Regular retailers lose business on item after item. They must retrench to stay alive. So, they pare expenses. They cut down on clerks and other help. They reduce purchases to the bare minimum. They are slow in paying their bills.

Plainly, the overall result is critical dislocation and damage to the normal processes of distribution of well-advertised, well-known, trademarked commodities previously sold at fair prices in open competition. Prior to the disclocation, the flow of goods from factory through the normal channels of distribution to users provided good livelihoods for countless consumers, including not only the hundreds of thousands of employees of the manufacturers and retailers involved, but, as well, the owners of these thousands upon thousands of business entities throughout the United States, who, themselves, are consumers.

This dislocation does not end with curtailment of direct payrolls and reasonable profits. It extends much further. It hurts, for example, carpenters and glassworkers and bricklayers. No sensible manufacturer enlarges his factory when business is on the downgrade. Nor do sensible retailers enlarge stores already too big for the available patronage.

It is of the utmost importance to understand and get at the root of the whole destructive process. It stems directly from the claimed right of a few retailers to use trademarks they do not own, to use them for purposes which are not forthright, and heedless of injury to the trademark owners.

Referring back to the example of the American Clock Co., not one of the retailers who caused the trouble would have had the slightest interest in the American Ten if it had not been identified by a widely advertised, well-known trademark symbolizing the goodwill of the producer. Every one of them would have spurned the sale of the identical clock unless they could use the goodwill of the American Clock Co. as an aid in selling it.

To be sure, they owned the clocks. Their titles to those physical commodities were clear and valid. But they did not own the trademark identifying the clocks. Their real interest was in what they did not own. In coupling the trademark, which they did not own, with misleading and uneconomic prices, they appropriated, indeed, misappropriated, the good name of another to further their own ulterior

purposes.

The resulting damage to the American Clock Co. was more devastating than a fire at the factory. This was so, not only because of the financial damage, but as much or more because of the permanent injury to the goodwill of American Clock Co. and its good name, as symbolized by its trademark.

In any case, the end result of this species of trademark piracy has been damage not only to the trademark owners, but, as well, to independent retailers. There has been no economic health in the whole business. There has been nothing but manmade, economic disease.

The price-cutting tactics I have described are known in the trade, have long been known, as bait and leader selling. The serious consequences to the free-enterprise system which stem from these practices are clear. Hundreds of manufacturers and thousands upon thousands of retailers can provide corroborative evidence.

It seems to me that it makes no sense whatever and that it leads to nothing but destructive chaos to deny manufacturers of trademarked

products a reasonable means of self-protection against such injury by enabling those who wish to establish standard prices on their own products only.

Such means are not denied to the huge, well-financed giants engaged in manufacturing or retailing, or in both.

Chainstore corporations, each with scores or hundreds of retail outlets in the United States, fix the prices day in and day out, in their uncontrolled discretion, in every one of their stores upon goods sold under their private labels. They are doing it at this very moment right here in Washington and in thousands of other cities, communities, and marketing centers throughout the Nation.

The large, well-financed dominant manufacturers are not denied. the advantage of establishing standard prices to consumers everywhere. They do it by opening their own retail stores or by placing their products on consignment with retailers. By the consignment device, each retailer acts the agent of the manufacturer in selling to consumers, turning the sales price over to the manufacturer, after deducting a selling commission.

These forms of price fixing by the great retail chains or the highly financed manufacturers are not necessarily wrong or unlawful. Monopoly or attempts to monopolize being absent, I would not lend myself to any such suggestion.

The wrong lies in denying an equal opportunity to independent manufactuers to exercise a comparable privilege in marketing through independent distributors, wholesalers, and retailers.

The denial of that equality of opportunity has far-reaching social and economic consequences. Let me illustrate. The resources and reputations of such huge retailers as, for example, Sears, Roebuck and Montgomery Ward enable them to satisfy consumers that the latter can safely rely upon their private brands. Such large retailers can and do engage in research. They can and do undertake testing. They can and do advertise nationally. They can and do carry out many other functions essential to mass production and distribution of consumer goods.

