FAIR TRADE THURSDAY, MAY 1, 1958 HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D. C. The subcommittee met at 10 a. m., pursuant to adjournment, in room 1334, New House Office Building, the Honorable Peter F. Mack, Jr. (chairman), presiding. Mr. MACK. The committee will come to order. The Chair would like to make a very short statement today to supplement what he said when the hearings started. He finds it necessary to make this statement because of certain comments which were made yesterday. It seemed that some of the witnesses were confused as to our procedures. So, to be very clear, so there will be no question in anybody's mind, the chairman and the committee arranges the schedule of witnesses. The schedule is not arranged by any association and the affairs of this committee are not run directly or indirectly by anyone other than the members of this committee. The Chair has taken upon himself to arrange the schedule of witnesses and it will be done at the convenience and for the convenience of this committee. We are very sorry that we don't have time in 3 days to hear the full testimony from all witnesses. We have always tried to be extremely fair and will continue to do so. So, at this time I would like to state that it is my intention to give every witness all of the time that he desires. If he needs an hour or 2 hours to cover the subject, we will make that time available to him at our convenience. If we have witnesses who are pressed by other business and desire to return to their respective cities today, it will be necessary for them to submit their statments. But if they desire to wait their turn, they can have whatever time they need to express their viewpoint. I also want to state that the committee is just as fair to the proponents as they are to the opponents. We try to give everyone adequate time and, as I said, if anyone wants to wait his turn, we will give him all the time he wants. If they are pressed for time and do not desire to return when the committee has time to hear their testimony, then we will accept their statements today. We cannot permit them to proceed as they did yesterday for 10, 20, or even 30 minutes. If anyone wants to submit his statement today, the Chair believes that 3 minutes is adequate for him and a maximum of 5 minutes for anyone who submits a statement. The first witness we have today is the representative of the Proprietary Association, Dr. Howard A. Prentice, executive vice president. Mr. Prentice. STATEMENT OF DR. HOWARD A. PRENTICE, EXECUTIVE VICE PRESIDENT, PROPRIETARY ASSOCIATION Mr. PRENTICE. Mr. Chairman and gentlemen of the committee, I think I will take 30 seconds, with your permission. I have filed a statement with the clerk, and copies reached members of the committee. It is a one-page statement, and our position simply is that we support this bill, and our statement which we are now filing gives the reasons for that support. That is all I wish to present to the committee. I will be glad to answer any questions, since I am here, but I know your time is very precious. Mr. MACK. Thank you very kindly, Mr. Prentice, and I hope you have established some kind of a precedent for the other witnesses. (The statement referred to is as follows:) STATEMENT IN SUPPORT OF H. R. 10527 BY THE PROPRIETARY ASSOCIATION, WASHINGTON, D. C., BY DR. HOWARD A. PRENTICE, EXECUTIVE VICE PRESIDENT The Proprietary Association, a 77-year-old national association of the manufacturers of proprietary medicines, supports H. R. 10527 and urges favorable consideration and passage of this bill. H. R. 10527 is directed toward establishing a sound legal status for fair trade. This statement reaffirms the support the Proprietary Association has rendered fair trade in the past. Congressional hearing testimony on the Miller-Tydings Act of 1937, and the McGuire Act of 1952 indicate this support. The Proprietary Association's membership includes the manufacturers of drug products-packaged medicines-which are completely labeled with directions for use and with warnings against misuse, and which are advertised to the public for use in home medication. Such products are known as "proprietary medicines." Proprietary medicines are sold under brand names, many of which are registered in the Trade Mark Division of the Patent Office. They are nationally advertised and in several instances are internationally advertised. A tremendous amount of goodwill has been created for these products, and their trademarks constitute a very valuable asset to their owners. One of the important objectives of the Proprietary Association is to preserve and improve the integrity and stability of the trademarks which its members own or control and pursuant to and under which they conduct business. We believe it is essential to the welfare of our industry to have effective, enforcible, fair-trade laws. Therefore, the Proprietary Association asks that Congress enact legislation which will establish fair-trade laws on an equitable and legal basis. The Proprietary Association endorses H. R. 10527. Mr. MACK. Our next witness is Mr. Joseph Klamon, of the School of Business Administration of Washington University, St. Louis, Mo. STATEMENT