Court Opinion

ID: 9628587
Source: CourtListenerOpinion
Date Created: 2023-08-22 09:25:43.532493+00
Date Added: 2024-06-11T09:09:44.498786
License: Public Domain

Rosellini, J.
This action was brought to enjoin the defendants from selling certain products below the price set by the plaintiff, pursuant to the Washington fair trade act. There is no dispute in regard to the facts. The defendants willfully and knowingly advertised, offered for sale, and sold at retail, firearms and ammunition which were manufactured by and bore the trademark, brand, or name of the plaintiff as the producer of the products. The prices at which the defendants advertised, offered for sale, and sold these products were less than the retail prices established by the plaintiff in its contract with other retailers, of which the defendants had knowledge. At the time of trial, the plaintiff had in effect approximately five hundred seventy fair trade agreements with retailers in the state of Washington. All of the contracts are identical and give the plaintiff the sole right to determine and modify the resale price of all products covered by the contracts.
None of the defendants at any time entered into fair trade contracts of any nature with the plaintiff or with any other person. The parties to the action have stipulated that the damage suffered by either party in the event of success in this action, shall be in the sum of one dollar. The plaintiff contends that the defendants are bound to sell at the price fixed for its products by virtue of the “nonsigner” provision *3of the fair trade act, Laws of 1937, chapter 176, § 3, p. 685 (RCW 19.89.030), which provides:
“Wilfully and knowingly advertising, offering for sale or reselling any commodity at less than the price stipulated in any contract entered into pursuant to the provision of section 1 of this act, whether the person so advertising, 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.” (Italics ours.)
The trial court enjoined the actions of the defendants and granted the plaintiff one dollar in damages. The defendants appeal. We are asked to re-examine Sears v. Western Thrift Stores of Olympia, Inc., 10 Wn. (2d) 372, 116 P. (2d) 756 (1941), upholding the constitutionality of this provision.
To obtain the proper perspective for this appeal, we must first look to the act itself. In general, it provides that a producer or owner of a commodity which bears the trademark, brand, or name of the producer or owner of such commodity, and which is in free and open competition with commodities of the general class produced by others, may fix and enter into price maintenance contracts. The “nonsigner” provision, supra, which provides that willfully and knowingly advertising, or reselling such commodity at less than the price stipulated in a contract of this sort constitutes unfair competition whether such seller is or is not a party to the contract. The act also provides that it shall not apply to any contract or agreement between producers or between wholesalers or between retailers as to sale or resale prices.
In Sears v. Western Thrift Stores of Olympia, Inc., supra, this court held in accord with the weight of authority, that the act, providing as it did for “vertical” price fixing rather than “horizontal” price fixing, did not contravene Art. XII, § 22, of our state constitution, prohibiting monopolies.
The court further held, without discussing the relation of the act to the public welfare, that the nonsigner provision was valid as an exercise of the police power.
Several constitutional objections are raised on this appeal; howeveT, we rest our decision on a re-examination of the *4latter holding of the Sears case, pertaining to the validity, of the provision as an exercise of the police power.
This case is not concerned with the unfair practices act (RCW chapter 19.90) which deals with the unjust discrimination involved in loss leader sales and sales below-cost, and prescribes a method of computing cost. See State v. Sears, 4 Wn. (2d) 200, 103 P. (2d) 337 (1940). Neither is it concerned with the right of a manufacturer to fix the retail price of its product by contract with the retailer, as was Fisher Flouring Mills Co. v. Swanson, 76 Wash. 649, 137 Pac. 144 (1913).
The United States supreme court in Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 U. S. 183, 81 L. Ed. 109, 57 S. Ct. 139, 106 A.L.R. 1476 (1936), sustained the constitutionality of the fair trade act of Illinois, including the nonsigner clause; however, the court recognized that such price fixing was still illegal in interstate commerce, being contrary to the provisions of the Sherman Anti-Trust Act, 26 Stat. 209.
To validate vertical price-fixing agreements, Congress passed the Miller-Tydings Act, of 1937, 50 Stat. 693, amending the Sherman Anti-Trust Act; however, in Schwegmann Bros. v. Calvert Distillers Corp., 341 U. S. 384, 95 L. Ed. 1035, 71 S. Ct. 745, 19 A.L.R. (2d) 1119 (1951), the nonsigner provision was held invalid under the act. The court used the following language:
“ . . . If a. distributor and one or more retailers want to agree, combine, or conspire to fix a minimum price, they can do so if state law permits. Their contract, combination, or conspiracy—hitherto illegal—is made lawful. They can fix minimum prices pursuant to their contract or agreement with impunity. When they seek, however, to impose price fixing on persons who have not contracted or agreed to the scheme, the situation is vastly different. That is not price fixing by contract or agreement; that is price fixing by compulsion. That is not following the path of consensual agreement; that is resort-to coercion.