The small retailer is not so positioned. If he is to survive, he must be able to sell, at a reasonable profit, products of independent manufacturers who have developed consumer confidence in their goods as a result of the requisite research, testing, national advertising, and other functions essential to mass production and distribution. The small retailer must, in other words, rely in part upon the reputation of the manufacturer.

There are those who argue, at least privately, that the country might be better off if manufacturing and retailing were concentrated into a small number of large corporate organizations. That seems to me to be a dangerous point of view. I believe that great numbers of small, independent, flourishing businesses are vital to economic freedom and, in the end, even to political freedom.

The failure to allow independent manufacturers and retailers equality of opportunity with the industrial giants in establishing effective resale prices is, in its long-term effects, more disastrous than breeding and feeding business recessions. It fosters monopoly. The independent manufacturer and the independent retailer, caught in the squeezing vise of the artificial prohibition against reasonable self

protection on prices, turn to merger. The big get bigger. The small get smaller, to the vanishing point.

And in the long run, the bigger the big get, the greater the need for Government control. This is not because bigness is bad. It is because bigness is powerful. Big power, economic or other, simply has to be controlled to protect the public welfare. And the more Government control, the more the American free enterprise system must yield, in one form or another, to the techniques of a controlled economy and of economic regimentation, always the inevitable forerunners of other aspects of statism.

If the objectives of the Harris bill are so sound and if the evils at which it is aimed are so dangerous, why the hue and cry in opposition? While the answer to that question is complex, it is clear. It will emerge from a little quiet, careful analysis.

Part of the opposition comes, of course, from the small segment of business interests which profit by bait and leader practices. Directly, as well as through propaganda fronts, they create a self-serving clamor by charging price fixing and consumer gouging. As to those who thrive on bait and leader practices, the less attention paid to the tumult and cry they raise and instigate, the sooner the truth will be reached.

When we analyze down to the bare bones the demands of the bait and leader practitioners, we find that they themselves insist upon the right to fix prices without restraint, unconscionably low prices on standard trademarked, well-advertised products and unconscionably high prices on unbranded or unknown goods.

There is another powerful source of opposition to accomplishment of the objectives of the Harris bill. For reasons that are obscure, I do not say invidious, it appears that many magazine and newspaper publishers editorialize against resale price maintenance. I have never been able to understand this. I still do not. I have yet to see any cutting of the newsstand price of any well-known magazine or newspaper. I suspect, and think you will agree, that any news vendor who undertook to make a practice of selling any nationally known magazine or newspaper at less than the price printed on its cover would soon be out of the business of handling it. You will agree, too, I am confident, that neither the elimination of such price cutting nor effective reformation would be challenged by Government agencies.

Opposition to accomplishment of the objectives of H. R. 10527 has been traditional on the part of the Antitrust Division and most of the members of the Federal Trade Commission. There can be no question of the integrity of this opposition nor its underlying good faith. But the wisdom of the opposition must stand or fall on facts. I am inclined to believe that the opposition of these Government agencies stems in part from traditionalism and in part from habitual, but erroneous, equation of voluntary price maintenance on trademarked commodities with completely different forms of price fixing, which do damage the free enterprise system. I shall have more to say about the latter in a moment.

There is a current of strong opposition to the fair trade idea among economic experts and teachers. That opposition is highly vocal, but by no means unanimous.

The views of the experts who attack voluntary resale price maintenance on trademarked products must be evaluated in the light of economic reality, not ivory tower theory. Upon that evaluation, they have one point on which they are absolutely right. They tell us, and it is true, that if a manufacturer of a trademarked product is permitted to establish a standard resale price and that if he does so, the retailer whose cost of doing business may be lower than that of some of his competitors cannot pass the savings on to the consumer as to that particular product.

