to allow the case to proceed to trial. He noted that the affidavits submitted by the respondents concerning the availability of other retailers were not necessarily sufficient to constitute a defense against the claims.



Analysis:

This landmark decision solidifies the principle that group boycotts are per se illegal under the Sherman Act. By rejecting the lower courts' requirement of demonstrating 'public injury,' the Supreme Court significantly lowered the burden of proof for plaintiffs in such cases. The ruling reinforces that the Sherman Act protects not only consumer welfare in the aggregate (e.g., price and output) but also the structure of the market and the right of individual businesses to compete freely. This precedent serves as a powerful deterrent against powerful firms using their market influence to organize suppliers to eliminate smaller rivals.

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