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an incorporeal value the net result of all the activities of the functional unitthe good will of the consumer.
The smallest factory, located on a parcel of nearly worthless land, may, nevertheless, possess good will of inestimable value.
Economically, good will determines the competitive position of a business in the market place; as a matter of accounting, it is an essential element to be considered in arriving at the valuation of a business; legally, it represents a pecuniary interest recognized as property, and, as such, should be protected from unfair and dishonest competition.
The necessity of protecting the good will of an enterprise and of preventing competitors from appropriating a harvest which they have not sown is fundamental—it is but an application of the American principle of fair play.
The philosophy of fair dealing in competing enterprises contains, in addition to the materialistic interest of the business concerned, the idealistic interest of protecting the public from deception.
The butter industry has for many years been building up the good will of the American public toward yellow butter. No individual has done more to enlist this good will and to insure a superior product in return therefore than John. Brandt.
Not content to simulate the taste-through the addition of artificial butter flavoring, vitamin content, texture, melting point, packaging, and labeling of the dairy product—the oleomargarine industry has, of all the manifold colors of the spectrum, selected butter yellow as the one color best suited for its purpose—the manifest purpose of substituting its product for butter in the alreadyestablished butter market.
As evidence of the recognition by Congress that the claim of the dairy industry to the color of yellow is not without merit and that some measure of protection and control is warranted, the following brief historical sketch is submitted.
As early as 1870 an imitation product compounded of low-priced oils and fats was introduced in France as a spread for bread. This spurious product imitated not only the color, but the flavor, melting point, and other characteristics of butter.
In the following decade the United States was deluged with this hybrid concoction to the point where the States of New York, Pennsylvania, Delaware, and Maryland enacted legislation to protect their citizens.
Congress became cognizant of the inroads this substitute product was making in 1886, enacted a Federal law, placing on oleomargarine a 2-cent-per-pound tax to insure that its manufacture and sale would be subject to Federal supervision..
That this act was inadequate protection to the public and the dairy farmer is now a historical fact. The Congress in its effort to afford protection to the genuine product had overlooked one factor. That factor was that the one characteristic which readily distinguished between the genuine product and the imitation, i. e., color, had been overlooked in the drafting of the law. As a result widespread abuses were rampant; the 2-cent tax was summarily paid and much. oleomargarine was sold as butter. Thirty-two States, alarmed over this situation, had passed anticolor laws by 1902. The Congress, stirred into action by the acute situation, passed the Brout law in that year, providing for a 10-centper-pound tax on colored oleomargarine and a one-half-cent-per-pound tax on the uncolored product.
It is apparent, therefore, that by 1902 Congress had come to realize the importance of granting some measure of protection to the dairy farmer. It was cognizant of the all-out effort of the oleomargarine industry not only to imitate the labeling, packaging, and advertising features of the butter producers, but to simulate all the physical characteristics of the genuine product as well.
As further evidence of the intent of Congress to accord the dairy farmer a preemptive right to the color of yellow, we have congressional enactment as recent as 1931. At that time certain oleomargarine manufacturers had attempted to evade the prohibition against artificial coloring contained in the 1902 law by the use of palm oil in the manufacture of their product. This device gave to oleomargarine a yellowish color that could not be deemed under the act to be artificial coloring. Evasion was also achieved by mixing sulfur with cottonseed oil.
Incensed at this effort to simulate the characteristic color of butter and at the same time to evade the tax, the Congress, in 1913, enacted a law designed to restore the color of yellow to butter by providing for the 10-cent tax to apply to oleo colored yellow, artificially or otherwise. Respectfully submitted.
HARRY J. SCHORNIKOW.
The CHAIRMAN. Senator Fulbright, would you mind exchanging this memorandum with Mr. Holman?
And Mr. Holman, would you mind exchanging with Senator Fulbright whatever memo you get up on the same subject?
Mr. HOLMAN. I will be very glad to.
The CHAIRMAN. The contention of Senator Fulbright is that butter has no trade-mark right in the use of yellow color.
We will now hear from Mr. R. G. Lytle, general manager of the North Carolina Milk Producers Federation.
Will you identify yourself, please, Mr. Lytle, to the reporter, and proceed?
STATEMENT OF R. G. LYTLE, GENERAL MANAGER, NORTH CARO
LINA MILK PRODUCERS FEDERATION, GREENSBORO, N. C. Mr. LYTLE. I am R. G. Lytle, general manager of the North Carolina Milk Producers Federation, with headquarters at Greensboro, N. C.
