1 chandise upon which a proprietor has established a particular stipulated or minimum resale price crosses State lines at any stage of distribution, these provisions shall apply to all his identified merchandise to which that price applies" and that, if "no substantial part" crosses State lines, they shall not apply. New paragraph (8) would provide for defenses to an alleged violation of proposed paragraph (5). New paragraph (9) of section 5 (a) would amend the existing paragraph (6) and would provide that "all distributors of the merchandise of the same proprietor sold under the same mark or name may cooperate with him in maintaining the stipulated or minimum prices established by him, or his sole distributor specifically authorized for that purpose, and no such cooperation shall constitute an unreasonable or unlawful contract or combination in restraint of trade." The apparent purpose of this proposed legislation is to greatly expand the present so-called Federal fair-trade laws, i. e., the Miller-Tydings and McGuire Acts, which are considered enabling legislation in that they merely exempt from the provisions of the Federal antitrust laws and the Federal Trade Commission Act under specified conditions fair-trade contracts and the exercise or enforcement of rights of action created by State law. However, the instant bill purports to grant a Federal right of action. Not only that, but any person damaged by a violation of paragraph (5) would be permitted to sue "in any State or Federal court of competent jurisdiction." Several States have not enacted fair-trade laws, and others have held the State fair-trade law to be unconstitutional. This bill seeks to enable persons to use the courts of these and other States to enforce resale price maintenance. This would appear to be an unwarranted encroachment on the sovereignty of such States, and the authority of Congress to confer such rights, we feel, is open to serious question. While the bill contains a number of ambiguities which would raise problems with respect to its application and enforcement, of serious concern to the Department of Justice is that part of paragraph (9) which seeks to exempt from the antitrust laws "cooperation" in maintaining stipulated or minimum prices by "all distributors of the merchandise of the same proprietor sold under the same mark or name." Since, by the terms of the bill, it would be lawful for a proprietor to establish and control resale prices on merchandise merely by the giving of actual notice, an exemption such as that provided for in paragraph (9) would, we feel, amount to practically an indirect repeal of the Sherman Antitrust Act. There would seem to be nothing except the vague requirement that merchandise be "in free and open competition with articles of the same general class produced by others" to prevent all manufacturers of merchandise from establishing resale prices for their products. Once established, they could obtain cooperation from all of their distributors in maintaining such prices and such cooperation would appear to include boycotts, intimidations, coercion, and the like. Furthermore, under section 5, schedules of resale prices "with reference to any criteria not otherwise unlawful" could be established. And this could be done, even though a manufacturer competed with his distributors, so long as he sells at the applicable prices he has established for distributors making "comparable sales." The Sherman Act has been called our charter of economic freedom. This proposed legislation, particularly in view of its exemption features, is totally inconsistent with the terms of the Sherman Act and this Nation's concept of free competition. Enactment would be an affirmative approval by Congress of the elimination of competition, and would result in a serious weakening of the Sherman Act. It is through the basic American principle of free competition that our economy has kept dynamic and vigorous. Absent competition in price, the substance of true competition is lost. The bill would suppress competition at the manufacturing level and at all levels of distribution. Obviously, competition would be eliminated at the retail level, since this is the apparent purpose of the bill. It would also be suppresed at the distribution level, even when the manufacturer himself is competing with his distributors. Although the bill, ostensibly, would prohibit other horizontal agreements, the same result could be achieved by competing proprietors establishing similar resale prices. This is particularly true when all distributors are authorized to cooperate with their proprietors in maintaining fixed resale prices. In summary, the language of H. R. 10527 is so broad that it would seem that virtually every item used by consumers in their day-to-day living could be the subject of resale price maintenance-prefabricated or mobile homes, automobiles, appliances, clothing, packaged foods, drugs, etc. This bill would enable price rigidity by proprietors which would not necessarily take into account the changing economic conditions of a free competitive system. We feel Congress should give very serious consideration to whether it desires to enact legislation like H. R. 10527, which would, in effect, repeal, pro tanto, the Sherman Antitrust Act and drastically change the basic concepts of our competitive economy. In the light of the foregoing considerations, the Department of Justice is opposed to the enactment of the bill. The Bureau of the Budget has advised that there is no objection to the submission of this report. Sincerely yours, Hon. OREN HARRIS, LAWRENCE E. WALSH, THE SECRETARY OF COMMERCE, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C. DEAR MR. CHAIRMAN: This letter is in reply to your request, dated February 7, 1958, for the views of this Department with respect to H. R. 10527, a bill to amend the Federal Trade Commission Act, as amended, so as to equalize rights in the distribution of identified