That is true. Nothing is gained by denying it. But it is not the complete truth. It is also and equally true that the economic havoc and ruin I have described is the direct result of bait and leader practices. It is also and equally true that there is no effective protection against bait and leader practices except along the lines of the remedies provided by H. R. 10527.

It is incidentally true, it seems to me, that there is nothing basically wrong nor economically unsound in permitting the more efficient retailer, to a degree at least, to make more profit than the inefficient. Greater profit is hardly an inappropriate reward, in our free enterprise system, for greater efficiency or service or know-how.

But whether or not there be agreement upon that, I submit that, in any case, the lesser public good must yield to the greater. The adverse social and economic consequences of bait and leader practices completely outweigh any disadvantage in permitting voluntary resale price maintenance on competitive trademarked products.

But this is not the only answer to the argument of the economic experts and teachers who attack the principles underlying H. R. 10527. I have already pointed out that precisely the same market result is achieved by large chain retailers with respect to the goods they sell. I know of no statutory law either guaranteeing their efficiency or requiring them to pass savings on to consumers. And I am far from convinced, having seen many examples of incredible waste in big business operations, that low operating costs are the exclusive product of large scale operations, whether in retailing or manufacturing.

I have pointed out, too, that resale price maintenance is obtained by the industrial giants among manufacturers through establishment of their own retail outlets or through the device of consignment. Therefore, in addition to the social gain which flows from permitting resale price maintenance on trademarked products as the only effective remedy against bait and leader practices, it has also the social gain of equalizing competitive opportunity on the part of smaller independent manufacturers and retailers.

The clinching answer to the contentions of the economic experts who oppose the objectives of the bill before us goes yet deeper. It lies in the fact that the important competition, the competition which in the end really protects the consumer, is competition between manufacturers.

It must never be overlooked that measures such as the Harris bill do not require the American Clock Co. or any other manufacturer to establish any price whatever. It is up to each manufacturer to decide whether or not he wants to take the risk of establishing a resale price on goods identified by his own trademark.

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I renent for emphasis that the measure before as denies the priviless of voluntary resale price maintenance to any trademark owner es i exising it be is willing to face the relentless, constant pressure of effective competition.

Tnderlying most of the opposition to accomplishment of the objectre of H. R. 19527 is a most unfortunate miscot eption which attends the term "price fixing." The phrase is psychologically odious. But we must be guided by reason, not by epithet or emotion.

The plain fact is that there is always price £xing in any economy. Some types of price fixing are bad. But that does not make all price fixing bad. Indeed, there can be no sale or purchase of anything unless a price is fixed. Every seller has to fix a price at which he will sell: otherwise there can be no trade.

The price fixing which is bad, antisocial, and uneconomic is price fixing by combinations. If competing manufacturers get together to fix prices on their competing products, then you have destruction of competition. Then you have a beginning of monopoly, if, indeed, not monopoly itself.

Nothing of this sort is involved, permitted, tolerated, encouraged, or condoned by H. R. 10527. The opposite is true. Price fixing by combination or on monopoly products is expressly prohibited.

It is not my function here to dwell upon technical, legal points in the particular phraseology or details of H. R. 10527. Its direction is sound, healthy, and good. So is its substance. Moreover, this committee has its own counsel upon whose functions I would not trespass. Merely by way of the most tentative suggestion, offered to evoke consideration, criticism, and improvement, I attach, marked appendix 1. the rough draft of a measure which it is hoped may suggest useful lines of a somewhat modified approach to accomplishment of the important goals of H. R. 10527. In this connection, I would underscore the tentative character of the draft and that my purpose in offering it is for no more than exploratory consideration.

Truth is not tarnished by the passage of time. The evils against which H. R. 10527 is aimed are neither new nor novel. Nor, in my opinion, is there anything very new or novel in any current exposition and analysis of these evils, particularly in the thoughts you have been kind enough to permit me to bring to your attention.