Schwegmann Bros. Giant Super Markets v. Eli Lilly & Co. , 205 F.2d 788 ( 1953 )

RIVES, Circuit Judge.

The District Court delivered an able opinion¹ and enjoined the appellants from selling products of the appellee below the minimum retail sale price fixed pursuant to the Louisiana Fair Trade Law.² The essential facts are not in dispute. The appellants concede that the appellee’s fair trade prices had been established by contracts entered into in accordance with the Louisiana Fair Trade Law; that appellee’s products were in 'fair and open competition with commodities of the same general class produced by others; and that the appellants, themselves not signers of such a contract, willfully and knowingly disregarded the minimum prices established under contracts between the appellee and other Louisiana retailers. It was established also that the appellants had a uniform mark-up, employed no loss leaders, and indulged in no otherwise predatory practices. The appellants planted their defense squarely upon a challenge to the constitutionality of the Louisiana Fair Trade Law and a further challenge to the constitutionality of the McGuire Act.³

The Louisiana Supreme Court has sustained the validity of the Louisiana Fair Trade Law, and its decision .is conclusive, insofar as the State constitution is concerned. Pepsodent Co. v. Krauss Co., 200 La. 959, 9 So.2d 303. The appellants contend that the State or Federal act or both together amount to’ an unconstitutional delegation of a legislative function, violate the due process clause, offend the commerce clause, and stem from self-defeating statutory provisions.

As to the Louisiana Fair Trade Law, the appellants say that it violates the due process clause of the Fourteenth Amendment to the United States Constitution, because it bears no substantial relation to the public welfare, and because it delegates legislative power to private individuals. The same contentions with respect to the Fair Trade Act of Illinois, S.H.A. ch. 121%,. § 188 et seq. were considered and rejected by the United States Supreme Court in Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 U.S. 183, 57 S.Ct. 139,. 81 L.Ed. 109, (hereafter referred to as the-Old Dearborn case); and the same result was reached in The Pep Boys, Manny, Moe & Jack of California, Inc., v. Pyroil Sales Co., Inc., 299 U.S. 198, 57 S.Ct. 147, 81 L.Ed. 122, as to the California Fair Trade Act St.1931, p. 583, § 1; St.1933, p. 793, § 1%. Appellants’ grounds for questioning that the Old Dearborn case controls here seem to be an assertion supported by various economic texts that the years of experience in the fair trade acts since Old Dearborn have established that the real purpose of these Acts is not so much to protect the good will of the manufacturer or trade mark owner as it is to protect the retailer from competition with other retailers, and, further, that the opinion in the Schwegmann case (Footnote 3, supra) has rendered Old Dearborn obsolete.

The Schwegmann opinion involved no constitutional question and, hence, did not refer to Old Dearborn. The Schwegmann case related to the interpretation of the Sherman Anti-Trust Act as amended by the Miller-Tydings Act, Act of July 2, 1890, c. 647, Sec. 1, 26 Stat. 209, Act of Aug. 17, 1937, c. 690, Title VIII, 50 Stat. 693, 15 U.S.C.A. § 1, with respect to the enforcement of state fair trade laws in interstate commerce. The Court decided that the intention of Congress was to authorize interstate enforcement against the signers of an express contract or agreement but not against non-signers. To meet that decision, as has been said, Congress passed the McGuire Act.

The appellants rely strongly upon the claimed inconsistency in language between the Old Dearborn and Schwegmann opinions. The Schwegmann case referred to non-signers as being coerced, whereas Old Dearborn said that willful and knowing non-signers could fairly be treated as implied assenters. The Schwegmann opinion characterized the State Fair Trade Statute as involving price fixing, whereas Old Dearborn had said that the law was not primarily a price fixing statute. In comparing the two opinions, it must be borne in mind that Old Dearborn was dealing with questions of constitutionality, whereas the Schwegmann case was dealing only with statutory interpretation. There is no implication in Schwegmann that Congressional approval of enforcement against nou-signers would be unconstitutional, the implications of the opinion are to the contrary.⁴

The trend of economic practices as tending to show that fair trade acts are concerned more with the protection of distributors than with the protection of the producer or owner of the trade mark are matters, it seems to us, for legislative, not for judicial, consideration. Indeed, the title of the Louisiana Fair Trade Law (Footnote 2, supra) expressly includes “distributors” among the classes intended to be protected. We cannot say that the legislature was not authorized to consider distributors as in a similar position to licensees of the trade mark or brand with a direct economic interest in it as regards the sales of the trade-marked or branded article. Whether the distributors were to be protected, as well as the manufacturers or trade mark owners, was a matter, it seems to us, addressed to legislative discretion and not subject to review by courts. We have no judicial concern with the economic and social wisdom of any feature of the law, but solely with its constitutionality.