OF JOSEPH M. KLAMON, PROFESSOR OF MARKETING, SCHOOL OF BUSINESS ADMINISTRATION, WASHINGTON UNIVERSITY, ST. LOUIS, MO., ON BEHALF OF CONSUMERS' FEDERATION OF ST. LOUIS AND ST. LOUIS COUNTY Mr. KLAMON. Mr. Chairman and gentlemen of the committee, I will not take more than 5 or 10 minutes, and I appreciate your kindness in allowing us to offer our testimony in the record. (Mr. Klamon's prepared statement follows:) STATEMENT PRESENTED ON BEHALF OF THE CONSUMERS' FEDERATION OF ST. LOUIS AND ST. LOUIS COUNTY BY DR. JOSEPH M. KLAMON, PROFESSOR OF MARKETING, WASHINGTON UNIVERSITY, ST. LOUIS, MO., IN OPPOSITION TO H. R. 10527 My name is Joseph M. Klamon. I live at 8007 Stanford Avenue, University City, Mo. I appear in opposition to H. R. 10527 on behalf of myself as an individual and on behalf of the Consumers' Federation of St. Louis and St. Louis County, whom I have served as a marketing consultant for many years. I wish to thank the committee for permitting me to speak against this bill which I believe, very strongly, not to be in the public interest. Since Septmeber 1929, almost 29 years ago, I have taught marketing and related business courses at Washington University. I am professor of marketing in the School of Business and Public Administration. Prior to returning to St. Louis I was a tutor at Yale in economics, professor of economics and chairman of the department at William and Mary, instructor in marketing and business policy in the Harvard Graduate School of Business Administration, associate professor of economics at Carnegie Institute of Technology, and visiting lecturer at the University of Pittsburgh. I am a member of the Missouri State Bar and was admitted to the United States District Court Bar in Baltimore, Md., in January 1934. I have the LL. B. degree from the Washington University Law School and the J. D., M. A., and Ph. D. from Yale University. I also held a fellowship in 1926 in the Harvard Law School. For the record I might add a word or two about the Consumers' Federation of St. Louis and St. Louis County. It was originally set up early in 1933 by Prof. Paul Douglas when he was with the NRA and before he became United States Senator from Illinois. This organization has continued to function after the NRA ceased to function. The organization of consumers known as Consumers' Council when originally organized, has often appeared before committees of the State legislature in Jefferson City, Mo., and in Washington, D. C., in opposition to all efforts to impair or destroy State and Federal antitrust laws, and in opposition to all fair-trade laws and other pricefixing devices harmful to consumers and the public generally. We are in favor of price competition on all goods, branded and unbranded, in favor of free and competitive markets, and against granting to any private person or corporation monopoly price-fixing powers over goods bearing the manufacturers' brand, after he has parted with title to such goods. On page 1, lines 3, 4 and following of H. R. 10527, the following appears: "*** it is the purpose of this act to recognize the legitimate interest of the manufacturer or wholesaler who identified merchandise manufactured or distributed by him in stimulating demand for his identified merchandise through effective distribution to ultimate consumers; to equalize rights in the distribution of identified merchandise by affording the small manufacturer or small wholesale distributor of identified merchandise in free and open competition with articles of the same general class produced by others an opportunity to compete on more nearly equal terms with the large manufacturer or distributor who can afford to control the distribution of his merchandise through his employees and consignees, and by affording the small retailer an opportunity to compete on more equal terms with the large retailer * On page 2 of this bill, sec. tion 2, section 5, and following sections which appear on succeeding pages, there appear provisions that modify our present antitrust laws to the point of virtual destruction. In simple terms this is an attempt by means of H. R. 10527 to enact a Federal price-fixing law. What, if anything, is left of the effectiveness of United States antitrust laws if this bill is enacted? A patent is a legal monopoly granted for a limited number of years as a reward to an originator or creator of a valuable item for his inventiveness. The bill before you would extend the same sanctity and monopoly price-fixing control to a trademark which is merely an identifying brand name. I imagine your committee will want, if it has not already received, the professional appraisal of the merits of this bill from governmental agencies such as the Antitrust Division of the United States Department of Justice, the Federal Trade Commission, the Attorney General, and others in and out of governmental service, who are qualified to give your committee disinterested views of this bill and whether or not it is truly in the public interest. H. R. 10527 is infinitely worse than the Miller-Tydings Act and the McGuire Act. They permitted States to enact fair-trade laws, and if a State did so, the Federal antitrust laws would then