"The absence of the consensual element imposed by the nonsigners' clause is claimed by the opponents of fair trade as a violation of the basic tenets of contract law; namely, that a person, not a party to a contract, should, nevertheless, by the nonsigners' clause be bound by its provisions. It has been said, and there is much merit in the argument that price cutting and destruction of a manufacturer's goodwill is no less offensive whether free of the effects of contractual obligation or the same in any case. The nonsigners' provision effectuates State

as well as national policy and only provides a remedy rather than a new right of action. The many acts that are in effect in the several States as well as H. R. 6925 require that such improper and immoral economic practices, if “willfully and knowingly" made by persons not party to a fair-trade contract, leaves any nonsigning party in this situation. First, he may choose to sign a contract in which case the ordinary remedies under contract law would apply in case of a breach thereof. Second, he need not carry the product which has been fair traded. But, thirdly, if he, as a nonsigner, does choose to carry the article, he may not sell it at less than the minimum price set or in the alternative, be held liable if he is on notice that such a resale price restriction is in force.

"The declaration that it is an act of unfair competition willfully and knowingly to sell below the fair-trade price is a matter not only of direct and immediate interest to retailers and manufacturers but it sets forth a principle of public economic policy not inconsistent with established policy in the RobinsonPatman Act and the Federal Trade Commission Act as well as other Federal laws relating to trade and commerce."

It is further significant to note the supreme courts of the following States which held the nonsigner clause valid: California, Connecticut, Delaware, Illinois, Kansas, Maryland, Louisiana (later reversed itself), Massachusetts, Mississippi, Michigan (later reversed itself), New Jersey, New Mexico, New York, North Carolina, Ohio (recently reversed itself), Pennsylvania, Puerto Rico, South Dakota, Tennessee, Washington (later reversed itself), Wisconsin, and the United States Supreme Court.

For a more extended discussion of this phase please see that part of this statement, part (6).

At this point we stress nevertheless, the existing problem resulting from the confusing decisions as far as it affects the market place with reference to the enforcement of resale price maintenance. A policy promulgated by the 45 State legislatures and confirmed on several occasions by the Congress.

It is noteworthy to observe at this point, that Congress is not unfamiliar with attempts to implement fair methods of competition by regulating competition in the public interest by providing the systemization of methods within the terms of coordinated self-regulated effort and freedom of individual action. An example of this attempt was evidenced by the ill-fated, crudely improvised NRA, with reference to which legislation President Franklin D. Roosevelt, said:

"Its goal is the assurance of a reasonable profit to industry and living wages for labor with the elimination of the piratical methods and practices which have not only harassed honest business, but also contributed to the ills of labor."

We submit that the Federal court decisions in the Masters and McKessonRobbins cases and the irreconcilable decisions of the State courts makes passage of the present measure imperative in order to bring about order in the market place as far as it affects effective, fair, and workable competition.

We submit that the present uneconomic practices in the distributive field as reflected by selected loss-leader selling of identified, nationally accepted merchandise, necessitates two possible lines of regulation emanating from Congress. One as is provided by this measure, which authorizes permissive self-regulation within definitely prescribed limits and established standards interpreted by courts of law and or equity; the other is direct governmental regulation of resale prices in the distributive field based probably on the concept of the NRA, corrected as to its unconstitutional phases. The former method has the advantage of market place experience reflected by the State Fair Trade Acts and of lessening the task of enforcement, as well as minimizing governmental control of human conduct as applied to the changing vicissitudes of the market place. Probably the most forceful reason for the enactment of this measure is related in a recent article by Sylvia Porter, entitled "Small Business Fading Out in Era

of Giantism," in the Chicago Daily News, March 11, 1958, which is reproduced herewith:

"[From Chicago Daily News, March 11, 1958]

"CONGRESS MAY ACT-SMALL BUSINESS FADING OUT IN ERA OF GIANTISMFAILURES, MERGERS INCREASE AS NEW FORMATIONS DROP

"By Sylvia Porter

"Within 18 years, all manufacturing business and most of the distribution and service business of the Nation will be controlled by corporations having more than $100 million of assets.'

