Hon. W. C. Graves, Chairman Opinion No. o-3180 

Senate Committee on 

Commerce and Manufactures 

Austin, Texas 

Dear Sir: 

Re: Constitutionality of 

Senate Bill 9, (Fair Trade 

Act). 

Your letter of February 17, 1941, submits to us a copy 

of Senate Bill Eo. 9, and requests our opinion upon the constitutionality thereof. 

Senate Bill No. 9, the so-called "Fair Trade Act" reads 

as follows: 

"Senate Bill Ho.9 "By SPEARS 

" ABII& 

"TO BE ENTITLED 

wAE ACT to protect trade-mark owners, 

distributors and the general public against 

Injurious and uneconomic practices in the 

distribution of articles of standard quality 

under a distinguished trade-mark brand or 

name, and to facilitate fair tra a e; defjning 

certain terms; providing a savings clause; 

amending all laws and parts of laws inconsistent herewith; and declaring an emergency. 

"BE IT ENACTED BY TBE LEGISLATURE OF TBE ST,ATE OF TEXAS: 

"Section 1. That no contract relating to the sale 

or resale of a commodity which bears, or the label or 

content of which bears, the trade-mark, brandAao;hn-$ 

of the producer or owner of such comodity 

is in fair and open competition with commo&ties of 

the same general class produced by others shall be 

deemed in violation of any law of the State of Texas, 

by reason of any of the following provisions, which may 

be contained in such contract; 

"1. That the buyer will not resell such commodity, 

except at the price stipulated by the Vendor. 
Hon. W. C. Graves, page 2 

“2 . That wilfully and knowingly offering for sale 

or selling any commodity at less than the price stipulated In any contract entered into pursuant to the 

provisions of this Act, whether the person so offering for sale or selling is or is not a party to such 

contract, is unfair competition and is actionable at the 

suit of any person damaged thereby. 

“3. That the Vendee or producer require any dealer 

to whom he may resell such commodity to agree that he 

will not, in turn resell, except at i he price stipulated 

by such Vendor or by such Vendee. 

Y3uch provisions in any contract shall be deemed 

to contain or imply conditions that such commodity may 

be resold without reference to such agreement in the 

following cases: 

“1. In closing out the owner’s stock for the purpose of discontinuing any such commodity, and notice 

thereof is given to the public; 

“2 . When goods are damaged or deteriorated in quality 

and notice thereof Is given to the public; 

“3. By any officer acting under the orders of any 

court. 

“Section 2. This Act shall not apply to any contract 

or agreement between the producers or between wholesalers 

or between retailers, as to sale or resale prices. 

“Section 3. The following terms, as used in the Act, 

are hereby defined as follows: 

“‘Producer means grower, baker, maker, manufacturer, 

or publisher. 

“‘Commodity’ means any subject of commerce. 

“Section 4. If any provision of this Act is declared 

unconstitutional, it is the intent of the Legislature that 

the remaining portions thereof shall not be affected, but 

that such remaining portions remain in full force and effeet. 

“Section 5. All laws or parts of laws inconsistent 

herewith are hereby amended to the extent of such inconsistency. 
Hon. W. CI Graves, page 3 

"Section 6. This .Act may be known and cited as 

the 'Fair Trade Act.' 

"Section 7. The fact that the State has no law 

to regulate unfair trade practices creates an emergency and an imper~ative public necessity that the Constitutional Rule requiring bills to be read on three 

several days in each House be suspended, and said Rule 

is~ hereby suspended, and that this Act shall take effect and be in force from and after its passage, and 

it is so enacted." 

In Conference Opinion No. 3066, we held that H.B. No. 

231, the "Fair Trade Act" passed by the 46th Legislature, conflicted with our anti-trust laws and that, since Section 7 of 

that Act provided that the Act should be null and void if it 

conflicted with the anti-trust laws of the State, H. B. No. 231 

was, by its own terms, of no force and effect. Because of this 

holding, it was not necessary that we should, and we therefore 

did not, express in that opinion our views respecting the constitutionality of that Act. 

Senate Bill No. 9, pending before the 47th Legislature, 

is very similar to H. B. No. 231, 46th Legislature, but contains 

no provision that S.B. No. 9 shall be null and void if in conflict with our anti-trust laws. On the contrary, Section 5' of 

S.B. No. 9 expresses clearly the legislative intent that the provisions of the "Fair Trade Act" shall operate to amend and supersede the anti-trust laws to the extent that the "Fair Trade Act" 

conflicts with the anti-trust laws. 

Under the anti-trust laws of this State, the agreements 

which are mentioned in Senate Bill No* 9 are illegal and void. 

(See our Conference Opinion No. 3066 

tached). 4 

copy of which is hereto atThe pur:Jose and effect of enate Bill No. 9 is to legalize in this State the type of contra& fixing resale prices- 

"vertical18 price fixing - described in the bill. If the bill becomes a law, the anti-trust laws of this State will, by virtue 

thereof, be repealed to the extent that such laws condemn the 

"vertical" price fixing agreements described in Senate Bill No. 

