Bristol-Myers Co. v. Lit Bros., Inc.

Plaintiff filed a bill in equity to restrain by injunction an alleged violation of section 2 of the Pennsylvania Fair Trade Act of June 5, 1935, P. L. 266 (73 PS secs. 7 and 8), on the ground that defendant issues yellow trading stamps, when requested, on all purchases of merchandise, including the trade-marked articles, Sal Hepatica and Ipana Tooth Paste, produced by plaintiff. The court below upheld the adjudication of the Chancellor and dismissed the bill. This appeal followed.

Section 2 of the Fair Trade Act provides: "Wilfully and knowingly advertising, offering for sale, or selling any commodity at less than the price stipulated in any contract entered into pursuant to the provisions of section one 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."

Plaintiff contended that defendant violated section 2 of the Act in that it issued and delivered trading stamps as part of its retail sales of plaintiff's trade-marked products, these trading stamps being redeemable or exchangeable for premiums on articles of value and being issued to purchasers of plaintiff's trade-marked commodities at a rate of one of such trading stamps for each 10 cents of purchase price of the commodity.

Defendant in its answer denied "any violation of the minimum resale price as averred by plaintiff, or any violation of the Fair Trade Act . . .," denied that "the issuance of trading stamps as averred, constitutes a discount, but on the contrary" averred that "the issuance of the trading stamps is solely for advertising purposes and in accordance with a long continued policy of the defendant so to do over a period of thirty years," and averred further that "the trading stamps . . . in and of themselves have no value, nor may the stamps issued in connection with the sales of Sal Hepatica and Ipana Tooth Paste, of themselves be redeemed for any article of value." Defendant further denied that "it has committed any unlawful acts which have resulted in inducing breaches of plaintiff's contracts with other retail dealers, or damage and destruction to plaintiff's system of doing business; or that said acts have deprived plaintiff of the benefit of the Fair Trade Act of Pennsylvania and of the Act of Congress; or that said acts have damaged plaintiff's trade-marks and good will."

The chancellor found, inter alia, the following facts: "That after defendant had notice . . . that plaintiff had entered into contracts with others fixing the resale price of plaintiff's products, it always sold Ipana Tooth Paste . . . and Sal Hepatica . . . at the resale prices fixed by plaintiff in contracts with others"; . . . "that the purpose of the issuance of trading stamps is to attract people into the store . . .; that before a customer can receive sufficient stamps to obtain anything, he must fill a book, and a book represents the purchase of $99.00 worth of merchandise . . .; that these stamps are redeemable only by the Yellow Trading Stamp Company"; that "they are not redeemable on defendant's premises" and defendant "has no connection with the . . . stamp company except its contractual relationship in respect to the . . . stamps"; that "defendant pays the . . . stamp company for stamps which are actually redeemed, at the rate of $1.40 per thousand stamps . . .; that if an injunction were granted in this case, it would have a very serious effect on the operation of defendant's business . . .;" that "there is no way that defendant could issue trading stamps only with merchandise not affected by the Fair Trade Act because this would necessitate an examination of one hundred thousand charge account bills a month, item for item, for the purpose of determining with which merchandise trading stamps could be given and that 533,000 to 600,000 items per month are billed to customers; that it would not be practically possible to examine all of the items on these bills in order to pick out the merchandise for which stamps could be given; that such a procedure would develop ill-will on the part of the customers . . .; that the cost of such an examination of charge account bills would be prohibitive . . .; that the trading stamps issued in connection with sales of plaintiff's products of themselves cannot be redeemed for any article of value"; that "such redemption can be made only after 990 of the stamps have been pasted in the stamp book furnished for that purpose"; and that "to obtain 990 stamps . . . it is necessary to purchase $99.00 of merchandise;" and "that no evidence was offered to show that defendant's competitors had suffered any damage, or that plaintiff's business had in any way been affected or threatened to be affected, or that its trademark had been or was about to be damaged, or that the public had been or was being misled."