"So predicted the House Small Business Committee back in January 1957. It qualified its forecast with only one 'if'-'if small-business failures and bigbusiness expansions continue at the rate of the last 5 years.'

"Today the committee's timing for triumph of industrial giantism in our land is beginning to appear conservative.

"For the rate of small-business failures is not just continuing. The rate is intensifying by the week.

"So far in 1958, businesses are failing at the appalling pace of more than 306 a week, close to 16,000 a year. Businesses are dying at a rate topping anything seen since the 1930's. Week after week, Dun & Bradstreet's figures emphasize that most failures involve small firms.

"At the same time, the business birthrate is slowing down.

"In January, new business incorporations were 2.3 percent below the number of formations in January a year ago. In 1957 business births were below both 1956 and 1955. In manufacturing and construction particularly, the business birthrate is off sharply."

"Meanwhile, the merger trend is as strong as ever.

"Voluntarily or involuntarily, dozens of medium-big firms merge and consolidate every day. In addition, the number of companies which do not 'fail' but which disappear through merger with stronger firms or through dissolution runs from 350,000 to 400,000 a year now, authoritative sources estimate. "There's no missing the trend or the reasons behind it.

"The squeeze of rising costs of materials and manpower is a major force. While this cost squeeze may pinch a big corporation, it often strangles a smaller

one.

"The difficulty of getting loans and capital is an immense factor. While stiff credit requirements may annoy a large corporation, they frequently destroy a smaller one which can't get the cash it must have in time and at a price it can afford to pay.

"TAXES A BRUTAL KILLER

"Taxes are a brutal killer. In prosperous periods the tax burden doesn't permit a smaller firm to accumulate a nest egg to carry it through rougher times. Again, while the tax lead may slash a big company's net profits, it often wipes out a smaller one.

"And this new era of fierce competition is proving the final blow to painful numbers of little businesses.

"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're certainly giving consumers a chance to grab some bargains but the wars also are dooming small-appliance retailers the Nation over.

"There's nothing new about the plight of small business in our country. The only news is that the plight is getting steadily worse.

"What did the 1st session of the 85th Congress, and what did the administration, do about it last year?

"Nothing.

"PLENTY OF PROPOSALS

"Oh, there was plenty of talk. There were lots of proposals, promises, speeches, pledges, hearings, 'tidbits' of assistance. But when you ask what important and practical moves were made, the answer must be: 'Nothing significant was done.'

"What is the outlook for 1958?

"Because of the business recession, because this is an election year, because some leaders in Congress really seem to care about preserving our system of free, competitive enterprise, there may be some tax relief and a few other moves. "But there still is no convincing evidence of a major effort to solve the problems of financing and taxation of small business. And until this effort is made, our industrial giants will dominate our land more and more. And our economic system will continue to die-fast."

PART 4. THE HISTORICAL BACKGROUND OF RESALE PRICE MAINTENANCE BEFORE AND AFTER THE ENACTMENT OF THE STATE FAIR TRADE LAWS

Resale price maintenance is not a new concept in the market place. Almost since the beginning of commerce in its simplest form the sale of goods from the producer to the consumer contemplates a price established by the producer for his product. With the advent and extension of the practice of identifying a producer's product by his trademark and the evolution of mass production and mass distribution in the development of industry and commerce, the national consumer came to rely on the producer's integrity for quality and the reasonableness of the price set by the producer for the sale and continued demand of his products in competition with others offered in the market place.

With the growth of the popularity and acceptance of branded products, and the reliance by the consumer on the value and integrity of the product as represented by the price, unscrupulous distributors of such products first resorted to the unauthorized use of the trademark by imitation, simulation, infringement, and disparagement thereof, thereby interfering with the trademark owner's expectancy of continued trade.

This type of unfair competition was prohibited by legislative bodies as well as the courts, and remedies were provided by extending the application of the unfair-competition concept to be applied to conduct which did not involve palming off alone, but was intended to include misappropriation as well as misrepresentation, and in general to conduct which artificially and injuriously interferes with the normal course of trade. Thus disparagement, inducing breach of contract, commercial bribery, misleading advertising, false trade descriptions, misrepresentation of business status, use of lotteries as a sales stimulus, all illustrate only a few instances which show the extent of the phrase "unfair competition" or unfair methods of competition has expanded from its small beginnings to its present scope; namely, recognizing injurious price cutting below established prices of branded merchandise as a variety of unfair competition. We believe it does not require citations to assert that injurious price cutting of established prices is now uniformly recognized by legislatures, most economists, and the judiciary to be a variety of unfair competition inimical to the welfare of our free-enterprise system and democratic form of government.

