imposes thereon provisions making it, for the first time, a violation of Federal law for a retailer to vary the price charged the consumer from that fixed by a manufacturer. This will create legal havoc as attempts are made to determine how the provisions of paragraphs (2) and (3), on the one hand, differ from the provisions of paragraphs (5) through (9), on the other, and the contrasting effects thereof. Innumerable questions, the answers to which are not clear from the provisions of the bill, are presented: Can a "proprietor" price fix in some States and not in others?; Can a price legend on a container be notice of price fixing in one State, but not in others?; Are all price legends on containers automatically fair-trade prices?; Must the price fixed on any product be the same throughout the entire country, or may it differ State to State, or within any one State?; Since the bill provides in paragraph (5) that a proprietor may "establish schedules of resale prices differentiating with reference to any criteria not otherwise unlawful," may he differentiate between different types of stores in the same State or city based on such matters as, for example, location, volume of purchases from him, size, etc.? Until these and all other unsettled problems are finally settled by litigation, no retailer can safely price his goods except in conformity with the fixed price; as a result, even illegal and wrongful fixed prices will be complied with, because this bill is designed to coerce compliance.

B. It appears that paragraph (8) of the bill may well deprive a retailer of the now well-recognized defense that failure of the manufacturer to enforce evenhandedly and continuously is a defense to a fair-trade suit. If so, under this bill a manufacturer could, by inaction, permit certain retailers, or a certain class of retailers, to sell at one price while requiring others to sell at the higher fixed price, an outright discrimination. Exactly that situation has obtained many times in the past, when certain manufacturers required Macy and other large retailers to comply with the fixed price and thus provide a price umbrella for them, while permitting retailers who did not advertise prominently to cut prices. Thus, this bill would become an instrument of injustice by reversing doctrines evolved by State and Federal courts over the years to insure equitable, vigorous, and continuous enforcement by manufacturers.

Indeed, since the establishment of price-fixed prices is a privilege to be provided to a proprietor, purportedly to preserve the value of his trademark, it would be neither unreasonable nor unfair to require him, as a prerequisite to relief, to prove affirmatively that he has in fact theretofore conducted a continuous, rigorous, and effective enforcement campaign to make certain that the defendant's competitors have complied with the fixed price. This bill, however, would do precisely the reverse-it would not put the onus on the benefited proprietor to protect his trademark by action to require conformity with the fixed price, but rather would put it on the retailer to protect his own competitive position by suing to require another retailer to conform to the fixed price-all, purportedly, in the interests of protecting the proprietor's trademark.

This is, indeed, a topsy-turvy Alice in Wonderland situation, which would be amusing if it were not for the serious effects on our economy and its palpable unfairness. Consider the truly impossible position of the retailer whose nearest competitors are price cutting and destroying his business he has three alternatives: He may go out of business; he may himself sue his competitors, but here he must consider the effect on his customers when they learn that he is taking action which will keep prices high; finally, he may meet competition, but if meeting competition is not a defense, and with the harsh sanctions for violations spelled out in paragraph (6), his risk would be extreme. Any of those alternatives is clearly potentially ruinous to him, a result which is unfair and improper but one which is inevitable under this bill in the light of the lack of a defense and the harsh penalties. The injustice of paragraph (8) is selfevident; the burden of enforcement should be on the proprietor the protection of whose trademark is presumably the objective of fair trade.

C. Paragraph (6), the sanctions provision of the bill, is so harsh and the punnishment to which a price cutting retailer is thus subjected is so extreme as to confirm the suspicion that the bill is a punitive one designed to coerce price

See e. g., General Electric Co. v. R. H. Macy & Co., Inc., 103 N. Y. S. (2d) 440 (1951), appeal dismissed 105 N. Y. S. (2d) 1003 (1951); Lionel Corporation v. R. H. Macy & Co., Inc., 1955 C. C. H. Trade Reg. Cases, par. 67,949 (1954).

See General Electric Co. v. R. H. Macy & Co., Inc., supra; Lionel Corp. v. R. H. Macy & Co., Inc., supra.

conformity. It is noted that under its terms there is no limit on the number of actions which may be brought against any retailer who cuts prices based on the same price cut. Thus, for one price cut, which might have been an innocent mistake, a retailer may be sued by each of his competitors and be required to pay the attorney's fee and court costs of each plaintiff-this is indeed cruel and unusual punishment. No further comment need be made here as to what the effect of this will be on court calendars, for with the incentive provided by the provisions for payment by the defendant of court costs and attorney's fees for the bringing of these suits, there will inevitably be vast numbers of suits brought.