The chancellor's conclusions of law are, inter alia: "That defendant's delivery of trading stamps upon request . . . is not in violation of the . . . Fair Trade Act; that trading stamps, when issued in good faith with all merchandise and not as a subterfuge for the purpose of evading the Fair Trade Act, are a form of advertising in the same category as free delivery service" etc. . . .; "that the purpose of the . . . Fair Trade Act was to prevent predatory price cutting and 'loss leaders' and defendant's issuance of trading stamps is not within the purport of the Act; . . . that if defendant were enjoined from issuing trading stamps with plaintiff's products, it would compel defendant entirely to discontinue the issuance of trading stamps, one of the basic and long-established policies on which defendant's business has been founded, and that the advantage which might be obtained by plaintiff is slight as compared with the substantial damage which would be done to defendant; and that plaintiff has not presented any proof that it has either sustained or been threatened with any substantial or irreparable damage."

Briefs have also been filed by E. R. Squibb Sons, and by the Lambert Pharmacal Company, each party being self-described as "one of those protected [by the Fair Trade Act]" and as "amicus curiæ."

The purpose of the Fair Trade Act is obvious, it being to prevent the cutting by any dealer, of the established price of any commodity identified by the trade-mark, brand or name of the producer. This price cutting which confers a slight pecuniary advantage to the buyer has nevertheless been adjudged by the lawmakers of forty states to be prejudicial to the public interest. Such price cutting forces, or at least prompts, other dealers to abandon the sale of the price-cut commodity, with the result that the producer of it suffers a loss of business which in turn leads to unemployment in his establishment. The abandonment of the sale of this price-cut commodity by many dealers means the narrowing to the public of opportunities to purchase it and if it is an article of merit, as it presumably is, the public interest is thereby affected adversely. Our state legislature by the enactment of the law now invoked has declared that it is the public policy of this Commonwealth to stop this "cut-throat competition." Price cutting through "loss leaders," that is, by selling a certain commodity at less than cost in order to attract trade to the store where many other commodities, as well as the "loss leader" commodity, are sold, has come to be generally looked upon as unfair and predatory, and the prevention of such practices was the undoubted purpose of the Pennsylvania Fair Trade Act of 1935.

The purpose and scope of Fair Trade Acts are succinctly set forth by Mr. Justice SUTHERLAND, speaking for the United States Supreme Court in Old Dearborn Distributing Co. v. SeagramDistillers Corp., 299 U.S. 183 (a case arising under the Fair Trade Act of the State of Illinois, with provisions similar to ours), as follows: "Generally speaking [state court decisions] sustain contracts standardizing the price at which 'identified' commodities subsequently might be sold, where the price standardization is primarily effected to protect the good will created or enlarged by the identifying mark or brand. Where a manufacturer puts out an article of general production identified by a special trademark or brand, the result of an agreement fixing the subsequent sales price affects competition between the identified articles alone, leaving competition between articles so identified by a given manufacturer and all other articles of like kind to have full play. In other words, such restraint upon competition as there may be is strictly limited to that portion of the entire product put out and plainly identified by a particular manufacturer or producer. . . . Appellants here acquired the commodity in question with full knowledge of the then-existing restriction in respect of price which the producer and wholesale dealer had imposed, and, of course, with presumptive if not actual knowledge of the law which authorized the restriction. Appellants were not obliged to buy; and their 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 section 2 of the law by which such acquisition was conditioned. . . . Here, the restriction, already imposed with the knowledge of appellants, ran with the acquisition and conditioned it. . . . Good will is a valuable contributing aid to business — sometimes the most valuable contributing asset of the producer or distributor of commodities. And distinctive trade-marks, labels and brands, are legitimate aids to the creation or enlargement of such good will. It is well settled that the proprietor of the good will 'is entitled to protection as against one who attempts to deprive him of the benefits resulting from the same, by using his labels and trade-mark without his consent and authority.' McLean v. Fleming,96 U.S. 245, 252, 24 L. Ed. 828, 831. 'Courts afford redress or relief upon the ground that a party has a valuable interest in the good-will of his trade or business, and in the trade-marks adopted to maintain and extend it.' Hanover Star Mill Co. v.Metcalf, 240 U.S. 403, 412, 60 L. ed. 713, 717, 36 S. Ct. 357. The ownership of the good will, we repeat, remains unchanged, notwithstanding the commodity has been parted with. Sec. 2 of the Act does not prevent a purchaser of the commodity bearing the mark from selling the commodity alone at any price he pleases. It interferes only when he sells with the aid of the good will of the vendor; and it interferes then only to protect that good will against injury. It proceeds upon the theory that the sale of identified goods at less than the price fixed by the owner of the mark or brand is an assault upon the good will, and constitutes what the statute denominates 'unfair competition.' See Liberty Warehause Co. v. Burley 'TobaccoGrowers' Co-op. Marketing Asso., 276 U.S. 71, 91, 92, 96, 97,72 L. Ed. 473, 480-483, 48 S. Ct. 291. . . . There is a great body of fact and opinion tending to show that price cutting by retail dealers is not only injurious to the good will and business of the producer and distributor of identified goods, but injurious to the general public as well."

