So why go down to the independent merchant? Why not go to the mail-order house and buy it because it is practically the same thing, but you get it for 25 percent off.

Do you think we might be setting up a situation that there-that they could circumvent the intent of this legislation by just keeping the trademark off but in essense as far as the volume of business is concerned continue with the same unethical practices and could we do anything about it if they do.

Mr. PELLY. I think first of all it should be pointed out that there is no compulsion on any manufacturer of branded merchandise to operate under fair trade.

And, therefore, he can if he wants to, get dealers who will handle his branded merchandise and cut prices or do anything they desire. The only thing it does is it gives another manufacturer who desires to protect his good name to see that there is no price cutting.

Now, to answer your question: In my opinion the force of advertising is so great that there is no danger of the point that you raise, because as long as you advertise brands and get public acceptance and responsibility on the part of manufacturers to back up that brand, they value their trade name so much that I think the public is going to always prefer to get an item on which there is the trademark of responsibility.

Mr. AVERY. Thank you, Mr. Chairman.

Mr. MACK. Mr. Pelly, I didn't intend to ask you any questions. But you seem to be so well informed on this subject generally and you have made such an outstanding statement and replied to the questions so intelligently I thought I would ask you a few questions.

In your Bill, would a fair trade item sell for the same price in a country or neighborhood store as it would in a department store. Mr. PELLY. That is correct.

Mr. MACK. Is there any provision in your bill to take care of large purchases of the same item?

Do you follow that?

Mr. PELLY. Yes. The fair trade agreement could provide for quantity prices; that if you sell by one that you maintain the fixed price for one. But if you sell by the dozen, you can sell-which is normalthe people 12 for the price of 11-that is often the standard practiceyou buy a box of them and make a little saving.

Mr. MACK. Would that be provided in the law.

Mr. PELLY. It would be under the agreement signed between the manufacturer and the dealer.

Mr. MACK. Then-it would never be possible for them to give this item away; is that right?

Mr. PELLY. No. There is provision in the legislation under title 2, I believe, which provides that the damaged merchandise or distress merchandise can be liquidated; but in general it leaves the terms up to an agreement between the manufacturer and the distributor.

Mr. MACK. The problem I mentioned would be solved by the agreement between the manufacturer and the distributor or the retailer? Mr. PELLY. I think it is always a good trade policy to allow for a saving to the customer if he will buy the large bottle instead of the small one.

Mr. MACK. And you would have the same arrangement.

Mr. PELLY. Buy the economy size, as you are urged on TV. Mr. MACK. But you would have the same arrangement so that say someone operating a nursing home, could take advantage of a quantity discount in their small business.

Mr. PELLY. Oh, yes.

Mr. MACK. Thank you very kindly.

The CHAIRMAN. Is the bill you introduced

Mr. PELLY. It is identical with yours, Mr. Harris.

The CHAIRMAN. Thank you.

Mr. PELLY. That is to indicate the great confidence I have in your legal ability which I don't have.

The CHAIRMAN. Thank you for your confidence.

Mr. MACK. Thank you, Mr. Pelly.

Mr. MACK. The next witness is our colleague from Ohio, the Honorable Thomas L. Ashley. Mr. Ashley, we will be glad to hear you at this time.

STATEMENT OF HON. THOMAS L. ASHLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

Mr. ASHLEY. Mr. Chairman, I am pleased to have the opportunity to testify before your distinguished subcommittee in behalf of H. R.

10527.

The purpose of this bill is to equalize rights in the distribution of identified merchandise by establishing a permissive national resale maintenance program designed to preserve the benefits of the operation of the price mechanism in free competitive markets. The bill, if enacted, will enable the small manufacturer, wholesaler, and retailer to compete in marketing branded commodities with the large, independent manufacturers and wholesalers who are sufficiently integrated to control their own outlets.