9. Thus, only questions respecting the const;tutionality of S. 

B. No. 9 are presented for our consideration. 

Our anti-trust laws constitute a legislative determination that agreements and combinations having for their purpose 

or affecting by their acts the fixing of prices upon the subjects 

of commerce, though manifestly beneficial to that portion of the 

public engaged in the selling of such commodities who, are parties 
Hon. W. C. Graves. Page 4 

to such agreements and combinations, are obnoxious and harmful 

to the interest of the public generally. This legislative determination upon which the anti-trust laws are predicated, however, is subject to review by the Legislature. There is no 

provision of our Constitution which prevents the Legislature 

from modifying or revoking the policy embodied in the antitrust laws. Hence, whether these laws shall be repealed in 

whole or in part presents purely a question for the Legislature, 

to be solved by the Legislature in such manner as appears to it 

to be in the interest of the general public. 

The character of this problem as purely legislative 

is emphasized by the following quotation from our Conference 

Opinion No. 3066: 

“It is contended by advocates of such legislation that the manufacturer of trade-marked or branded 

articles of commerce has a vital interest in the good 

will engendered by the sale of such goods with his 

brand or trade-mark upon them; that price-cutting in 

such goods by retailers to whom the manufacturer or 

distributor ~has sold them results in damage to the 

manufacturerfis good Will; that the damage thus SUStained increases the manufacturer’s costs and impairs 

hls ability to market his goods and results in increased prices for such goods to the buying public. 

(7 A.L.R. 453-456). It is argued that ‘vertical’ 

price-fixing--that is, price-fixing on a branded commodity in competition with other branded commodities 

of a similar class, by agreement between the manufacturer or the distributor and the dealers in such commodity, as to the prices for which his commodity alone 

may be sold, is beneficial to the public generally; 

whereas, it is admitted that ‘horizontal’ price-fixing 

agreements--that is, price-fixing between manufacturers or dealers in similar commodities normally in competition each with the other, is decidedly inimical to 

the public, interest. 

“On the contrary, the arguments against such pricefixing are phrased as follows by the Federal Trade Commission report for the fiscal year ending June 30, 1918: 

“‘1. The power to fix prices will usually be 

abused by the allowance of too large profits; 

“‘2. Resale price maintenance protects and encourages inefficient jobbers and prevents elimination 

in the over-crowded field of middlemen; 
Hon. W. C. Graves, page 5 

u 8 3. It tends to secure cooperation of dealers 

and’ to prejudice them against brands whose prices 

are not fixed; 

n’4. It forces other dealers to attempt the eontrol of prices; 

“‘5. It encourages general standardization of 

prices and elimination of normal competition among 

dealers; and, 

tt I 6 . It forces the ultimate consumer to pay higher prices and leaves him no bargaining power with respect to the article concerned.’ (7 A.L.R. 458) 

“It is, of course, t’he prerogative of the Legislature, 

in the exercise of its constitutional authority to originate such legislation as this, and of the Governor, in the 

exercise of his constitutional authority to veto or approve, to balance these arguments and constierations the 

one against the other, determine their validity, and to 

take such action as, to them, appears to be in the interest 

of the public generally. In the absence of any constitutional inhibitions neither this Department nor the courts 

would have shy rightful concern with the question of public 

policy involved, since the determination of that question 

of public policy is governed by findings of fact, and the 

power to make such findings of fact is by our Constitution 

exclusively vested in the Legislature and In the Chief Executive of the State.” 

Under our system of government, the people have vested 

a large discretion in the Legislature and in the Governor to determine the policies of the State. Except as this discretion may 

be limited by plain constitutional provisions, the Legislature’s 

action, unless vetoed by the Governor 

tions of policy, the Constitution vests 

is final. Upon these quesno authority in the Judiciary to nullify a law simply because, in the opinion of the Judiciary, the Legislature has wrongly determined the question of 

policy involved and passed a law which is obnoxious to, rather 

than in the furtherance of the interest of the public generally. 

In such cases, the protect 1 on of the people is not vouchsafed by 

the Constitution but lies “in the character of those entrusted 

with the power o h legislation and in the integrity and firmness 

of the chief executive of the State.” 

Colgan (California), 14 L.R.~A. 474) 

(DeHaven, J, in Daggett v. 

Acts identical to Senate Bill No. 9 have been upheld in 

many other states and by the Supreme Court of the United States, 
Hon. W. C. Graves, page 6 

as within the broad policy making po-der of the Legislature. In 

these cases, every question of constitutionality, under State 

and Federal Constitutions, which occurs to us, has been resolved 

in favor of the validity of the Act. (See cases collected in 

knotations* . 103 A.L.R. 1342; 125 A.L.R. 1336) No useful purpose can be served by extensive quotations from these cases. 

It suffices to say that, under these authorities 'Je are of the 

opinion that no provision of the State or Federa 1; Constitutions 

renders Senate Bill No. 9 invalid. 

Yours very truly 

ATTORNEY GENER& OF TEXhS 

By /s/ R. W. Fairchild 

Richard W. Fairchild 

Assistant 

@PROVED: MAR 6, 1941 

/s/ Gerald C. Mann 

ATTORNEY GENERAL OF TEXAS 

RWF:EP:wb 

ENCLOSURE 

This opinion considered and approved in limited conference.