merchandise. The subject bill would rewrite the McGuire Act (66 Stat. 632) along the following lines: Under this bill, a "proprietor" is one who identifies merchandise manufactured or distributed by him by the use of his trademark or trade name. A proprietor is deemed to retain a proprietary interest in such merchandise after he has sold it to distributors, by reason of his interest in stimulating demand for such merchandise through effective distrbution to ultimate consumers, and by reason of his further interest in the trademark or trade name identifying his products. A distributor is a proprietor of merchandise which he identifies, and of merchandise which the manufacturer identifies, when he is a "distributor specifically authorized by the manufacturer to establish resale prices for such merchandise." It would be lawful for a proprietor to establish and control, by actual notice to his distributors, stipulated or minimum prices of his merchandise which is in free and open competition with articles of the same general class produced by others. "Actual notice" of established resale prices includes notice imparted by mail, or through advertising, or through notice attached to merchandise, or containers, packages, or dispensers thereof, or imparted orally. It would be unlawful for any person with actual notice of any applicable minimum resale price to sell, offer to sell, or advertise merchandise in commerce at a lower price except: for closing out stock; damaged merchandise; under a court order; merchandise acquired prior to actual notice; or to charitable institutions or Government agencies, not for resale to the consuming public. Provision would be made against price fixing between proprietors, manufacturers, producers, wholesalers, brokers, or others in competition with each other; and against two or more proprietors or distributors taking joint action in establishing resale prices for competing commodities sold under different trademarks or trade names. All distributors of the merchandise of the same proprietor sold under the same mark or name could lawfully cooperate in maintaining the stipulated or minimum prices. In brief, the enactment of H. R. 10527 would amend section 5 (a) of the Federal Trade Commission Act in such a way as to constitute a Federal fair trade law effective throughout the United States, save and except those States or Territories which do not sanction resale price maintenance. The Department of Commerce recommends against enactment of H. R. 10527. In our view, the proposed enactment would constitute an endorsement by the Federal Government of price fixing by the manufacturer through the entire distribution process, rather than acquiescence by deference to State authority (as / under present legislation) in those States which authorize fair trade. Further, it would specifically establish a retention of a proprietary interest by the manufacturer after outright sale of his goods and during a succession of changes of ownership at all levels of trade. In our opinion this would be a dangerous precedent, contrary to current concepts of property rights. The Bureau of the Budget has advised that it would interpose no objection to the submission of this report to your committee. Sincerely yours, SINCLAIR WEEKS. Secretary of Commerce. EXECUTIVE OFFICE OF THE PRESIDENT, Hon. OREN HARRIS, BUREAU OF THE BUDGET, Washington, D. C. May 13, 1958. Chairman, Committee on Interstate and Foreign Commerce, MY DEAR MR. CHAIRMAN: This is in reply to your letter of February 7, 1958, requesting the views of this office with respect to H. R. 10527, a bill to amend the Federal Trade Commission Act, as amended, so as to equalize rights in the distribution of identified merchandise. The Departments of Commerce, Justice, and Agriculture, and the Federal Trade Commission have raised important objections to H. R. 10527. The Bureau of Budget is in general agreement with the views of these agencies and recommends against enactment of the legislation. DEAR CONGRESSMAN HARRIS: Your letter of February 7 asked for our comments on H. R. 10527, a bill to amend the Federal Trade Commission Act, as amended, so as to equalize rights in the distribution of identified merchandise. As we understand it, the present Federal Trade Commission Act recognizes the right of manufacturers to prescribe minimum or stipulated prices for identified products as long as such right is recognized by the State, but the act does not affirmatively establish such right regardless of State legislation in the field. H. R. 10527 would provide for notice by a "proprietor" to his distributors specifying stipulated or minimum resale prices on his merchandise and would make it unlawful for any person with actual notice of such a stipulated or minimum price to fail to observe it. This would have the effect of establishing a Federal policy concerning the legality of such resale price arrangements which would prevail regardless of State legislation, with affirmative provision being made for actions for damages and injunctive relief for violation thereof. The Department of Agriculture does not favor passage of this bill. In general, the Department of Agriculture has opposed various efforts to fix minimum retail prices. The Department believes that competition, including price competition, is healthy throughout the distributive system and should be encouraged rather than prevented. Most farm products are not identified by trademark or brand name. It would not be practicable for the producer or distributor to enforce resale price arrangements for such unidentified products. On the other hand, many of the commodities farmers buy are identified by trademark or brand name. Farmers would like to see more price competition in the markets for the goods they buy. The Bureau of the Budget advises that there is no objection to the submission of this report. Sincerely yours, E. T. BENSON, Secretary. Mr. MACK. I would like at this time to