ducer fully and completely to use his common-law right of refusal to sell, to select his dealers, select his distributors by contract, and eliminate and refuse to deal and be able to exclude his products from any of those he does not choose to deal with.

Also, the remedy provided in the Harris bill must be strengthened. We have had hundreds and hundreds of cases throughout the United States, and I know a little something about how the State courts operate, and they have ranged from thorough straightforward enforcement of the law to practically willful sabotage, at the same time giving lip service to the law.

And conferring jurisdiction on the Federal courts is fine, but I think you must eliminate the $3,000 jurisdictional amount.

The circuit court in my own circuit, the seventh circuit, recently held that a manufacturer had to prove that amount, and they would not accept as proof the fact that the manufacturer had spent millions of dollars on the advertising to create the goodwill in his trademark.

I think there should be a simple mandatory provision in which a manufacturer who has correctly and properly set up a fair-trade structure requiring a Federal court instantly on a proper showing to enter a temporary injunction to stop the price-cutting evil then and there, and thereafter to review the case to see whether a permanent injunction is warranted.

I feel further that consideration should be given to limiting the right of any middleman to use a manufacturer's trademark by advertising or holding out in any manner without that manufacturer's permission.

I realize my remarks are somewhat radical. I do not have the time today to go into the reasons. I have attempted to explain the reasons for my position in my statement, which I say is based on many years of actual fair-trade enforcement. I thank you for permitting me to submit this.

Mr. MACK. Thank you. I am sorry that we did not have time for you to read your complete statement today.

However, you did understand that time would be available next week?

Mr. VAN MELL. Thank you.

Mr. MACK. Are there any questions? Thank you very kindly. Mr. Joseph Nellis, I believe would like to present a statement. Mr. Nellis, you also understand that you can come back next week? Mr. NELLIS. Yes, sir, I appreciate that, Mr. Chairman, but I felt that if I could take a few brief minutes to point up some of the matters which have not been covered by opponents of this legislation, that perhaps I could perform a useful service for the committee.

Mr. MACK. We will be very happy to have your testimony. I do hope that today it will be brief.

STATEMENT OF JOSEPH L. NELLIS, NATIONAL ASSOCIATION OF CONSUMER ORGANIZATIONS, INC.

Mr. NELLIS. Yes, sir. It will be brief.

I want to say I hope the statement will be filed as though read at this point.

Mr. Macê. Yes, we will receive the statement for the record.

(The full statement of Joseph L. Nellis follows:)

STATEMENT BY NATIONAL ASSOCIATION OF CONSUMER ORGANIZATIONS, INC., WASHINGTON, D. C.

Mr. Chairman and members of the committee, my name is Joseph L. Nellis. I am an attorney with offices in the Colorado Building, Washington, D. C. I represent the National Association of Consumer Organizations, Inc., a trade association of low-cost closed-door department store retailers functioning in various States and in the Territory of Hawaii. We appreciate the opportunity to present our views on H. R. 10527.

Our association is a nonprofit corporation organized in California in 1957 and at the moment has as its members 18 separate stores located in Colorado, Missouri, California, Texas, Washington, and Hawaii. Our retail stores are generally large, single-purpose structures surrounded by ample parking space. Our customers, who are consumers with fixed incomes such as Federal, State, county, and city employees, schoolteachers and veterans, pay a nominal annual membership fee for the privilege of purchasing at the establishments of our member stores. They thus become members and coparticipants in the benefits derived from low prices. The annual gross retail volume of our combined NACO membership exceeds $100 million. The combined investment of our members in real and personal property within the States and the Territory of Hawaii exceeds $30 million.

NACO retailing is not to be confused with that of the discount houses, because the discounter arrives at a selling price which is related to a list or "suggested retail" price, whereas the NACO retailer relates his selling price to actual cost. Either selling price can be compared to list price, but one seeks to sell by undercutting the standard list, while the low-cost operator sells because his required margin is so low that when margin is added to cost the resulting selling price represents economies for the consumer.

The main office of NACO is located at 9424 Dayton Way, Beverly Hills, Calif., and there is a Washington office at 908 Colorado Building, Washington, D. C. Consumers on fixed incomes are able to procure standard brands of merchandise at our member stores at substantial reductions from established or fixed retail prices in competitors' retail stores. The outstanding values available to NACO members' customers are made possible in part by use of highly efficient merchandising methods and also through carefully planned purchasing by the individuals who operate the stores. Most of the consumer goods sold in the stores of NACO members are produced by manufacturers located outside the States where the goods are distributed at retail. Although the majority of store patrons live in the area where the stores are located, some live in neighboring States. We can say that the membership of NACO functions in interstate commerce and would be affected by the passage of any legislation such as H. R. 10527.