The necessity of this legislation is sufficiently attested to by the recent sharp decline and dangerously high mortality rate of small businesses across our Nation. It is my understanding that during peak prosperity years 1953-57, inclusive, small business failures account for 64.6 percent of the Nation's total bankruptcies. Such disaster, having befallen small business, has now reflected itself in our present economic recession. It is important to remember that the small, independent retailer who still distributes over 50 percent of this country's goods is the economic backbone of a free competitive society and without legislation such as the proposed H. R. 10527 small business faces the threat of economic extinction.

The opponents of a resale maintenance program insist that competition, to be fair, must be absolutely unrestrained. But it has long been recognized that unregulated trade leads to unethical practices and unfair competition. The small or medium sized manufacturer or brand owner who cannot afford to finance his distribution should be enabled to compete with the financially powerful manufacturer or brand owner who controls all the outlets for the distribution of his branded products. To this end the law should be so framed as to enable the small manufacturer and retailer to enlist the assistance of independent distributors through the establishment of prices to the ultimate consumer.

The weakness of a competitive system operating without resale price maintenance of identified goods is evident in each phase of the factoryto-shelf process. The ratio of failures of small-business men, driven out of business by the lack of such a resale program, is exactly proportionate to integration of large manufacturers having the resources to accommodate themselves to the situation, with their retail outlets and resultant ultimate control of distribution. The small manufacturer suffers at the hands of consumer-hungry distributors who resort to unfair and deceptive marketing devices such as loss-leader sales and related pricing practices of identified brand name goods. These practices are designed to lure a consumer public dazzled by the low price of time-tested, familiar-brand articles. What the public seldom realizes is that larger retailers can afford profitless prices only if the leader-loss is recouped elsewhere in unidentified or inferior goods. Manufacturers suffer because leader-loss prices drive out smaller competition; profitless prices become established prices; outlets are narrowed and there are fewer markets for the consumer. Previous experience bears out the fact that loss-leader sales result in loss of public confidence and loss of respect.

I do not have to tell this committee that in a mass-production economy such as ours any threat to small independent retail business is a very real threat to our entire economy. We have in this country legislation which protects labor and softens the rigors of harsh and unfettered competition by the requirement of the payment of minimum wages. We have also thought it wise to protect the farmer against completely unfettered competition. In both of these instances, which I believe are wise, we have done so because we believe that the interests of certain segments of our society must be protected against unfair and monopolistic competition. I believe that it is just as wise and just as important that we afford similar protection to the small manufacturer, to the small wholesaler, and above all the small independent retailer.

I do not have to point out to this committee that it is the essence of a resale price-maintenance program to eliminate price competition between distributors of particular identified articles where the resale price has been duly established. The proposed law is limited to identified merchandise which is in free and open competition with articles. of the same general class. I believe the evidence adduced before this committee will demonstrate that this kind of protection for equal distribution does not result in undue price increases, but on the contrary tends to hold the line against inflation more effectively than other merchandise.

H. R. 10527 is strongly supported by the independent manufacturers, wholesalers and retailers in my District and in my State for what I believe to be time tested, valid reasons. The last decade has witnessed a consistent trend in the distribution and service business of this Nation toward bigness and a coincident growth in the number of failures, liquidations, and mergers of small firms. Certainly this indicates a need for concerted and intelligent action to reverse this dangerous trend. I understand that 45 out of 48 States have permissive price maintenance statutes to cover the distribution of identified merchandise and rather than drift in the wake of State law on a matter of national importance, I earnestly recommend that this com

mittee report this bill favorably to the floor of the House and give Congress the opportunity to reaffirm its faith in the antitrust laws of our Nation.

Mr. MACK. Mr. Ashley, we appreciate your appearance and the testimony you have given.

Mr. ASHLEY. Thank you, Mr. Chairman.

Mr. MACK. The next witness is our colleague from Connecticut, the Honorable James T. Patterson.

Mr. Patterson, we will be glad to hear you.

STATEMENT OF HON. JAMES T. PATTERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CONNECTICUT

Mr. PATTERSON. Mr. Chairman and members of the committee, I wish to thank you for the privilege and opportunity to appear here today in behalf of the hundreds of small business enterprises located in the Fifth Congressional District of Connecticut that I am honored to represent in the Congress. And I believe that I can say unqualifiedly that I represent the concensus of sentiment among the smallbusiness men in my district when I endorse H. R. 10527, a measure designed to establish fair trade, or, more technically, resale price maintenance on a nationwide basis.