“Contracts or agreements convey the idea of a cooperative arrangement, not a program whereby recalcitrants are *5dragged, in by the heels and compelled to submit to price fixing.”
The McGuire Act, of 1952, 66 Stat. 632, approved the subjection of nonsigners to price-fixing agreements in- interstate commerce, where such restrictions are imposed by state law. This act was upheld in Schwegmann Bros. Giant Super Market v. Eli Lilly & Co., 205 F. (2d) 788 (C.A. 5th, 1953), certiorari denied 346 U. S. 856, 98 L. Ed. 369, 74 S. Ct. 71.
The United States supreme court has not decided whether the fact that some states have laws of this type while others do not, tends to create an undue burden on interstate commerce, although it might well be argued that this is the case.
This court held, three judges dissenting, in Sears v. Western Thrift Stores of Olympia, Inc., supra, that the nonsigner clause of the fair trade act was a valid exercise of police -power. But, as stated before in this opinion, the court did not point out how the health, safety, morals, or welfare of the public was affected by the legislation.
In 16 C. J. S., Constitutional Law, 939-945, § 195, it is stated:
“. . . the limit of a state’s exercise of the [police] power is reached when the regulation transcends public necessity. . . .
“In order that a statute may be sustained as an exercise of the police power, . . . the courts must be able to see that the enactment has for its object the prevention of some offense or manifest evil or the preservation of the public health, safety, morals, or general welfare, that there is some clear, real, and substantial connection between the assumed purpose of the enactment and the actual provisions thereof, and that the latter do in some plain, appreciable, and appropriate manner tend toward the accomplishment of the object for which the power is exercised.
“. . . The legislature may not exercise the police power for private purposes, or for the exclusive benefit of particular individuals or classes.
“ . ■ . . A statutory provision which is not a legitimate police regulation cannot be made such by being placed in the same act with a police regulation, or by being enacted *6with a legislative declaration of a purpose which would be a proper object for the exercise of that power. ...”
Thus, it is seen that to justify any law upon the theory that it constitutes a reasonable and proper exercise of police power, it must be reasonably necessary in the interest of the health, safety, morals, or welfare of the people. This exercise of police power must pass the judicial test of reasonableness.
After Schwegmann Bros. v. Calvert Distillers, Corp., supra, legal scholars re-examined the reasonableness and validity of the fair trade acts in the light of the actual operation of these acts. See 49 Yale L. Jour. 607, 21 Chicago L. Rev. 175, 46 Ill. L. Rev. 349, 60 Yale L. Jour. 929.
In respect to this phase of the problem, the supreme court of Oregon in General Electric Co. v. Wahle, 207 Ore. 302, 296 P. (2d) 635 (1956) stated:
“In 49 Yale LJ 607 and in 21 Chicago L Rev 175, are to be found exhaustive and well-written articles concerning the Fair Trade statutes by two eminent scholars, viz., Harry Shulman, Sterling Prof, of law, Yale Law School, and Carl H. Fulda, Prof, of Law, Rutgers University, respectively. From the facts and statistics given, the accuracy of which seem beyond question, it is plainly apparent that the consumer is not benefited, but on the contrary is harmed by the operation of the Fair Trade Act. The consumer is the public. He is compelled to pay a higher price for a given commodity in order that the retailer may be guaranteed a higher fixed, and often unreasonable, profit. If Professors Shulman and Fulda are correct in their observations, and we have no reason to believe otherwise, it is obvious that the whole scheme of the Fair Trade Acts is one for private, rather than public, gain, a scheme fathered by highly organized groups of distributors and retailers, interested not in the public weal, but only in their own selfish ends. Manifestly, such a scheme bears no relation whatever to the public morals, health, safety, or general welfare.”
Since May, 1951, sixteen state supreme courts have declared acts of this kind unconstitutional. Generally, the acts were found unconstitutional on the grounds that legislative power had been unlawfully delegated and that they constituted improper use of the police power in that they bore no *7reasonable relation to the health, safety, morals, or general welfare of the public.