If it is agreeable to the Chairman I would like to show to the committee some pictures of typical NACO establishments in order to give the committee an idea of the physical plant required to service our customers in a modern and efficient manner. The size of NACO member stores range from 25,000 to 80,000 square feet. There are numerous departments within the store. A large part of the sales are made on a self-service basis. These stores utilize from 4 to 10 acres of ground, provide parking for as many as 1,500 automobiles and offer for sale more than 50,000 individual items.

The keystones of each operation, therefore, are planned purchasing resulting in economic savings in cost of merchandise and frugal administration resulting in lower costs of doing business, and maintained low rental by avoidance of high-rental store locations. These factors combine to produce a low overhead which, when applied as required margin for resultful operation causes a far lower selling price than the one needed by high-overhead retailers. The savings so secured are for the most part passed on to the consumer in the form of lower prices. There is a further participation by the member in a wide range of residuary benefits such as scholarships for children and other cooperative gains.

The merchandising objectives of NACO members are to procure and maintain recognized merchandise of impeccable quality for sale at extremely favorable prices. Thus, as a rule, members of NACO do not purchase job lots or distress merchandise or employ loss-leader selling techniques. The continuity with which NACO members offer outstanding merchandise at excellent values is the

core of the merchandising idea back of what we describe as "closed-door, lowcost membership department stores." At any time of the year, patrons will find in our stores ample supplies of both branded and unbranded, new merchandise available at prices substantially below comparable prices in other stores.

With this brief description of the functions performed by NACO members, I turn to a brief consideration of the matter before the committee, namely, the need for or desirability of Federal fair-trade legislation as embodied in H. R. 10527.

I am sure I need not dwell extensively on the history of fair-trade legislation in the States and the permissive Federal legislation that has been passed from time to time.

We are opposed to Federal fair-trade legislation because we consider it to be a price-fixing device to guarantee control over selling prices by manufacturers and at the same time to guarantee retailers a profit by the elimination of price competition, which is after all the most important economic aspect of our business system.

Fair trade is a form of retail price maintenance which purports to act in a way to prevent unfair price competition but actually does not work that way. Where it works at all, its effect is to preserve retail margins but in doing so it artificially induces higher prices to consumers and thus has contributed substantially to the inflation from which our monetary system has suffered since 1940.

An excellent history of fair-trade laws and programs is contained in the report of the Select Committee on Small Business of the United States Senate dated July 27, 1956 (84th Cong., 2d sess., Rept. No. 2819) which is a study conducted by the Subcommittee on Retailing, headed by Senator Hubert H. Humphrey of Minnesota. I am certain the committee is familiar with this study and, therefore, will not repeat the history of fair-trade legislation there recounted nor the passage of the Miller-Tydings and McGuire Acts which permit the operation of State fair-trade laws with respect to transactions involving interstate commerce. The committee will recall the consternation of fair-trade advocates when the Supreme Court of the United States in May 1951 in the Schwegmann case held that the Miller-Tydings Act did not extend the Sherman Act exemptions to clauses of fair-trade agreements providing that sales at less than the controlled price by a person who is not a party to the contract is unfair competition and actionable by anyone damaged thereby. The Supreme Court held that whereas the retail price maintenance scheme may be authorized by State law and therefore entirely valid in intrastate trade, insofar as interstate commerce is affected, the system would be in violation of the Sherman Act, except for the exemption provided by the Miller-Tydings Act. Later Congress enacted the McGuire Act which specifically extends to the nonsigner in the States the exemption from the Sherman antitrust law.