Whatever weakening effect on Old Dearborn may have been caused by Schwegmann’s frank characterization of State fair trade statutes as • involving price fixing against non-signers is more than off-set, it seems to us, by the weakening also of the broad concept against the validity of legislative price fixing assumed in Old Dearborn. For “the well-settled general principle that the right of the owner of property to fix the price at which he will sell it is an inherent attribute of the property itself, and as such is within the protection of the Fifth and Fourteenth Amendments”. 299 U.S. at page 192, 57 S.Ct. at page 143, Old Dearborn cited Tyson-Brother-United Theatre Ticket Offices v. Ban-ton, 273 U.S. 418, 429, 47 S.Ct. 426, 71 L.Ed. 718; Chas. Wolff Packing Co. v. Court of Industrial Relations, 262 U.S. 522, 537, 43 S.Ct. 630, 67 L.Ed. 1103; Ribnik v. McBride, 277 U.S. 350, 48 S.Ct. 545, 72 L.Ed. 913; Williams v. Standard Oil Co., 278 U.S. 235, 49 S.Ct. 115, 73 L.Ed. 287; New State Ice Co. v. Liebmann,, 285 U.S. 262, 52 S.Ct. 371, 76 L.Ed. 747. As pointed out in Olsen v. State of Nebraska ex rel. Western Reference & Bond Ass’n, 313 U.S. 236, 244-246, 61 S.Ct. 862, 85 L.Ed. 1305, the Tyson, Ribnik and Williams cases can no longer be deemed controlling authority. See also, Lincoln Federal Labor Union No. 19129 v. Northwestern Iron & Metal Co., 335 U.S. 525, 536, 537, 69 S.Ct. 251, 93 L.Ed. 212; Day-Brite Lighting, Inc., v. Missouri, 342 U.S. 421, 423, 72 S.Ct. 405, 96 L.Ed. 469. It is interesting to note that Mr. Justice Sutherland who delivered the opinion of the Court in Old Dearborn had been among the dissenting Justices in Nebbia v. New York, 291 U.S. 502, at page 539, 54 S.Ct. 505, at page 517, 78 L.Ed. 940, where the Court concluded:

“Price control, like any other form of regulation, is unconstitutional only if arbitrary., discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt, and hence an unnecessary and unwarranted interference with individual liberty.”

Appellants argue that there is no provision in the Louisiana Fair Trade Law requiring that fair trade contracts be made by the trade mark or brand owner himself, and that fair trade laws could not constitutionally require non-signers to observe minimum prices stipulated without participation or authorization by the trade mark or brand owner. That argument is addressed to a hypothetical case and the decision of that question, we think, should await the clarification and construction of the Louisiana statute by the Louisiana courts. We are dealing in this case with fair trade-prices established by contracts to which the trade mark owner, the appellee, is a party. See Alabama State Federation of Labor v.. McAdory, 325 U.S. 450, 462, 65 S.Ct. 1384, 89 L.Ed. 1725; Rescue Army v. Municipal Court of City of Los Angeles, 331 U.S. 549, 568, et seq., 67 S.Ct., 1409, 91 L.Ed. 1666; Watson v. Buck, 313 U.S. 387, 401-402, 61 S.Ct. 962, 85 L.Ed. 1416.

The Louisiana legislature has defined with particularity the type of commodity with respect to which fair trade prices may be established and enforced; namely, “a commodity which bears, or the label or container of which bears, the trade mark, brand, or name of the producer of the commodity and which is in fair and open competition with commodities of the same general class produced by others”. It was, we think, within the province of the legislature to assume that economic laws-constitute a sufficient restraint against capricious or arbitrary price fixing by the producer. As pointed out long ago by Louis-D. (later Mr. Justice) Brandéis, the producer “establishes his price at his peril— the peril that if he sets it too high, either the consumer will not buy or, if the article is, nevertheless, popular, the high profits will invite even more competition”.⁵ We agree with the learned District Judge that Old Dearborn still controls and, further, that, if it is to be overruled, that can be done only by the Supreme Court.

Old Dearborn, of course, did not consider the challenges which are addressed to the McGuire Act. The argument is that Article 1, Sec. 1, of the Constitution- vests in Congress legislative power which cannot be delegated, and that Article 1, Sec. 8, grants to Congress powers over interstate commerce which cannot be surrendered. The McGuire Act did not delegate the power of Congress to say what fair trade legislation should be permitted in interstate commerce, but spelled out in detail the type of fair trade statute to which the Congressional -consent was to apply by specifying the standards and safeguard which a state act must embody in order to qualify for interstate effectiveness. As to interstate commerce, it is now settled that the power of Congress is so plenary that it may exercise that power by permitting the states to regulate phases of interstate commerce. Prudential Insurance Co. v. Benjamin, 328 U.S. 408, 424, 66 S.Ct. 1142, 90 L.Ed. 1342. The most recent decision, United States v. Public Utilities Comm., 345 U.S. 295, 304, 73 S.Ct. 706, indicates that, even when the subject would be a direct burden on commerce, the states may act when Congress has specifically granted permission for the exercise of state power.