The supreme court of New Mexico said in the case of Skaggs Drug Center v. General Electric Co., 63 N. M. 215, 315 P. (2d) 967 (1957):
“ . . . In substance, therefore, what is the real purpose of the Fair Trade Act? No matter what high-sounding terms are used, such as ‘free and open competition’, ‘unfair competition,’ and ‘protection of good will’, it is a matter of common knowledge that it is a price-fixing statute, designed primarily to destroy competition at the retail level. The high-sounding phrases used with respect to the trademark owners are simply excuses and not a reason for the law.”
Then in declaring the nonsigner clause of the New Mexico fair trade act unconstitutional, the court said:
“In view of the above, it will be determined that § 2, Chapter 44 of the Laws of 1937, . . . [identical with § 3, chapter 176, Wash. Laws of 1937] is unconstitutional and void as an arbitrary and unreasonable exercise of the police power without any substantial relation to the public health, safety or general welfare insofar as it concerns persons who are not parties to contracts provided for in [the fair trade act].”
In Rogers-Kent, Inc. v. General Electric Co., 231 S. C. 636, 99 S. E. (2d) 665 (1957), the South Carolina court declared the nonsigner clause of the fair trade act to be unconstitutional and stated:
“The right of an owner of property to fix the price at which he will sell [his property] is an inherent attribute of the property itself.
“This legislation can be justified only upon the theory that it constitutes a reasonable and proper exercise of the inherent police power of the State. We have held that such power can only be exercised where it is reasonably necessary in the interests of the public order, health, safety, morals or general welfare.”
The court in holding that the fair trade act had no reasonable relation to the public order, health, safety, morals or general welfare, stated:
“It is difficult to find any justification for this legislation based upon considerations of the public health, safety, *8morals and general welfare. It applies to every '«ptfoidüe't bearing the trade-mark, brand or name of the. producer.; No distinction is made between commodities affected;; with a public interest and those that are not. Únder the terms of the act, a non-signer has no voice whatsoever in fixing the price at which he may sell his property. By entering into a contract with a single retailer, the trade-mark owner may fix the price for all retailers, without regard to their interests or welfare. The manufacturer is not required to take into consideration the cost of his article. He may change the retail prices at will, or even terminate the contract and remove any article from the operation of the statute. It is solely up to him to say whether or not there shall be a law controlling the price at which his trade-marked article shall be sold.”
In Shakespeare Co. v. Lippman’s Tool Shop & Sporting Goods Co., 334 Mich. 109, 54 N. W. (2d) 268 (1952), the Michigan court initiated the trend of the courts to declare the nonsigner clause of the fair trade act unconstitutional. That court held the act unconstitutional as an unlawful exercise of the state’s police power for the reason that it bore no reasonable relation to the public health, safety, morals or general welfare.
The supreme court of Arkansas in Union Carbide & Carbon Corp. v. White River Distributors, 224 Ark. 558, 275 S. W. (2d) 455 (1955), ruled that the nonsigner clause of the fair trade act was unconstitutional as it was not protective of the public welfare and was in violation of the due process clause of the state constitution. The Arkansas court stated that it was its specific task to determine whether or not it could be reasonably said that the provisions of the nonsigner clause in any way promoted the general welfare of the people of the state. The court stated:
“ . . . It is a generalization, but not an overstatement, to say that the effort to ‘fix prices’ is made by groups who desire to sell something for more than the sponsoring group believes that the purchasing public would pay for that ‘something’ without an enforced fixed price. It would seem apparent that the principal objective of minimum price maintenance is the protection of profit margins for retailers and distributors unable or unwilling to meet the pressure of competition.”
*9The Arkansas court analyzed the effect of the act and made the following observation:
“What the act does. Considering the Act in relation to this particular case, it' virtually gives appellant the absolute right .to fix the price at which Prestone must be sold to the consuming public in Arkansas without regard to the cost of manufacture or distribution. We are not forgetting that it must first contract with one retailer in the state and appellee must have knowledge of contract and the fixed price, but these provisions consist more of form than substance and merely indicate a desperate attempt to hedge against the charge of unconstitutionality. Nobody doubts the feasibility of appellant acquiring one contract dealer out of the hundreds of retail dealers in the state, or the feasibility of bringing this information to all other dealers. If securing a contract with one dealer binds all others, then the corollary would be that, absent such contract, the others are not bound. It is frightful to think a device so easily concocted could destroy the constitutional bulwark protecting our personal liberties and the public welfare.”