D. While paragraph (9) contains the usual clause prohibiting "horizontal" price fixing, a new clause has been added according immunity from the antitrust laws to joint proprietor-distributor association action. This extension of immunity opens such a grave breach in antitrust law enforcement that it is revealing in showing up this bill in its true colors-as one not to protect trademark proprietors, but rather to guarantee wide retail profit margins and thus raise retail prices, all at the expense of the consumer and the general state of the economy.

STATEMENT OF STEPHEN MASTERS, PRESIDENT OF MASTERS, INC., NEW YORK, N. Y., MASTERS-WESTCHESTER CORP., ELMSFORD, N. Y., MASTERS-LAKE SUCCESS, INC., LAKE SUCCESS, N. Y., MASTERS-NEW JERSEY, INC., PARAMUS, N. J., MASTERS MAIL ORDER CO. OF WASHINGTON, D. C., INC., WASHINGTON, D. C., IN OPPOSITION TO BILL H. R. 10527

Mr. Chairman and honorable members of the committee, I am here in opposition to proposed bill No. H. R. 10527.

My name is Stephen Masters. I am president of Masters, Inc., and of its various affiliate and subsidiary corporations.

Masters is one of the largest and most widely known discount houses in the country. It has championed the cause of the purchasing public in opposition to fair-trade bills and fair-trade practices for over 20 years. Masters' name appears in some of the leading cases which have made case law on interpretations of various fair-trade laws. As a result of the decision by the Federal courts in the General Electric v. Masters Mail Order Company of Washington case, Masters is widely credited with having given fair-trade laws the coup de grace. As a result of this decision, it has been said that General Electric, Sunbeam, Bissell, and other leading proponents of fair trade abandoned their so-called fair-trade policies.

Now, I am not so naive as to believe that any decision affecting fair trade in interstate commerce was the sole cause of the abandonment of fair trade by such giants as General Electric, Sunbeam, and the others, who have heretofore and for over 20 years spent millions of dollars to establish and enforce fair-trade practices. Rather, I choose to believe that constantly mounting unemployment, warehouses stocked with appliances that were not being sold, the relentless pressure of competitive merchandise being sold at lower prices, and the great resistance of the consuming public had caused this upending of fair trade insofar as small appliances are concerned.

This leads me inevitably to my reasons for opposition to any type of fair trading or fair-trade laws.

First, I believe fair trade to be unenforcible. Trying to stop the consumer from purchasing at the lowest price is like telling the waves to stop rolling in. The late and little-lamented Prohibition Act was unworkable and unenforcible because it countered the wishes of the great American consuming public. Likewise, the OPA regulations (necessary as they may have been during wartime conditions) became distasteful and obnoxious to the public because they were violative of American free-enterprise pricing.

Every fair-trade law that I have seen, delegates to the manufacturer or distributor the right to make illegal today what may have been legal yesterday and, vice versa, to remove from fair trade on any particular day what has been previously fair traded up to that day. The enforcement is left to the individual whim and will of the fair-trade manufacturer or distributor.

So we have some of our giant manufacturers fair trading small appliances like radios, clocks, toasters, and the like, while at the same time selling such white goods appliances as refrigerators, freezers, etc., without any fair-trade pricing. Now, if the harmful effects of a nonfair-trade policy have any application to

small appliances, the same harmful effects should be apparent in these larger items. We hear, however, no argument made by any manufacturer that television sets, refrigerators, dryers, washing machines, and the like, should be fair traded. Is a Federal law to be made a matter of the will and whim of any manufacturer or distributor who claims he has a fair-trade policy? Is it to be left to the manufacturer or distributor to determine that he shall enforce his fair-trade policy as against Masters, but leave Jones & Co., the store on the next block, alone? Neither this committee nor Congress, with all due respect to each of them, can legislate laws not acceptable to the general consuming public. Let's face the facts.

In no single case of resale price maintenance or fair trade, as it is commonly known, have I ever seen a single instance where such a law has "stabilized" (and I use that word in quotes) prices so that the price of any article of merchandise affected by such a law has been brought down or reduced. On the contrary, and the practice is universal, such fair-trade laws have been used to increase the retail price of the article.

Another vicious result of the fair-trade law is the privilege given to others than manufacturers or distributors, and I refer now to cooperating retailers' associations and competitors, to enforce and fix a fair-trade price even though the manufacturer or distributor itself has no real fair-trade enforcement policy or program. In these instances, fair trade is used not as a shield but rather as a sword to bludgeon the noncooperating retailer or competitor into the price line. It acts to effectuate price enhancement and the restraint of competition by horizontal agreements, the existence of which is almost impossible and extremely difficult to prove.

