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.
Does anyone have any questions?

(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.
Mr. MACK. Thank you.

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

into the market places to unload inventories and by stimulating purchases to overcome a psychological public attitude of restraint.

However, Mr. Chairman, if such action was instituted, it would in no way disturb the planning outlined in my bill or similar bills before the Congress. In other words, what my bill proposes is to protect trademarked brand merchandise and nothing beyond that. Even if this is accomplished through an act of Congress it does not create any monopoly where there is competitive merchandise minus trademarked brands in the open market.

In many instances, these large corporate chains merchandise their own brands; so this means this is a free and open market for John Q. Public to be served through.

A wretched price situation existed in the early thirties in the depression days where advertised trademark brands were used as loss leaders and, in most instances these trademark brands were sold at less than cost with the hope of attracting buyers into the establishment where they sold unbranded merchandise, and the public did not gain and independent retail establishments were severely injured.

The Congress, realizing this situation, in or around 1937 enacted the Tydings-Miller law. This law held good for some few years until action of the Supreme Court nullified certain sections of the law and then left the field wide open again for certain classes of retailers to use trademarked brands as loss leaders, all at the expense of the trademark brand manufacturer. And secondly injuring competent, efficient, independent trade.

Then again, the Congress, realizing the injury sustained in the nullification of the Tydings-Miller law on certain sections of the law, by legislation instituted the McGuire Act, the national law.

There is no need, Mr. Chairman, for me to go into what took place from that moment on. The record speaks for itself.

But independent retailers find themselves in the same position now; in fact, now even worse than under what existed prior to 1937.

During the hearings on the McGuire Act, there was a statement made by, I believe, a competent witness who appeared before this committee. I believe his background was in industry for over a quarter of a century as an independent retailer, and it will be found in his remarks before this committee that he mentioned that all fair-trade legislation did was to place competition where it rightfully belonged, with the producer of trademarked brands.

I am referring to the testimony of Mr. George J. Burger, vice president of the National Federation of Independent Business. Many of my colleagues are well acquainted with the gentleman and know of his experience in small business.

You and I know that the Nation's buyers are being fooled in trading areas with these so-called discount houses. Of course they feature trademarked brand merchandise in most instances. The responsibility for their existence is largely due to weak sales policies of the trademark brand manufacturer. In other words, the producer in his greed for volume has no real interest as to where his merchandise is sold so long as he, the producer, gets the volume. That might be a fine situation with those producers of trademark brands if they carried on their overall policy exclusively with discount houses, but it would appear to me that where they seek other retailers to handle

their merchandise and expect these retailers to create public acceptance, then there is some reason for the Congress to write into law as it applies to interstate commerce, some justifiable protection for the many hundreds of thousands of independent retailers handling trademark brand merchandise throughout the Nation.

Before coming to Congress, I operated a retail stationery business and in my time I have signed a good many fair-trade agreements with manufacturers. To stay in business and pay half decent wages and not go bankrupt it is essential to average certain gross profits, to give a 20 percent discount requires more than twice the volume one would otherwise do.

The other day I came across some of my old figures. The store gross profit percentage which is before expenses were deducted, was 36.88 percent. Percentage of expense was 34.32 percent. So in this case the profit before tax in nonoperating cost was 2.56 percent of sales. Thus it is with a smaller business, there is hardly enough profit and frequently losses.

So there is little incentive to encourage a businessman to continue. Always there is the temptation to sell out and go to work for a big fellow or chain and thereby avoid the long hours, worry, and risk, and probably make more money at the end of the year.

But it will be a sad day for this Nation and its basic economy without the individual smaller firms. That, however, is the trend and what will happen without fair-trade laws, in my opinion, to allow for protection of quality of merchandise and trade brands and against ruthless price cutting by powerful monopolistic concerns with practices designed deliberately to eliminate competition, often by selling below

cost.

Mr. Chairman, I want to be on record so there can be no misunderstanding, that I will not be interested in sponsoring any legislation that would create a monopoly, whether the monopoly applied to a large segment or small segment in our economy. My legislation would not create that situation.

Further, Mr. Chairman, if I thought that my legislation would open up the door for collusion between producer and retailer or through groups of retailers, then I say to you and members of the committee, I would ask you to vote down the legislation.

Finally, Mr. Chairman, it is my hope and trust for the good of the efficient independent business, not alone in my State and district, but throughout the Nation, that this committee report out sound and workable legislation, as we cannot permit independent business in the various communities throughout the Nation to be destroyed through the ruinous, vicious unfair competition, all tending to create a monopoly.

I might add one other thought. I do believe that if consistent, vigorous enforcement of the antitrust laws had been carried out by the Government consistently throughout the past 50 years, there never would have been any need for my legislation or similar legislation now before your committee.

Thank you.

Mr. MACK. Thank you.

We especially appreciate your testimony not only as a former member of this committee but also as a former businessman with a broad experience in this field.

Would you permit a few questions from the committee?
Mr. PELLY. I would be happy to.

Mr. MACK. Mr. Harris.

The CHAIRMAN. I appreciate having our colleague back before the committee, even as a witness. We recall the days when he served very ably with us on the committee.

I personally am glad to see his interest manifested in this proposed legislation in an effort to help work out the present chaotic situation. Mr. AVERY. I don't know as I have any questions. I would like to associate myself with you on the observation that you made, Mr. Mack, particularly in expressing our appreciation from our colleague from Washington for presenting this statement in view of the fact of his past experience as, I presume, a small-business man.

It would seem to me that the perspective that you put this in is probably as direct as any testimony that we will have before the committee, because I doubt if very many small-business men will personally travel very many miles to come and express their views on this. legislation that is before us this morning.

So rather than viewing your testimony as a colleague, with your permission I would like to put it into the perspective of being that representative testimony as a small-business man, competing in this rather ruthless competition that surrounds every metropolitan area.

Mr. PELLY. Thank you. That is the way I hoped it would be taken because it is as a small-business man that I gained interest in legislation of this type.

Mr. MACK. Mr. Dollinger.

Mr. DOLLINGER. No questions.

Mr. MACK. Mr. Alger.

Mr. ALGER. Would the gentleman tell us what opposition he thinks there will be to this bill from your experience?

Mr. PELLY. I think there will be very definite opposition of course from groups that would represent the discount houses and very naturally so. I think that some manufacturers, too, might not want to go back to fair trade if they had it before. It was the experience of many of them that it laid them open to, of course, competition.

Take a manufacturer of a fountain pen, for example; he naturally advertises his branded merchandise and then certain local drug or stationery stores will maintain the price on that brand of merchandise. Now, that manufacturer, too, might make a comparable item which does not have a trademark and which would be sold through, we will say, jewelry stores or others at maybe different prices, maybe higher. But it makes quite a lot of detail work for a manufacturer.

And after all, in the last analysis, what the manufacturer is interested in is sale of his products and the volume that he can get. So if he can sell to discount houses and to all types of merchants, probably in the long run he thinks he will gain.

My contention is, however, that if the trend continues, he is going to lose so many outlets in the way of small independent businesses that he will actually lose volume in the end.

Mr. DOLLINGER. Mr. Pelly, would you say that the consumer groups might object to your bill?

Mr. PELLY. If they understood it I don't believe, Mr. Dollinger, that they would. Because it actually does not in any way interfere