Court Opinion

ID: 3847969
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:24:09.575237+00
Date Added: 2024-06-11T12:25:33.515591
License: Public Domain

In my opinion the decision of the majority legalizes a plain violation of the Fair Trade Act and opens the door to a multitude of carefully devised schemes to effectuate indirect price-cutting. The Act expressly prohibits the sale of a commodity at a price less than that stipulated in any contract entered into pursuant to the *Page 93 
provisions of the Act, and it seems to me that a sale of goods accompanied by trading stamps is a sale at a reduced price in violation of this statutory provision.
The undisputed facts show, and the court below found, that the trading stamps are redeemable for other merchandise or may be sold to others by the purchaser to whom they have been issued. The giving of the trading stamps is an integral part of the transaction of sale of the particular trade-marked commodity. When a customer purchases a tube of appellant's tooth paste for 39 cents he does not pay 39 cents for the tooth paste alone, but for the trade-marked commodity and the trading stamp. Since the trading stamp represents a definite value redeemable in other merchandise, he is receiving for the stipulated price something of value in addition to the trade-marked commodity.
That this amounts to a rebate or discount upon the stipulated price is evident. The stamp books themselves bear the words: "Yellow trading stamps are not something for nothing but something instead of nothing — a discount for the money you spend with the storekeeper", and "Refusing to take yellow trading stamps from the storekeeper is like forgetting your change. Always ask for them." This language clearly shows that those who issue the stamps recognize the fact that one who purchases an article with which he receives trading stamps is obtaining the particular article at a price less than the one stipulated. The fact that the discount is in the form of a stamp redeemable in merchandise rather than in the form of a direct cash rebate which could be used to purchase the same merchandise is wholly immaterial.
The contention that giving such stamps is merely a form of advertising ignores the actual fact that the customer is receiving the article at the standard price less the value of the stamp, and is contrary to the judicial decisions of other courts which have dealt with the trading stamp problem. InRast v. Van Deman  Lewis *Page 94 Co., 240 U.S. 342, the United States Supreme Court expressly ruled that giving trading stamps with the sale of merchandise could not be treated as a mere method of advertising, but on the contrary was "a method of giving discount, practically in some instances a rebate upon the price." See also Sperry Hutchinson Co. v. Hertzberg, 69 N.J. Eq. 264.
While it is true that the Fair Trade Act is in derogation of the common law and is therefore to be strictly construed, it is equally true that an act is not to be construed to defeat the very purpose for which it was intended. In Calvert DistillersCorp. v. Nussbaum Liquor Store, 2 N.Y. So.2d 320, in interpreting the New York Fair Trade Act, the court said (p. 324): "With the economic soundness or wisdom of the statute the courts are not concerned. It expresses a new business policy by the lawmaking body of the state. It is not to receive such a narrow or strict judicial construction as virtually to destroy its purpose. Rather it is to receive a judicial construction designed to carry out that new policy, to effectuate its primary purpose."
We must, therefore, consider the history of this fair trade legislation and examine the evils which it sought to alleviate. The Act deals not with a commodity alone, but with a commodity which is identified by a brand or trade-mark. Although the retailer owns the particular merchandise, he does not own the brand or trademark which identifies the product. The courts have long recognized that the goodwill which this mark symbolizes is property, and that this property — the ownership of the goodwill — remains in the manufacturer though he has parted with the commodity: Old Dearborn Distributing Co. v.Seagram Distillers Corp., 299 U.S. 183. It is to protect this property interest by preventing retailers from capitalizing on the goodwill of the producer through price-cutting schemes that the Fair Trade Acts have been enacted: Old DearbornDistributing Co. v. Seagram Distillers Corp., supra; Triner *Page 95 Corp. v. McNeil, 363 Ill. 559; Weco Products Co. v. Reed DrugCo., 225 Wis. 474. In the first case cited the United States Supreme Court said (p. 193): "The primary aim of the law is to protect the property — namely, the goodwill — of the producer, which he still owns. The price restriction is adopted as an appropriate means to that perfectly legitimate end, and not as an end in itself."
The Act recognizes the fact that a manufacturer of a trade-marked commodity derives an advantage from a uniform price known to the buying public. When a manufacturer has through national advertising and a widespread sales program established a reputation as a producer of a Dollar Watch,any sale of that article at a less amount discredits the article in the eyes of the consumer and injures the goodwill which the manufacturer has created. Furthermore, price-cutting by one retailer forces other retailers in the same locality to cut prices to maintain the trade on that article. The retailer's margin of profit is thereby reduced to such an extent that he is ultimately forced to discontinue handling the particular commodity or at least to push the sales of competing products. The inevitable result is that the producer suffers from the loss of distributing outlets for his product.*
Since the Act is to be construed to effectuate its purpose and to remedy the existing evils, it is thus apparent thatany sale which tends to produce these results is to be condemned. The Act recognizes the fact that a retailer who sells a dollar article for 99 cents is impairing the goodwill of the producer. It seems to me that a practice which would permit a retailer to sell a dollar article and 1 cent worth of trading stamps for $1 is just *Page 96 
as objectionable. If the Act permits the retailer to give trading stamps redeemable in valuable merchandise, it also would of necessity sanction the giving of the merchandise itself with each sale of the trade-marked article. And since the customer is receiving for his dollar spent more than the trade-marked product, he realizes that he is receiving it for less than $1. If the maintenance of the manufacturer's goodwill requires that the consumer shall at all times associate the price of $1 with the particular brand, the goodwill is impaired where the consumer receives the trade-marked commodity plus a 1 cent article for $1 just as much as where the consumer pays 99 cents for the trade-marked product alone.