The dairy farmers of North Carolina wish to present an appeal to this committee to pause in the rush of trying to repeal the tax on oleo in order to study the situation. There was in years gone by undoubted reason for rigid Federal regulation to prevent fraud and deceit in the oleo industry. Perhaps that situation has changed and some more changes may be needed in the present oleo law. Io completely remove the present regulation, however, with nothing in its place would strike a blow at both the consumer and the dairy farmer.
The dairymen of the Nation have spent millions of dollars to build up an acceptance and desire by the consumer for butter. To repeal the tax and not provide some safeguard regulations would allow the oleo interests to move into the thousands of public eating places. They could offer their product as butter and thereby steal the hard-won markets from our butter industry. It would be unthinkable that Congress would want to take a position unfair to all. To say that oleo can move into the market without proper regulation seems to us to be grossly unfair to both dairymen and consumers.
If the Congress feels that some change from the present law is necessary then an interim committee should be appointed to study carefully where the middle ground really is. Appointment of a special committee to study and report by a later date would avoid the risk involved in hasty action now.
To pass the present bill would strike a blow at the budding new industry in North Carolina. Our dairy production increased by about 5 percent last year and we are working hard to push it even higher this year. The
grass that is being sown, the additional fertility going back to our depleted soils, the regular income to our farmers, and the improved diet for our people are all good things that need encouragement. To say to the dairy people that your money and effort to increase the sale of butter is going to be offset by the repeal of regulation necessary to prevent deception and fraud would strike a blow.
Today in North Carolina we have surplus milk in some plants, milk that isn't needed in bottles. It is in too small quantities to transfer. We can, however, make the butterfat into butter. But what oulook is there for butter if the oleo salesman can offer his product in a manner where it is not clearly labeled for the benefit of the public?
Even though we have a small seasonal surplus now, North Carolina last year imported 60,000,000 pounds of milk from other States to put into bottles. Currently, milk from some areas is being offered at lower prices than we can afford to produce it for. If the present oleo tax were repealed and no other adequate regulations provided for, the bottom would be knocked out of the butter market. Outside milk producers would be even more anxious to find a market in our State at the expense of our producers.
I feel sure that at this time Congress would be doing a great injustice to repeal the present law without some substitute regulation. Today, as never before, Congress needs to try to see both sides and strike toward a fair condition for all. The rights of individuals are today very important, and allowing oleo unrestricted access to the butter market without regulation to prevent deception and fraud certainly doesn't safeguard the individual rights of milk producers or consumers of the Nation.
The CHAIRMAN. Thank you very much, Mr. Lytle.
To repeal the tax and not provide some safeguarding regulations would allow the oleo interests to move into the thousands of public eating places.
Do you have any regulations that you think would safeguard the industry that you would like to submit to the committee?
Mr. LYTLE. Senator, I do not have such regulations, and I doubt whether I would be capable of preparing such regulations. But I know that within the dairy industry, if given an opportunity to prepare them, someone, through the industry, can and will.
Senator Lucas. Well, now, this question has been debated around here for a good many years. Ever since I have been in Congress this question has been before us in one form or another, at some time. And it does seem to me that when you make this kind of a statement, in view of the long struggle that the dairy crowd has had with the oleomargarine crowd, you should have this before the committee.
What you want, as I understand it here, is for us to make an investigation ourselves. Mr. LYTLE. That would be our first recommendation on it. Senator Lucas. You say: They could offer their product as butter and thereby steal the hard-won markets from our butter industry.
Now, I do not know very many people in the margarine industry. I know more people in the dairy industry. Do you think that the margarine industry is that callous, as to go in and deliberately substitute margarine for butter?
Mr. LYTLE. Well, the reports this morning, in some of the other testimony, indicated that it has been done.
Senator LUCAS. I can understand, maybe, how a restaurant keeper now and then, some small fellow, who was unscrupulous, might do it. But I would hate to think that anyone was in the margarine industry who would deliberately sell his margarine for butter. And I do not believe they would.
Mr. LYTLE. We have legal cases, I believe, which can be produced, of prosecutions on record where they have done that.
Senator Lucas. Well, maybe so. If I thought the margarine crowd were in that kind of business, they would not get any consideration from me.