I think it is extremely significant that within the last few weeks General Electric Corp., Sunbeam Corp., Ronson Corp., and other large manufacturers of consumer durable goods have thrown in the sponge on fair trade. This follows on the heels of similar abandonment by Westinghouse Corp., Sheaffer Pen Co., and others who followed the fair-trade policy up to 1957. Why did these giant suppliers abandon a policy pursued at great cost for so many years? Certainly, the profound difficulties of enforcement, the hostility of the courts and consumers, the lack of economic necessity for such laws all had a great deal to do with the decision. But I think the ultimate reason a simple one: Fair-trade laws are fundamentally inconsistent with free enterprise, particularly vigorous rivalry for the favor of consumers. In reality fair-trade-restricted marketing sponsors inefficiency and protects the inept dealer through consumer subsidy in the form of fixed high prices. And American consumers are conscious of prices, quality, and service. As Senator Humphrey put it in a speech in the Senate on March 6, 1958, "already unmistakable signs are present that 27 years of progress in developing fair-trade competition is to be set aside." It is always the position of proponents of fair-trade legislation that fair trade tends to preserve small business, or that small business cannot get along without fair-trade contracts. The 18 States in which fair trade is not enforced do not have higher bankruptcy rates than the other 30. Lower prices in the nonfair-trade States stimulate a larger volume of business and thus combat recession.

The Nation is witnessing a most anomalous economic paradox. On the one hand we are in the midst of a business recession which has caused great con

sternation through Government and business circles with efforts being made on all sides to apply antidotes. On the other hand, the cost-of-living index pubIlished by the Bureau of Labor Statistics shows a constant and nagging increase, with the purchasing power of the dollar in a constant decline. In States where fair-trade laws do not exist, the cost of living is lower. It is difficult for me, although I am a lawyer, not an economist, and don't pretend to understand all of the economic theories involved, to comprehend how a Federal fair-trade statute could do other than raise the cost of living in all States and further inflate the dollar. Moreover, It is evident that enabling a manufacturer by artificial means to control the prices of goods manufactured by him even after he passes title to it, will not aid but hinder business recovery. Obviously, the managers of the giant corporations whose names I mentioned a while ago are of the same mind for, had they felt that business would be stimulated by a further extension of fair trade they would not have abandoned it and, in fact, would have continued to spend the millions of dollars which they have expended in the past to enforce their contracts against nonsigners.

H. R. 10527 in our opinion, would do irreparable injury to the vast body of our consumers who are on fixed incomes. It would surely create and maintain artificially rising prices at a time when our economy already suffers from inflation of the highest order. It would do violence to the accepted standards of our antitrust policies by stifling price competition; it would substitute arbitrary declarations by manufacturers for open and competitive prices; it would destroy the independence and investments of thousands of merchants who do not follow "suggested retail prices" and, finally, it would do substantial violence to our efforts at recovery from what can still be a very serious domestic recession.

The proponents of fair trade in the States, apparently the same persons who are advocates of the enactment of H. R. 10527, have long contended that lossleader selling is what hurts the independent businessman who competes with larger establishments. There is no doubt that this type of selling does much injury where the small-business man carries the same merchandise and is obliged to charge a higher price. NACO members do not follow loss-leader selling principles. Our goods are available at or about the same price throughout the year. Furthermore, H. R. 10527, if enacted, would not do away with loss-leader selling. As experience shows, even in the States where fair-trade contracts have worked fairly well, manufacturers have induced this loss-leader type of selling and retailing by making special price concessions to their wholesale and retail contract dealers, thus enabling loss-leader sales even on fair-traded goods. I see nothing in H. R. 10527 that would prevent such practices.

Court after court has expressed its objections to fair-trade contracts, fundamentally, I believe, because of their price-fixing propensities. As Senator Humphrey put in his speech on March 6 to which I have referred, "a total of 14 State supreme courts have also declared their statutes unconstitutional in whole or in part. These decisions, combined with Missouri, Texas, Vermont, and the District of Columbia where fair-trade acts were never passed, create a total of 18 vast and commercially important non-fair-trade areas which adjoin fair-trade States and greatly compound the difficulties of equitable enforcement at their borders." Earlier I mentioned that a NACO member is located in Hawaii. The courts of the Territory there have joined in the same disagreement with fair-trade principles evidenced by 14 State supreme courts. Fair-trade laws to be at all effective depend upon rigidly enforced resale agreements, with all of the disadvantages attendant to such enforcement. A Federal fair-trade act would flood FTC and the courts because manufacturers and distributors would go all out to survive through the use of various subterfuges and thus compound the already burdensome caseload. A Federal fair-trade act such as H. R. 10527 which is permissive, not mandatory, suffers from the same vital defect that is evident when you look at the experience of fair-trade States which adjoin non-fair-trade areas. It is therefore apparent that a permissive Federal fair-trade act would merely compound the difficulties that have existed as between the 18 jurisdictions that do not recognize fair trade and the 30 that do.

