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 this principle. But our economy and our methods of marketing are not static; they are constantly evolving and taking on new forms and characteristics. H. R. 10527 as an amendment to one of the most important of our antitrust laws, the Federal Trade Commission Act, is designed to uphold the principles of competition on which our economy is based and at the same time take account of the recent legal and business developments which require amendment of our antitrust laws. This bill performs this task in a forthright and efficient manner. I am glad to endorse it and urge its speedy adoption. I thank you. Mr. MACK. The committee appreciates your appearance and the information you have given. Mr. PATTERSON. Thank you, Mr. Chairman. Mr. MACK. Our next witness this morning will be Mr. Maurice Mermey, director of the Bureau of Education on Fair Trade. Mr. Mermey. STATEMENT OF MAURICE MERMEY, DIRECTOR, BUREAU OF EDUCATION ON FAIR TRADE Mr. MERMEY. Mr. Chairman and gentlemen, I have a copy of the statement which I would like to present for the record. I will speak some from that briefly; some without it. My name is Maurice Mermey. My home is in Larchmont, N. Y. I am the director of the Bureau of Education on Fair Trade located in New York and have been its director since its establishment in 1949 by the National Retail Druggists Association or National Association of Retail Druggists. Our funds represent voluntary contributions exclusively and entirely from all segments of the drug industry. We have a national advisory committee consisting of the representatives of 25 national trade associations, wholesale and retail, in the various fields in which fair trade is practiced. We also have the cooperation of 1,572 State and local retail and wholesale trade associations of the same fields. And I think all told these groups have a membership of about 1 million people who represent a very substantial judgment of small business in America. Mr. MACK. You say this is supported by the National Association of Retail Druggists? Mr. MERMEY. Yes, sir. Mr. MACK. That means there are a million retail druggists? Mr. MERMEY. No, sir. There are 36,000, I think, who are members of NARD. There are 56,000 retail druggists. When I say a million retailers and wholesalers, I am referring not solely to the retail druggists but also to the members of the 25 national trade associations in other fields than the drug field and to the 1,572 State and local associations which cooperate with the bureau. Mr. MACK. Thank you very kindly. Mr. MERMEY. I think I speak for all of them when I say that the Bureau of Education on Fair Trade wholeheartedly supports the Harris bill, H. R. 10527, and urges its favorable consideration by this committee. I have listened to what has been said about small business. I have been very appreciative of the remarks which have come from you gentlemen. I think that small business is an essential, an integral, part of the economy. But I would like to just go a little beyond that, if I may. It is our conviction in supporting the Harris bill that that bill served the aspirations of the American economy for full employment. We believe that that bill will go far in stopping the corrosion of the sales pipeline in the American economy. I would like to have it understood, and I am sure you understand it, that our economy depends not alone upon natural resources and technological skills; it depends for its strength on the application of maximum sales power at all stages of distribution across the lines of interstate commerce. So that the goods of mass production can move in full flow from our factories, across the counters of main street, into the consumer's shopping bag. The Harris bill provides a realistic incentive for achieving it. That incentive is the opportunity for profit. Mind you, I say the opportunity for profit, not the guarantee of profit. The opportunity of profit to the nearly 2 million distributors comprising our mass distribution system, the incentive to maximize the sales power of the whole system in the service of the American economy. Mr. MACK. I want to know if that 2 million is retailers or what? Mr. MERMEY. There are about 1,800,000 retailers in the United States and about 200,000 wholesalers. Mr. MACK. It includes both wholesalers and retailers? Mr. MERMEY. Yes, sir. Mr. MACK. You may proceed. Mr. MERMEY. I proceed in the belief, confirmed I believe by experience, that nobody moves profit less goods. I say that profitless goods, profitless prices, are no bargain for America, however much they may seem a bargain to individual shoppers. There are no bargains for America because they impair the distribution system by blunting the incentive to sell and by eliminating large numbers of outlets which represent the backbone of small busi ness. Profitless prices guarantee declining sales volume. And therefore declining production and increasing unemployment. I would like to suggest that a profitless price is not necessarily exclusively a price which does not yield a dollar profit. That is absolutely true with respect to most of the business in the country. But a profitless price can also be a price which the price cutter finds profitless from a promotional point of view. You have spoken about loss leaders and I would like to define a loss leader if I may as a product which is advertised for sale in order to attract trade to a particular establishment and not to sell the advertised goods. Mr. ALGER. Mr. Chairman, will the gentleman yield at this point? Mr. MACK. You don't mind being interrupted? Mr. ALGER. I want to know whether the gentleman is going to follow the statement. I either want to listen to him or follow the statement to grasp what he is saying. Mr. MACK. Let me say to the gentleman that the witness discussed this matter with me before. He asked if he could submit his statement and make a brief of it. I agreed to this. Now, I have noticed that he is proceeding from his statement. Mr. ALGER. Well, I will just listen to him. Mr. MACK. Mr. Mermey you are following your statement very closely. Mr. MERMEY. That is correct, sir. Mr. MACK. It would be of assistance to us and apparently thus far you are taking as much time as you would if you read your entire statement. It would be, I think, a little more convenient to us if you followed the statement. Mr. MERMEY. I will be very happy to do it and you can still interpose any questions at any time, sir. Mr. MACK. But it is up to you. And we would like to give you the choice of either making a brief of the entire statement or else following it. Mr. MERMEY. I will take it this way because I have worked on it. Mr. MACK. You may proceed. Mr. MERMEY. The very operators who fixed the profitless prices, ironically, lose interest, too, when these prices lose their power to attract customers. This happens when the profitless prices become the established prices. The consequences of such pricing practices are ably set forth in a special bulletin, dated March 21, 1958, issued by the National Retail Merchants Association, the national trade association of the department store industry. Referring to the current market-place situation respecting electrical appliances, NRMA said: Without a profit-and the profit cannot be marginal-there will be little interest in promoting table appliances on the part of the larger stores. The smaller stores may go out of business altogether. What then will the national brand manufacturers have? Fewer outlets, and those remaining seeking to sell other kinds of merchandise that can make a profit. For it is outlets-above all, outlets-which national brands need for their continuing growth and success; but outlets that can make a profit handling the national brands * * *. The present situation in electric table appliances raises three fundamental questions for the manufacturer says the bulletin. I think these questions are very important. Who will do the selling of a whole line when the discounter concentrates only on the cream"? Who will introduce the national brands' new items on which millions are being spent in research, when the discounter says, "create a market first and then I'll sell it"? Who will be interested in relaly selling the manufacturer's items-established and new-if on the established item there is no possibility whatever of making a profit, and if on the new, once the department store has established it, the discounter makes it no longer profitable to sell it? The department store trade association is speaking in the future. tense. But Home Furnishings Daily, a trade publication, writes in the present tense as it reports slowing sales of electrical appliances, coast to coast, despite sharp price reductions which resulted from the discontinuance of fair trade by leading manufacturers in that field. "Consumers are apparently in no rush to buy," said this trade publication, "secure in the knowledge that low prices will be around for a long time." |