And if you have any proof on that, I would certainly like to have it, because that is a pretty tough statement: To say that they are just going to steal your butter market by selling margarine for butter.
Mr. LYTLE. We feel, Senator, that when you go into a restaurant and order butter, and you are given something else and
Senator Lucas. That is not what I am talking about. I am talking about the industry itself.
Mr. LYTLE. I am talking about the product being offered to consumers.
Senator LUCAS. I do not think that that is what you say here: To repeal the tax and not provide some safeguarding regulations would allow the oleo interests to move into the thousands of public eating places.
You are still talking about the oleo interests. They could still offer the product as butter, you say, and therefore steal the hard-won markets from the butter industry.
In other words, you are talking about the oleo industry stealing markets from the butter industry.
Mr. LYTLE. I believe our national federation has prepared a pamphlet listing quite a number of such cases.
Senator THYE. Mr. Chairman?
Senator THYE. Mr. Chairman, I am not a member of this committee and I always feel that I am trespassing at any time that I make any reference or any comments. But in all fairness to the testimony by Mr. Lytle, I think that the entire paragraph should be read. And it would read like this:
To repeal the tax and not provide some safeguarding regulations would allow the oleo interests to move into the thousands of public eating places.
That left me to understand that it was his statement that he was not charging the processor, but he was charging the fact that the product would go into the many public eating places.
I say that in fairness to Mr. Lytle.
Senator Lucas. I certainly am not trying to challenge the gentleman from North Carolina. I am merely trying to get his interpretation of his statement.
Mr. LYTLE. I see what you mean. My interpretation is exactly as the gentleman has stated: To the effect that without some sort of regulation nationally, that sort of thing would take place.
Senator LUCAS. I think I can agree with you on that; that there would be certain violations, or substitutions, if we did not have something technical with which to work.
That is what we have been trying to get from the witnesses, so that we could intelligently work on an amendment in committee on that, and so that we could work on that very thing.
Senator GEORGE. Has the State of North Carolina adopted any regulatory measures to protect the public?
Mr. LYTLE. Yes, sir; we have excluded the sale of the yellow oleomargarine in public eating places entirely.
Senator GEORGE. Excluded it?
Mr. LYTLE. Yes, sir. It can be sold in packages clearly labeled but not be sold in public eating places.
Senator GEORGE. It cannot be served in public eating places?
Senator GEORGE. Have they adopted any similar legislation against nylons?
Mr. LYTLE. No, sir; there apparently is not any deception as between rayon and nylon.
Senator GEORGE. Or cotton and rayon?
Mr. LYTLE. Apparently they are but they are taking it on their own merit and rayon and cotton are making it plain that their product is not nylon.
Senator GEORGE. Do not the oleo people make it plain that it is oleo and not butter?
Mr. LYTLE. No, sir.
Senator GEORGE. Did you hear the testimony of the Under Secretary of the Treasury that the Treasury saw no reason for continuance of the tax as a regulatory matter now that we have a Food and Drug Act and now that we have other regulatory measures that can handle the situation ?
Mr. LYTLE. No, sir; I did not hear that testimony, sir.
Mr. Rich L. Duncan, secretary-manager of the Falls Cities Cooperative Milk Producers' Association.
STATEMENT OF RICH L. DUNCAN, SECRETARY-MANAGER OF FALLS
CITIES COOPERATIVE MILK PRODUCERS' ASSOCIATION, LOUISVILLE, KY
The CHAIRMAN. Proceed, Mr. Duncan.
Mr. DUNCAN. My name is Rich L. Duncan, and I am secretarymanager of the Falls Cities Cooperative Milk Producers' Association at Louisville, Ky.
The Falls Cities Cooperative Milk Producers' Association is an organization of 1,600 dairy farmers of Kentucky and Indiana producing high quality, rigidly inspected milk, principally for bottle trade in the three Falls Cities markets. We do an annual business of approximately $9,000,000. We do not make any butter, and the buyers of our milk produce a relatively small amount with the exception of the flush months of April, May, and June.
Since our inception in 1931, we have been influenced by and dependent on the price of Chicago 92 score butter in our price-setting determinations and formulas. We received as little as 65 cents per hundred for our excess milk in June 1932, and our record high price was in December 1947, when we received $5.78 per hundred for all the milk which we produced. Ninety-two score butter was 16 cents per pound in June 1932, when we received the 65-cent price, and was 86 cents