I hold in my hand here over 300 telegrams and letters from my constituents-small-business men and their relatives and friends-all urging me to support H. R. 10527, and I wish to add that I have not received a single communication from any consumer or consumer group in opposition to the pending proposal. I have never before received so many messages urging me to support any other small business legislative measure.

I have letters and telegrams here from every city and town in my district that represent a cross section of small manufacturers, distributors and retailers. Personally, I am particularly glad to receive these messages because they reinforce my own firm convictions relative to the pending bill.

We all know that the cause of fair trade has received severe blows within recent months from the courts of many States and from announcements by major companies that they will no longer attempt to enforce fair-trade pricing of their products. Clearly a new approach to fair trade legislation is needed if it is to permit small retailers from the insidious practice of large retailers and chainstores using trademarked merchandise as loss leaders.

The imperative need of Federal legislation is due to a fatal weakness in the fair trade laws of many States. I am referring to the socalled nonsigner clause. This provision binds a retailer not to sell a trademarked item at less than the price stipulated by the manufacturer or distributor provided a single retailer in the same State had signed a contract to this effect. In States having fair trade laws such a contract between a single retailer and a manufacturer was declared by the fair trade law to be binding on all other retailers, whether or not they signed such a contract. It is this nonsigner clause which has been declared unconstitutional by the supreme court of 14 States. Largely as a result of these court decisions, many companies have abandoned fair trade pricing.

H. R. 10527 has the great advantage over the earlier fair trade laws in its scope and simplicity. It does not require either a signed fair trade contract or the operation of the nonsigner clause to make it valid. Thereby it overcomes the most general of the State courts to the fair trade laws passed to date. What this bill does provide, in essence, is that the manufacturer of trademarked or trade name merchandise may, if he chooses, lawfully "establish and control by actual notice to his distributors of the stipulated or minimum resale prices of his merchandise in commerce which is in free open competition with articles of the same general class produced by others." If this minimum price established by the manufacturer is cut by a dealer, the manufacturer or other dealers who suffer or reasonably anticipate damage from such price cutting may sue in any State or Federal court of competent jurisdiction.

There are a number of things about this bill which, in my judgment, give it particular merit. In the first place, it does not in any sense restrict the manufacturer in his pricing policies. He may establish a resale price on his trademarked product or not as he chooses. Between these that do and those that don't, healthy competition should prevail.

Secondly, it fosters competition. You will note that this bill provides for the right to maintain specified retail prices only where such "merchandise is in free open competition" with similar articles of other manufacturers.

It does not allow the manufacturer with a monopoly on a product to enforce a resale price. Further, as has been the goal of all fair trade legislation, it puts the small dealer, who cannot afford to engage in the price-slashing tactics of his more powerful chainstore or mail-order house rival, in a fairer competitive position.

While some may wish to argue that price wars and loss-leader tactics benefit the consumer, it is quite clear that this is a shortsighted position.

Hundreds of instances could be cited within the first 4 months of this year to prove that cutthroat competition has resulted in bankruptcies of small-business enterprises, thereby increasing the trend toward monopolistic power in the hands of fewer and larger distributors. Where bargaining power of chainstores and other large distributors is great, small manufacturers, too, find themselves in a more favorable position, if fair trade pricing is permitted, and this is particularly true in the Naugatuck Valley.

The danger of ruthless cutthroat competition is especially acute in a period of economic recession such as we are suffering now. Furthermore, many small businesses have ceased to exist as separate economic units as a result of being swallowed up in mergers with bigger companies. With consumers being more cautious in making their decisions as to where and what to buy, we may expect new heights of cutthroat competition that can endanger the welfare and very survival of thousands of dealers throughout the land, and force them to fire many of their employees.

What our country needs today, as it has throughout its history, is a determination to insist upon honest free enterprise competition. Our national economy has been built upon the principle of free enterprise. Our antitrust legislation has been the legal embodiment of