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

Senate Committee on CommerceandManufactures 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, andrequests 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& "TOBEENTITLED wAEACTto protect trade-mark owners, distributors andthe general public against Injurious anduneconomic practices in the distribution of articles of standard quality under a distinguished trade-mark brand or name, andto facilitate fair tra e; a defjning certain terms; providing a savings clause; amending all laws andparts of laws inconsistent herewith; anddeclaring an emergency. "BEIT ENACTED

BYTBELEGISLATURE OFTBEST,ATE

OFTEXAS: "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 samegeneral class produced by others shall be deemedin violation of anylaw 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 andknowingly 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 andis actionable at the suit of any person damagedthereby.

“3. That the Vendee or producer require any dealer to whomhe mayresell such commodity to agree that he will not, in turn resell, except at iheprice stipulated by such Vendor or by such Vendee. Y3uchprovisions 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, andnotice thereof is given to the public;

“2

. Whengoods are damagedor deteriorated in quality andnotice thereof Is given to the public;

“3. Byany 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. Thefollowing terms, as used in the Act, are hereby defined as follows:

“‘Producer meansgrower, baker, maker, manufacturer, or publisher.

“‘Commodity’ meansany subject of commerce.

“Section 4. If anyprovision 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 amendedto the extent of such inconsistency.Hon. W.CI Graves, page 3

"Section 6. This .Actmaybe knownandcited as the 'Fair Trade Act.' "Section 7. The fact that the State has nolaw to regulate unfair trade practices creates an emergency and animper~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, andthat this Act shall take effect andbe in force from andafter its passage, and it is so enacted." In Conference Opinion No. 3066, weheld that H.B. No. 231, the "Fair Trade Act" passed by the 46th Legislature, conflicted with our anti-trust laws andthat, since Section 7of that Act provided that the Act should be null andvoid if it conflicted with the anti-trust laws of the State, H. B. No. 231 was, by its ownterms, of no force and effect. Because of this holding, it was not necessary that weshould, andwetherefore 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 noprovision that S.B. No. 9 shall be null andvoid if in conflict with our anti-trust laws. Onthe contrary, Section 5'of S.B. No. 9 expresses clearly the legislative intent that the provisions of the "Fair Trade Act" shall operate to amendand 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 andvoid. (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 alaw, the anti-trust laws of this State will, by virtue thereof, be repealed to the extent that such laws condemnthe "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.

Ouranti-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 partiesHon. W. C. Graves. Page 4

to such agreements and combinations, are obnoxious andharmful to the interest of the public generally. This legislative determination uponwhich 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 manneras 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 whomthe manufacturer or distributor ~hassold themresults in damageto the manufacturerfis good Will; that the damagethus SUStained increases the manufacturer’s costs and impairs hls ability to market his goods andresults 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 abranded commodity in competition with other branded commodities of a similar class, by agreement between the manufacturer or the distributor andthe dealers in such commodity, as to the prices for which his commodity alone maybe 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.

“Onthe 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. Thepower to fix prices will usually be abused by the allowance of too large profits;

“‘2. Resale price maintenance protects and encourages inefficient jobbers andprevents elimination in the over-crowded field of middlemen;Hon. W. C. Graves, page 5

u83. It tends to secure cooperation of dealers and’to prejudice themagainst 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 andelimination of normal competition among dealers; and, tt I6

. It forces the ultimate consumer to pay higher prices andleaves himnobargaining 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, andto 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, andthe power to makesuch 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 alarge discretion in the Legislature andin 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. Uponthese 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 andpassed alawwhich is obnoxious to, rather than in the furtherance of the interest of the public generally. In such cases, the protect 1on of the people is not vouchsafed by the Constitution but lies “in the character of those entrusted with the power ohlegislation and in the integrity andfirmness of the chief executive of the State.” Colgan (California), 14L.R.~A. 474) (DeHaven, J, in Daggett v.

Acts identical to Senate Bill No. 9have been upheld in manyother states andby the SupremeCourt of the United States,Hon. W.C. Graves, page 6

aswithin the broad policy makingpo-der of the Legislature. In these cases, every question of constitutionality, under State andFederal 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) Nouseful 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 Federa1;Constitutions renders Senate Bill No. 9invalid. Yours very truly ATTORNEY

GENER&OFTEXhS By/s/ R. W. Fairchild Richard W. Fairchild Assistant @PROVED:MAR6, 1941 /s/ Gerald C. Mann ATTORNEY

GENERAL

OFTEXAS RWF:EP:wb ENCLOSURE This opinion considered andapproved in limited conference.