stand aside. As a result of the foregoing laws, Miller-Tydings and McGuire, 45 States, all except Missouri, Texas, Vermont, and the District of Columbia, had such laws lobbied through their legislatures by interested parties. H. R. 10527 would make possible compulsory uniform price fixing on branded goods by enacting this bill into law. The 16 or more States whose courts have declared invalid the McGuire Act and the 3 States and the District of Columbia that have never had legalized price fixing would now find price fixing forced upon them for the first time by Federal legislation. Advocates of the McGuire Act and similar Federal legislation spoke strongly of the importance of maintaining States rights, local, and State control of important pricing policies on branded goods. After more than a dozen or 16 of the highest courts in that number of States declared the McGuire Act invalid, we have heard no more of the importance of preserving local and State control of pricing policies. In the bill before you the same people now ask for Federal legislation permitting price fixing uniformly throughout the country on branded merchandise moving in interstate commerce regardless of the fact that there would be no public control over such vast private price-fixing powers on branded goods. And no account or consideration given to different marketing costs and varying degrees of efficiency of full-service and limited-service distributors. A distributor operating on a limited-service basis would seem to have a vested property right in his desire to attract customers by permitting his lower operating costs to be reflected in prices to the public, regardless of whether or not the merchandise he has bought and paid for is branded or unbranded. If all a manufacturer or a distributor need do to take his pricing policies out from under the operation of the United States antitrust laws is to identify such merchandise by brand, what a tremendous incentive he will have to multiply branded goods. It would seem there will be little, if anything, left of the Sherman Act or of the rest of our antitrust laws if H. R. 10527 becomes law. All laws of this nature, State or Federal, have but one object in mind: To freeze or raise and then to maintain prices to consumers; never to lower them. Such price-fixing laws tend to destroy the ability of lower cost dealers or more efficient dealers to pass on to the public at least part of such lower cost, and lower prices to consumers. Consumer Reports in its May 1958 issue on page 282 in an article entitled "Are We Heading for a Federal Price-Fixing Law?" put the matter very succinctly in the following fashion: "The point at issue then is simply this: The brand manufacturer wishes to decide, at his time and in his own way, when, where, and how, his brand shall be priced at the retail counter even though that counter is the property of another firm, and even though the title to his product shall have passed from him to the retailer." The bill before you gives such brand-name manufacturer or anyone else adversely affected a legal cause of action against anyone who sells below a manufacturer's fixed price, although title has left the manufacturer completely. Chief Justice Hughes said in the famous Miles Laboratory case that once a maker has sold his product the public is entitled to all subsequent traffic and competition in that article. There is an element of irony in this bill. It is offered as an aid to small distributors and perhaps as a sort of antirecession law. However, if enacted it will, in fact, accomplish the precise opposite. Bernard Baruch recently urged price cuts to get us out of the recession quickly. Mr. Baruch urged price flexibility to restore the economic balance between production and consumption and in order to move huge inventories at all levels; to stimulate sales and business through lower prices in order to clear markets of consumer goods. This is an excellent suggestion and an immediate result of moving such inventory through lower prices would be to call laid-off men back to work. This bill, permitting price rigidity and price fixing would certainly cause inventory pileups instead of inventory clearance. What better evidence do we need that fair-trade price fixing hurts business and is also harmful to the public, instead of helping either, than what recently happened when General Electric dumped fair-trade price fixing? GE and other appliances were moving across retail counters at a rather slow pace under fair trade in New York and elsewhere and inventories were piling up. The sudden removal of rigged false price supports and the reestabilshment of a free competitive retail market by GE in appliances was quickly followed by similar abandonment of fair trade by competing manufacturers and distributors. This resulted in an immediate rush of buyers in New York and elsewhere who recognized values and who evidently were more than willing to buy under lower competitive price conditions. Consumers need no very persistent stimulation to purchase real bargains and, therefore, to buy. The public instantly recognized real values as quickly as fair trade was dumped and competitive markets restored. |