From humble beginnings of 1937, Masters, by its expressed and avowed purpose to bring to the general consuming public all types and varieties of merchandise at substantial savings from list prices, has grown to where, for the last year, the gross volume done by Masters and its affiliates exceeded $35 million. Its list of registered customers exceeds over 650,000 people. Nor is Masters unique in its growth. Other discount houses, supermarkets, and variety stores, who are discounting and selling at realistic prices, have also registered tremendous growth within the last 10 years. These figures can only mean that the type of business done by Masters-a discount house--has found great favor with the general consuming public. The experience of Masters has been repeated throughout the country. No Federal law will prevent or prohibit the general consuming public from buying at the lowest possible price to be found in a market place.

Secondly, the argument is generally made by the American Fair Trade Council that the real purpose of fair trade is to protect the manufacturer or distributor, rather than the small retailer. It needs but little examination to see how specious this argument is. No matter at which price the local retail store sells a product-whether at fair trade, list price, or discount price-the manufacturer still gets the same price at the manufacturer's or distributor's level. So far as the manufacturer or the distributor is concerned, whether the article be fair traded or not, the manufacturer at its supply sources receives the same wholesale price. In fact, the manufacturer or distributor, absent fair trade or the cost of truly enforcing and policing fair trade, should be in a position to make more money because of savings in the enormous cost of legal fees, comparison shopping, and policing fair trade.

When the fair trader is thus rebutted, he generally resorts to the cry that discounting breaks up his distribution. In point of fact, the very opposite results. No damage or harm is inflicted to any trade name. The fact is that more people are afforded the opportunity of buying the article without having some unknown brand or inferior merchandise substituted, and that the consuming public is enabled to become acquainted with the branded article which might otherwise be beyond its reach. The volume of business done by discounters, variety stores, and supermarkets in any area greatly exceeds in volume the total distribution effected by any neighboring small stores.

Quite an argument can be made that the sale of trade-name and branded merchandise at realistic prices that the purchasing public can afford actually enhances the trade or brand name. Discount selling widens the distribution of the article and makes it readily available to groups who would be in no position otherwise to purchase the same.

This leads me, inevitably, to a discussion of one of the major fallacies constantly reiterated by the proponents of fair trade that there is an inherent

right in the manufacturer of a trade-name or brand article to control the price at which the trademarked article is sold. There is no such inherent right. The right to control price never was, and is not, an incident of trademark ownership. This doctrine has repeatedly been rejected by both State and Federal courts. The suggestion that the owner of a trade-name or branded article has the right in perpetuity-long after he has disposed of the merchandise—to control resale price is an erroneous and false doctrine emanating from certain ill-considered and badly stated principles originally set forth by Judge Sutherland in the case of Old Dearborn Distributing Co. v. Seagram-Distiller Corp. (299 U. S. 183). An examination of the authorities cited in that case merely points up the fact that the original error there made has been allowed, insidiously, to expand and develop so that it is the cornerstone of the fair traders' position. The very concept that one who manufactures or distributes an article shall still have the right to control it, pricewise, long after the article itself has been sold and resold, is illogical, ill conceived, and un-American; it violates every doctrine of the ownership of personal property. As was said in a Michigan Supreme Court case-the Shakespeare case and I paraphrase: "Cutrate sales breach no trademark right of the manufacturer or distributor. The manufacturer's trademark rights do not enable it to sell its cake and have it,

too."

I think it can be easily demonstrated that no manufacturer suffers any impairment of his trademark when (1) the item of merchandise is sold in its original factory-sealed carton and (2) the discounting house enhances the value of the trademark by giving the merchandise wider distribution. The manufacturer only suffers damage or injury to his trademark or brand name if the product is shoddy, inefficient, or unworthy in itself or cannot match the claims which have been advertised for it.

It has been contended that fair-trade pricing strengthens competition at the retail level. I think it can be amply demonstrated that quite the converse is true. The weak, inefficient retailer, under a fair-trade pricing system, has no incentive to improve his services, his efficiency, or his retailing economy when he is covered by the fair-trade umbrella. The argument is constantly raised that fair-trade price regulation is necessary to protect the weak or the small retailer. Statistics demonstrate that the percentage of failures or insolvencies among small retailers in States such as Vermont, Missouri, Texas, or the District of Columbia are not any greater and, in fact, are less than the percentage of failures and bankruptcies in those States which have had longtime fair-trade laws. The bugaboo of price cutting does not seem to scare the small retailer in those States which have never had fair-trade laws.