The appellants argue, however, that both the McGuire Act and the Louisiana Fair Trade Law are inoperative against non-signers, because they contain self-defeating contradictions in terms, that the maintenance of uniform resale prices, which results from the power of a producer to impose prices on non-contracting parties, is horizontal price fixing expressly excluded from the protection of those laws. Appellants’ argument would render the statutes meaningless as to non-signers. The intention of Congress and the intention of the Louisiana Legislature are clearly that restrictions on the non-signers, when imposed as the result of a contract between a producer and a distributor, are to be given effect. What is prohibited is horizontal price fixing agreements “between manufacturers, or between producers, or between wholesalers, or between brokers, or between factors, or between retailers, or between persons, firms, or corporations in competition with each other.” The McGuire Act. Wc find nothing in the Louisiana Fair Trade Law or in the McGuire Act self-defeating or violative of the Constitution of the United States. The judgment is, therefore,

Affirmed.

1 , Eli Lilly & Company v. Schwegmann Brothers Giant Super Markets, D.C., 100 F.Supp. 269.

2 . Louisiana Stain tos Annotated — Revised iba tu tea of 1060, Title 51, Secs. 391 to 396. The original Act bore the following title:

‘‘An Act To protect trade mark owners, distributors and the public against injurious and uneconomic practices in the distribution of articles of standard quality under a distinguished trade mark, brand or name.” Act No. .13 of 183G. Tlio law provides in aubsrance that no contract relating to the sale of a commodity which bears the trade mark, brand or name of the producer and which is in fair and open competition with commodities of tlie same general class produced by orliers shall violate any law of Louisiana by reason of containing a provision that the commodity shall not be resold at less than the minimum price stipulated under such contract. It further provides that willfully and knowingly selling such a commodity at less than such minimum price, whether the person so selling is or is not a party to such a contract, is unfair competition and actionable by any person damaged.

3 . Act of July 14, 1952, 82nd Congress, 2nd Session, 66 Statutes 631, 632, 15 U.S.C.A. § 45. The purpose of the McGuire Act was stated as follows:

“It is the purpose of this Act to protect the rights of S’tates under the United States Constitution to regulate their internal affairs and more particularly to enact statutes and laws, and to adopt policies, which authorize contracts and agreements prescribing minimum or stipulated prices for the resale of commodities and to extend the minimum or stipulated prices prescribed by such contracts and agreements to persons who are not parties thereto. It is the further purpose of this Act to permit such statutes, laws, and public policies to apply to corn-modifies, contracts, agreements, and activities in or affecting interstate or foreign commerce.” Section 1, 15 U.S.C.A. § 45 note.

According to its sponsor, Representative McGuire:

“The ’McGuire bill is merely permissive. It says to the States, in effect, that Congress recognizes the rights of the States to enact and make effective policies respecting unfair competition. That is all the McGuire bill does and that is all it is intended to do.” 98 Cong.Rec. 4979 (May 7, 1952).

The primary purpose of the McGuire Act was to change, as to future cases, the result reached by the Supreme Court in Sehwegmann Brothers v. Calvert Distillers Corp., 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035 (referred to hereafter as the Sehwegmann case). H.R.Rep. 1437, 82nd Congress, 2nd Session, pp. 1-2, U.S. Code Congressional and Administrative News 1952, pp. 2181, 2182.

4 . “The fact that a state authorizes the price fixing does not, of course, give immunity to the scheme, absent approval by Congress.” 341 U.S. at page 386, 71 S.Ct at page 746.

“Had Congress desired to eliminate the consensual element from the arrangement and to permit blanketing a state with resale price fixing if only one retailer wanted it, we feel that different measures would havo been adopted — either a non-signer provision would have been included or resale price fixing would have been authorized without more.” 341 U.S. at page 390, 71 S.Ct. at page 748.

“Tt should be remembered that it was the state laws that the federal law was designed to accommodate. Federal regulation was to give way to state regulation. When state regulation provided for resale price maintenance by both those who contracted and those who did not, and the federal regulation was relaxed only as respects ‘contracts or agreements,’ the inference is strong that Congress left the nonconiractmg group to be governed by preexisting law.” 341 U.S. at page 395, 71 S.Ct. at page 751. (Emphasis in each quotation supplied.)

5 . Brandéis, “Cut-Throat Prices — The Competition That Kills”, Harper’s Weekly, November 15, 1913.