The argument that the giving of trading stamps is the same as providing "orchestral music for his customers at a certain hour of the day, or maintains in his store a salon where works of art are exhibited, or a nursery where children are fed and otherwise cared for while their mothers are shopping in the store" seems to me clearly unsound. Such services have no direct relation to the articles purchased or to the price paid; in fact one may receive these services even though no purchases are made. A direct reduction in the price of a trade-marked commodity injures the manufacturer's goodwill because there is a direct association in the customer's mind between the priceand the particular article. Where the reduction takes the form of a trading stamp the value of which is directly proportional to the value of the article purchased, the same association exists since the customer realizes that he is getting the commodity at its standard price less the value of the trading stamp. The trade-name is discredited in the mind of the consumer just as much as if an actual cash rebate were given. But where the customer receives free parking or other similar services, he does not associate the receipt of these gratuities with the price of the particular article which he may purchase. There is *Page 97 
consequently no injury to the trade-name or the goodwill of the manufacturer.
The majority opinion argues that even though appellee is violating the Act, it is not entitled to injunctive relief on the ground that the benefit to be obtained would be disproportionate to the damage done appellant. While it is true that the stamps now issued are not of great value, nevertheless the Act declares that any sale at less than the price stipulated is unfair competition. Although the stamp represents but a small proportion of the total purchase price of one particular article, the fact remains that it is a reduction in price and this court is not given the power to pass upon the extent of the reduction. That purchasers recognize these stamps as being valuable is established by the fact that appellee's customers requested over 146,000,000 stamps in 1937 and that 95% of these were redeemed. In passing on the question of damages in Calvert Distillers Corp. v. Nussbaum Liquor Store, supra, the court said (p. 325): "The only practical method of securing any kind of enforcement of the statute as now drawn is by way of injunctive relief. To obtain such relief under the statute it is unnecessary, generally speaking, for the owner or producer to prove the actual damage sustained. It is sufficient to establish that there is in existence a 'good will' to be protected and the injury thereto will ordinarily be presumed if there is unlawful price cutting." Here there is what amounts to unlawful price-cutting. Hence appellee's contention that appellant has failed to establish irreparable damage is immaterial.
Furthermore, the majority ignores the real damage which appellant will suffer if relief is denied. To meet the competition other retailers will have to devise similar schemes for granting rebates. There would be nothing to prevent appellee or any other retailer from increasing the number of stamps issued with each purchase or the value of the merchandise that could be obtained. *Page 98 
The result would be an indirect price-cutting war with the same damaging results as those which arise out of direct price-cutting. Hence even though the particular violation here involved is not in itself causing immediate damage of serious proportions, the obvious consequences that will result from a denial of injunctive relief warrant the restraining of this practice.
The majority stresses the fact that appellee would have to discontinue the issuance of trading stamps and that this would be highly detrimental to its business. While it is true that equity will frequently refuse to grant an injunction where it will harm a defendant more than it will benefit a plaintiff, that principle can have no application here. The legal theory upon which section 2 of the Act is based is that selling below the stipulated price constitutes an interference with the producer's property rights which may properly be made tortious:Old Dearborn Distributing Co. v. Seagram Distillers Corp., supra. In Sullivan v. Steel Co., 208 Pa. 540, this court said (p. 555): ". . . as to the principle invoked, that a chancellor will refuse to enjoin when greater injury will result from granting than from refusing an injunction, it is enough to observe that it has no application where the act complained of is in itself as well as in its incidents tortious." The majority fails to consider that appellee bought appellant's goods for resale purposes with full knowledge of the price restriction and with full knowledge of the law which authorized that restriction. It was not obliged to buy, and as said by the United States Supreme Court in Old Dearborn Distributing Co. v.Seagram Distillers Corp., supra, its "voluntary acquisition of the property with such knowledge carried with it, upon every principle of fair dealing, assent to the protective restriction, with consequent liability under § No. 2 of the law by which such acquisition was conditioned." If the relief accorded by the Act is to be denied merely because it is *Page 99 
profitable for a retailer to violate its mandatory provisions, certainly the Act is rendered nugatory.
The court below stressed the fact that several states, whose original fair trade acts were similar to our own, passed subsequent legislation expressly prohibiting the use of trade stamps. From this fact it is argued that our Act as it now stands was not intended to include the practice of giving trading stamps. I cannot agree that the passage of such legislation manifests an ambiguity in the acts as originally drawn. On the contrary this action shows that the legislatures in those states in enacting fair trade laws had in mind the abolition of the very practice which the majority opinion sanctions. In order to make certain that the courts would not adopt an interpretation, as does the majority in this case, which defeats the very purpose of the legislation, those states saw fit to add a provision to clarify what some might have thought ambiguous and to insure an interpretation consistent with the ends which the legislatures sought to achieve. As said by Mr. Justice HOLMES in United States v. Sischo, 262 U.S. 165,169: ". . . there is no canon against making explicit what is implied and adding a little emphasis to the endeavors to make the proposition broad." The Fair Trade Laws seek to prohibitall forms of price-cutting. Those legislatures which enacted amendments have precluded the courts of those states from interpreting their statutes in such a manner as to prevent the acts from having their intended effect. Such action should have had great weight in persuading this court to interpret our act to carry out its desired purpose.
I would therefore reverse the decree of the court below and enjoin appellee from continuing a practice which in my judgment constitutes a flagrant violation of the Fair Trade Act.
Mr. Chief Justice KEPHART joins in this dissent.
* See: Haring, Retail Price Cutting and Its Control (1935); McLaughlin, Fair Trade Acts, 86 U. of Pa. L. R. 803; The Fair Trade Laws, 36 Columbia L. R. 293; Retail Price Maintenance, 45 Yale L. T. 672. *Page 100