This premise was highlighted with approval in the printed statement contained in the report (1952) of the Secretary of Commerce Business Advisory Council, dealing with effective competition and the application of the antitrust laws, in which it was asserted that "The term 'competition,' without definition, is not adequate as a standard for interpretation and administration of antitrust law. Experience has demonstrated that certain types of competition are undesirable. Public policy must continue to oppose 'unfair competition' and 'oppressive competition.' Businessmen generally oppose, as both illegal and unethical, ‘unfair' or 'oppressive' competition, such as misrepresentation of goods, inducing breach of contract, boycotts, selective price cutting to destroy competition, full line foreing, etc. Such competition is considered more injurious than beneficial."

The same report emphasically stresses that the infinite variations in real life which result from full and fair competition in the public interest cannot be captured in a brief capsule. They must be derived from a profoundist consideration of the main practical aspects of the kinds of competition that are wanted.

To curb price cutting of identified merchandise upon which a resale price has been established pursuant to certain restrictions, 45 State legislatures have by statute declared that such practice constitutes an unfair method of competition which is actionable at the suit of any person who has been damaged thereby. The Congress on two separate occasions confirmed this legislative policy, by enacting the Miller-Tydings Act as an amendment to the Sherman Act, and the McGuire Act as an amendment to Federal Trade Commission Act in order to effectuate the enforcement of the policy when it involves interstate commerce.

These resale price maintenance (fair trade) statutes, do not merely prohibit price cutting in order to regulate or fix prices, but prohibits price cutting from duly established resale prices, in an attempt to protect the validly acquired rights of others. As the United States Supreme Court in the Old Dearborn case on this particular point said: "The primary aim of the law (State Fair Trade Act) is to protect the property, namely, the goodwill of the product, which he (the trademark owner) still owns. The price restriction is adopted as an appropriate means to that perfectly legitimate end, and not as an end in itself.

To corroborate the affirmativeness of this policy, the North Carolina Supreme Court in upholding its State Fair Trade Act quoted from Toulmin's Trade Agreements and the Antitrust Law (1937), in which it stressed:

"There is nothing immoral in resale price maintenance. It is one of those policies that happen to be arbitrarily prohibited by the Government. The whole foundation of trade is in maintaining stabilized prices. While it may be to the temporary advantage of a department store to increase its own sales or unbranded merchandise by using trademarked merchandise as a leader at a cut price, yet the ultimate repercussions on commerce are of the most serious character. This has resulted in grave injury to the development of trademarked merchandise upon which the country's commercial scheme of doing business has been largely founded.

"Trademark merchandising means merchandise that is extensively advertised, and, being extensively advertised, must live up to high quality. There must be quantity production to support the exenditure of advertising with a correspondingly relatively low, but stabilized, price. This gives labor steady and gainful employment, results in large purchasing power, and places the stamp of identification of the trademark of the manufacturer on the goods with the resulting. requirements of integrity of production and honor in selling for public protection. To permit for ultimate distribution of such merchandise to wreck the entire foundation of this business structure for a temporary personal profit is a shortsighted policy that should be condemned and prohibited in the strongest terms." Legal resale price maintenance, by contractual relationship between producer and his distributors, existed in this country unmolested up to 1911 when the United States Supreme Court in the Miles case (Miles Medical Co. v. Park, 220 U. S. 373) held such contract, unless specifically provided by statute, to be in violation of the Sherman antitrust law. Thereafter, for 10 years in the 1920's, the Congress considered the enactment of resale price-maintenance legislation, as was reflected by the Stephens and Capper-Kelly bills. As is common knowledge now, since 1931 the concept and need for such legislation was appropriated by the State legislatures, and spread swiftly from State to State, by the enactment by Congress in 1936 of the Miller-Tydings Act, so that, in 1941, 45 out of the 48 States in the Union adopted the policy reflected by the Fair Trade Acts, an extensive statement of the basis and scope of which is discussed by this witness in part 5 of this statement.