In closing I would appreciate your consideration of the following briefly stated legal reasons why we believe H. R. 10527 is objectionable and would be eventually struck down by the courts:

(1) The basic antiprice fixing economic principle has been thus stated: "The free competitive system which has been so largely responsible for the high production and wide distribution of goods is seriously threatened in many State and local markets by the passage and enforcement of laws, which, while seeking

to curb monopoly and encourage local independent businesses, frequently use price fixing as the means to that end, resulting in uneconomic and unsound practices which undermine the effectiveness of competitive prices in providing the advantages of mass production to the largest number of consumers" (TNEC final report, S. Doc. No. 35, 77th Cong., 1st sess.)

(2) For many years Congress has fostered and promoted open competition as an essential ingredient to our free-enterprise system in a wide variety of statutes such as transportation, banking, communications and others. H. Doc. 599, 81st Cong., 2d sess. (1959).)

(See

(3) Price fixing was condemned by the Supreme Court as early as 1911 (Standard Oil Company of New Jersey v. United States, 221 U. S. 1) as it construed sections 1 and 2 of the Sherman Antitrust Act.

(4) H. R. 10527 would, in effect, legalize price fixing under the language of section 5 (a) (5) stating: "It shall be lawful for a proprietor to establish and control by actual notice to his distributors stipulated or minimum resale prices of his merchandise in commerce which is in free and open competition with articles of the same general class produced by others." Plainly, under this language, a manufacturer could dictate resale prices whether to distributors or retailers, and thus either monopolize the field, mortally injure distributor and retailer competitors, or create artificial trade barriers.

(5) As stated by the Supreme Court in United States v. Trenton Potteries (273 U. S. 392), the aim and result of every price-fixing agreement, if effective, is the elimination of one form of competition. H. R. 10527 would in effect make enforcement under the Sherman Act much more difficult and create a constitutional crisis in the antitrust field. It would also eliminate the independent businessman who, through competitive buying and selling, low overhead and general efficiency is able to offer the consumer quality merchandise at more economic prices than his competitor.

(6) It has been stated that resale price maintenance agreements are valid under the Miller-Tydings Act of 1937 because competition is not affected where the agreement is between vendor and vendee, and not between vendor and vendor. The majority of the 30 State fair trade acts still in existence apparently base their reasoning upon this proposition. But, we submit, the result of vendor to vendee resale price maintenance which would be enforceable under Federal law, if H. R. 10527 passes, would be to effectively destroy the independence of a distributor or retailer who may be in an economic position to sell at a lesser price than the stipulated one, and, more important, it would destroy his proprietary interest in personal property to which he has legal title when he buys it. It would also destroy the right of a consumer to buy at competitive rather than administered prices. A law which deprives a distributor or retailer of his property rights in the resale of his own goods is of doubtful constitutionality at best. Beginning with the Dr. Miles Co. case (220 U. S. 372 (1911 continuing with United States v. Colgate & Co. (250 U. S. 300 (1919)) and United States v. Schrader & Sons (252 U. S. 85 (1920)) the Supreme Court has struck down so-called specified wholesale and resale prices dictated by manufacturer-vendors and held these agreements unenforceable both at common law and under the Sherman Act. The manufacturer, having transferred legal title to his product to wholesalers is deemed to have no right to deprive the public "of whatever advantage may be derived from competition in the subsequent traffic (Dr. Miles Co. v. Parks & Sons, supra, at pp. 208, 209). Moreover, in F. T. C. v. Beech-Nut Packing Co. (257 U. S. 441 (1922)) the Court held again that a manufacturer may not legally achieve the results of agreed resale prices by backdoor methods,. such as blacklisting, even where no agreement for resale price levels actually existed.

(7) The Attorney General's committee's strongest epithets appear in its recommendation for abolition of fair-trade pricing. Federal legislation so far (Miller-Tydings, 50 Stat. 593 (1937), 15 U. S. C. sec. 1 (1952) and McGuire, 66 Stat. 632, 15 U. S. C. sec. 45 (1952)) is only for the purpose of exempting enforcement of State fair-trade laws from the antitrust statutes. Fair trade has always been a means for relieving distributors from the rigors of price competi-tion. Fair trade has not only exacted a tremendous toll from the consumer in: our present inflation but cannot be enforced. Ironically fair-trade pricing has: been the principal stimulus for the rise of the discount house.

(8) The bill would undoubtedly create a grave crisis with respect to the constitutional prohibition on delegation of legislative power, a doctrine that played such a prominent role in the act of the Supreme Court holding invalid! the NIRA. Price-fixing powers such as those delegated by Congress in the