permit our colleague, Mr. Friedel, who is a member of this committee the opportunity of testifying first this morning. I understand that his statement is rather short. Mr. Friedel has given a lot of study to this subject. He has introduced one of the bills and we would like to hear from him. The Honorable Sam Friedel. STATEMENT OF HON. SAMUEL N. FRIEDEL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MARYLAND Mr. FRIEDEL. Thank you, Mr. Chairman and members of the committee, I will be very brief, because I have to attend another committee meeting. I want to thank you for giving me this opportunity. On March 6 I introduced in the House of Representatives, H. Ř. 11216 as a companion bill to H. R. 10527 which was introduced by my distinguished colleague, Representative Harris, the chairman of this full committee. Both bills are now pending before this committee. At this time I wish to call attention to the fact that though my bill is identical in all other respects with H. R. 10527, it does contain a deletion in paragraph 9, page 8, lines 20 to 25 on page 8, and lines 1 and 3 on page 9 in H. R. 10527, which has been deleted in my bill, H. R. 11216. So that the first line in paragraph 9 reads: Nothing contained in this subsection shall permit. The rest of the paragraph 9 is identical with H. R. 10527. These few lines were deleted in my bill, H. R. 11216 since it was evident that a clarification of language was necessary in order to remove any possible misunderstanding with respect to the bill's objective in equalizing rights at all levels of distribution. It is a technical change and in view to clarify the congressional intent. My introduction of a companion bill, H. R. 10527 is in itself an affirmation of the objectives which enactment of H. R. 10527 will achieve. However, I wish to reaffirm to the committee my wholehearted support for this legislation which is so urgently needed if the big-business men of America are to have a chance to survive and make their indispensable contribution to our economic and social growth. I deeply hope that the committee will recommend it to the Congress for enactment. Thank you, Mr. Chairman. Mr. MACK. Thank you, Mr. Friedel. (No response.) Mr. MACK. Thank you very kindly. The CHAIRMAN. I would like to say, Mr. Mack, if I might be permitted, that I appreciate the interest our colleague has in this legislation. He recognizes the difficulties that exist today, and the great deal of confusion in the field because of the different interpretations which the various jurisdictions throughout the country have placed on the McGuire Act. The constitutional provisions of some of the States leave the whole matter up in the air. Our colleague from Baltimore, a very able and astute member of this committee, recognized that situation, and I welcome his introduction of the bill, along with the bill that I introduced, in an effort to help clarify the present situation. Mr. FRIEDEL. Thank you very much. Our next witness is a former member of this committee and one of the most distinguished Members of the House of Representatives. Our colleague, Mr. Pelly. STATEMENT OF HON. THOMAS M. PELLY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON Mr. PELLY. Thank you, Mr. Chairman. I can't refrain from commenting that it is always a pleasure to return to this great committee that I served with and of which I have such pleasant recollections. I would like to say before I begin my prepared statement that when I became aware of the interest of Mr. Harris, the chairman of this committee, in the small-business concern, I introduced a companion bill to his not because I felt that I could contribute in the way of constitutional law and the technicalities, the legal technicalities; but rather that out of an experience of some 25 years or more in the retail field that I might in some way help toward the solution of a problem that I know concerns us all. And I hoped that in that way particularly to be helpful to a man that I admire greatly, Mr. Harris. And so with due humbleness as to my lack of being trained in the law, I will now, if permitted to do so, read my statement. I want to again thank you and the members of the committee for giving me the privilege to appear and speak for my bill, H. R. 10847, a bill proposed to bring back into our domestic economy some semblance of law and order in the retail field as it relates to trademarked brand merchandise. The Chicago Daily News of March 11, 1958, carried an article by Sylvia Porter from which I quote: Price wars which have followed the abandonment of fair trade on small appliances may be building plenty of business for the big stores, and they are certainly giving consumers a chance to grab some bargains, but the wars also are dooming small appliance retailers the Nation over. The newspaper article referred to the House Small Business Committee's prediction in January 1957 that if small-business failures and big-business expansions continue at the rate of the previous 5 years, most of the distribution and service business of the Nation and all manufacturing business within 18 years would be controlled by giant corporations. For myself, Mr. Chairman, let me say bigness is not anything to apologize for, except when failures of small business, independent businesses, are a contributing cause to size. I believe the backbone of our competitive economy and of free enterprise is the neighborhood or family type of business, the independent operator with a few employees, and the smaller concern. This is the kind of store whose policies conform to the grassroots idea of service and profit incentive, and offer customers year-in and year-out responsibility. This is the kind of business that gives America its high living standard. I am aware of course of the theory whereby certain economists believe that the cure to the present recession lies in attracting consumers and the public by price adjustments; in other words, to draw people |