Resale price-maintenance practice is not limited to our economy. This witness only recently received a pamphlet from the Proprietary Articles Trade Association (PATA) of England in which is detailed the operations of England's Restrictive Trade Practices Act, enacted in 1956. In England since 1896 resale price maintenance on proprietary articles was in vogue and enforced by trade sanctions against a price cutter selling below established resale prices. With the enactment of the 1956 Restrictive Trade Practices Act, some changes were made in the enforcement provisions of the policy without in the least abandoning the regimen of the policy.

Concerning the changes in the enforcement procedures, the pamphlet discloses the following:

"Scope of the PATA

"In the future the PATA will continue to foster the interests of those manufacturers, wholesalers, and retailers who believe in price maintenance.

"Althought the new act makes the stop list illegal, section 25 enables suppliers by court action to enforce resale price conditions against traders who have notice of such conditions at the time when they acquire the goods but who do not observe them. This power can be exercised notwithstanding that the supplier and the trader are not in contractual relationship with one another. To this extent section 25 represents an important extension of the law and should more that compensate for the loss of the stop list.

"The PATA will provide to those of its members that care to make use of it an efficient organization which can carry out the detailed inquiries and provide

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"THE PATA LIST OF PROPRIETARY ARTICLES

"One of the problems facing suppliers under the new art will be to insure that persona dealing in their goods have received notice of the suppiters' resale price conditions at the time of purchase.

The PATA therefore proposes to see an annual list of proprietary articles, setting out the wholesale and retail prices fixed by those manufacturer memhers who attach resale price conditions to their goods. It is considered that in time this list will become the standard textbook dealing with resale price conditions in the pharmaceutical and toilet trade and will relieve the wholesaler and retailer from looking up the price lists of the individual manufacturer. "Where there is reason to suspect that resale price conditions are not being observed, the PATA proposes to send a copy of the list to the trader suspected to be in default, so that he will have notice of the conditions attaching to the goods. New rule 29 has been expressly incorporated for this purpose." Concerning the methods used now in the enforcement of resale prices on proprietary articles, the pamphlet asserts as follows:

"RESTRICTIVE TRADE PRACTICES ACT

"How the PATA Will Operate

"On November 2, 1956, part 2 (enforcement of conditions as to resale prices) of the Restrictive Trade Practices Act, 1956, came into force. Simultaneously, the revised constitution and rules of the Propriety Articles Trade Association (framed in the light of the provisions of the act) became operative. The relevant sections of part 2 are sections 24 and 25. So far as the PATA is concerned, the general effect of section 24 is to ban the enforcement by collective action (the stop list) of the prices fixed for their products by individual proprietary manufacturers.

"The New Protection

"In place of the collective enforcement system prohibited by section 24 a new means of insuring observance of protected prices is provided by section 25. This section permits the enforcement by legal proceedings of conditions as to resale prices imposed by individual manufacturers. This is an important extension of the law. Hitherto the individual manufacturer imposing resale prices has only been able to enforce them against a trader with whom he is in direct contractual relationship. Section 25 enables him to enforce them against any trader so long as that trader had notice of the manufacturer's resale price conditions at the time he acquired the goods. It is worth repeating here that the inclusion of this novel and valuable provision in the act is largely due, there is reason to believe, to the efforts of the PATA and the Fair Prices Defense Committee.

"Help for the Manufacturer

"For manufacturers who are prepared to enforce the price-protection rights given to them by section 25, the PATA under its new rules can provide efficient assistance-financial and otherwise. Without the assurance of such assistance being available some manufacturers might be reluctant to embark on proceedings for injunctions against price cutters. With the knowledge that the association is prepared to take charge of the proceedings and to defray legal costs, this reluctance should be dispelled.

"It is, of course, for each manufacturer to consider the particular requirements of his trade and to decide on his own form of wording. The conditions set out above are merely intended to illustrate a possible method of procedure. Members of the PATA will be fortified in knowing that the views expressed have the support of learned counsel."