If every store carries the article at the same price, it would be reasonable to argue that to protect the small retailer just as there is a law against advertising, theoretically, the store doing the most advertising would be the greatest beneficiary of purchasing by the general consuming public. In fact, that is what department stores are doing every day of the week, and, as between two stores with merchandise at the same price, the store doing the greatest amount of advertising would, normally, do the greater business. The weak, inefficient, and inadequate retailer might then be tempted to ask Congress for an overall limit on advertising. You can readily see that this fair-trading argument reduces itself to the ridiculous.

Inevitably, in every discussion of the arguments pro and con fair trade, there is a tremendous confusion between discounting, price cutting from the list, as such, and loss leaders. Let me here and now say that Masters uses no loss leaders. The chief argument and complaint of most proponents of the fair-trade bill seems to be against loss leaders, the most glaring examples of which, incidentally, are the usual handiwork of two major, nationally known department stores in the city of New York. Masters does not follow a loss-leader policy and does not believe in it, but this is no more an argument against the discount operation than to cut down an apple tree because one apple is rotten. The loss-leader technique is not the baby of the discount houses. It is, rather, the policy of some of our nationally known, large department stores. If it is intended to stop the loss-leader policy, this present bill, H. R. 10527, is inadequate and unsuited for the purpose.

We, in Masters, are able to offer merchandise at below list prices and to offer substantial savings to the general consuming public through no magic formulas or secret alchemy. The following are some comparative statistics, the latest figures issued by the National Retail Dry Goods Association on the cost of opera

tion by its members as compared to the latest figures on the cost of operation by Masters. Let us examine and compare them. It will give us the reason why Masters can offer the public more for its money.

The above figures conclusively show that for every $100 of sales taken in by the National Retail Dry Goods Association member, it must pay on average $33.75 for general overhead, while Masters pays $11.96. This tremendous savings, brought about by efficient merchandising and volume sales, is passed on to our customers.

The economic benefits of price cutting are easy to state: (a) It helps people get more for their hard-earned dollar; (b) it helps defeat inflation by giving more buying power to the dollar; (c) it helps more of the public to get more of the products to enjoy; (d) it enables the consuming public to make substantial money savings.

To epitomize, I believe that fair trade pricing is un-American in its concept and definitely deterrent to a free and open economy, the natural laws of supply and demand, and the economic competition of the market place.

In passing, it is strange to note that those manufacturers and distributors who generally complain the loudest against governmental interference in their business are the very ones seeking this Federal fair trade law to fix into monopolistic prices and exorbitant margins of profits as a buttress for their own distributing systems.

Fair trade is a misnomer. It is unfair trade.

I cannot close with any more appropriate comment than that made by the late President Roosevelt in his letter to Congress on April 24, 1937, with respect to the very issue now being presented:

"The present hazard of undue advances in prices with the resultant rise in the cost of living makes it most untimely to legalize any competitive or marketing practice calculated to facilitate increases in the cost of numerous and important articles which American householders and consumers generally, buy." I strongly urge and recommend to this committee, for the reasons I have stated, the disapproval of H. R. 10527.

STATEMENT OF WILLIAM D. SNOW, GENERAL COUNSEL, NATIONAL CONGRESS OF PETROLEUM RETAILERS, INC.

My name is William D. Snow. I am an attorney with offices at 970 Spitzer Building, Toledo, Ohio, and I am appearing in behalf of the National Congress of Petroleum Retailers, Inc., with principal offices at 325 Farwell Building, Detroit, Mich., of which organization I am general counsel.

The National Congress of Petroleum Retailers is the national trade association of service station operators and gasoline retailers and is comprised of 67 affiliated associations in 36 States and the District of Columbia. More than four-fifths of the Nation's organized service station operators are affiliated with our national organization through their respective State and local gasoline dealer trade associations.

Over a period of years, our national organization has cooperated with other national small business trade associations in support of fair trade principles, and we have participated in and supported activities of the National Advisory Council on Fair Trade, of which Mr. Maurice Mermey is executive director.

Concern at the invalidation of State fair trade laws was expressed by delegates at our last annual session held at Cincinnati, Ohio, in August 1957, and in accordance with our established policies, a referendum of our affiliated associations, of our 250-member committee on national legislation, and of our