In Olin Mathieson Chemical Corp. v. Francis, 134 Colo. 160, 301 P. (2d) 139 (1956), the Colorado court sitting en banc declared the act unconstitutional on several grounds. With respect to the subject under discussion, the exercise of the police power, the court made the following comment:
“ . . . The right to contract is a property right, protected by the due-process clause of the constitution and cannot be abridged by legislative enactment. The police power of the state exercisable by the General Assembly, while very broad, is exercisable only within the limits of the constitution. To sustain the price fixing power attempted by the General Assembly in the statute involved, under a claimed exercise of the police power, would be to place the power of the legislature above the constitution.”
In concluding its decision which, as indicated, was based on several constitutional grounds, the Colorado court made the following comment, which is similar to comments found in the other decisions:
“During a recent decade numerous attempts were made to regiment the general public and in each instance they were struck down as violative of constitutional rights of a free people. We have not yet arrived at the place in America *10where the many must yield to the few, so that the latter may make ever increasing profits at the expense of those who still believe in the principle of free and competitive trade and commerce, untrammeled by legislative fiats.”
In the case of Union Carbide & Carbon Corp. v. Bargain Fair, Inc., 167 Ohio St. 182, 147 N. E. (2d) 481 (1958), the Ohio supreme court holding the nonsigner clause invalid said:
“. . . In normal times, the inflexible price arrangements which the acts sanction are opposed to our traditional concepts of free competition for the benefit of the consuming public, and the clause binding those who do not enter into a price-fixing contract with the manufacturer offends such concepts. Hence, the nonsigner clause interferes with the constitutional right of the owner of property to dispose of it as he pleases and represents the exercise of the police power for a private as opposed to a public purpose.”
A theory of the Sears case, supra, adopted from the opinion of the United States supreme court in Old Dearborn Distributing Co. v. Seagram-Distillers Corp., supra, was that the manufacturer of a trade-marked product retains a proprietary interest in that product by reason of the fact that he owns the trademark and the good will associated therewith, when he sells that product to a retailer, even though the retention of such an interest is not made a part of the contract of sale. If the manufacturer does have an interest in the portion of good will which goes with the trademarked product, then he is entitled to sue and recover that portion of the resale price which is attributable to such good will, and we do not think it can be seriously contended that he has such a right. In selling the product to the retailer, the manufacturer exacts a price for the use of his trademark and the benefit of the good will associated with it, as well as for the physical components of the product, and unless he also exacts an agreement that the retailer will not resell the product at less than a stipulated price, we can see no equity which should entitle him to the special protection of the law.
*11It is urged that the court should not overrule Sears v. Western Thrift Stores of Olympia, Inc., supra, because it has been the law for eighteen years and a substantial number of contracts have been made in reliance upon the Sears decision. By this, it is undoubtedly meant that many manufacturers have neglected to obtain contractual undertakings from their retailers to adhere to the prices set by the manufacturer. If so, it should be a simple matter to correct this practice in the future, and the amount of the agreed damages in this action indicates that the loss sustained by the manufacturer is not severe. At any rate, there is no showing that the hardship to manufacturers and retailers resulting from the overruling of the Sears case would be great enough to warrant the perpetuation of an erroneous decision.
The language of Mr. Chief Justice Fuller, in the case of Pollock v. Farmers’ Loan & Trust Co., 157 U. S. 429, 39 L. Ed. 759, 809, 15 S. Ct. 673, is quoted with approval in State ex rel. Bloedel-Donovan Lbr. Mills v. Savidge, 144 Wash. 302, 258 Pac. 1 (1927):
“ ‘Manifestly, as this court is clothed with the power, and entrusted with the duty, to maintain the fundamental law of the Constitution, the discharge of that duty requires it not to extend any decision upon a constitutional question if it is convinced that error in principle might supervene.’ ”
The nonsigner clause of the fair trade act, Laws of 1937, chapter 176, § 3 (RCW 19.89.030) is declared invalid as an improper exercise of the police power, and the case of Sears v. Western Thrift Stores of Olympia, Inc., supra, is expressly overruled insofar as it validates the nonsigner clause.
The judgment is reversed.
Weaver, C. J., Mallery, Hill, and Foster, JJ., concur.