The question before us is: Did the trade practice of the defendant amount to a violation of the Fair Trade Act and tend to defeat its purpose? The facts are not in dispute. They are that appellant entered into contracts with certain retailers in this state, of whom appellee was not one, whereby these retailers agreed not to resell these products except at the prices stipulated by appellant, namely, 39 cents for "Ipana Tooth Paste" and 25 cents for a small package of "Sal Hepatica." On October 22, 1937, appellant notified appellee that it had entered into such contracts in Pennsylvania and advised the appellee of the minimum resale prices fixed by these contracts. The appellee, although not a party to these contracts, nevertheless maintained the prices fixed by appellant on these commodities but did issue trading stamps with the sales of these commodities as it did (and has done for 30 years) with the sales of all its merchandise. The alleged violation of the Fair Trade Act consists not of the sale of the specified commodities for less than the prices fixed by the appellant, but in the issuing of trading stamps with these sales. The stamps issued are those of the Yellow Trading Stamp Company and are issued to the customer upon request. One stamp is issued with every purchase amounting to ten cents. These stamps are not redeemable until a book of 990 stamps have been acquired by purchases amounting to $99. For such a book, the customer receives from the Stamp Company a premium worth at retail $1.75. The appellee does not issue these trading stamps automatically with each 10 cent sale of commodities but only upon the request of the customer and when the bill is paid on time. The record reveals that on account of many customers not requesting stamps with their purchases, only 64% of the amount of stamps, which would have been issued by the appellee in 1936, were in fact issued, and in 1937 this percentage was 63.

There is no doubt that the giving away of these stamps by Lit Brothers, Inc., — its practice for 30 years — is not a price-cutting device but a means of inducing a customer to return to the store to make additional purchases so that he or she may accumulate 990 stamps paid for by purchases amounting to $99 and then upon the presentation to the Stamp Company of a book containing these 990 stamps, be given an article of merchandise worth at retail $1.75. For so doing the Stamp Company receives from Lit Brothers $1.40 when it presents the 990 stamps to the latter concern, for redemption. In other words, the customer qualifies himself to receive a bonus worth $1.75 when he has paid Lit Brothers $99 for purchases.

Instead of making it possible for a bonus ofmerchandise worth $1.75, to be secured by a customer spending $99 in their store, Lit Brothers might conceivably operate a plan whereby the customers who had paid them $99 for merchandise, would be given a dinner worth $1.75, or seven tickets for seven days parking of an automobile at the rate of 25 cents a day, or a theatre ticket costing $1.75, or ten gallons of gasoline to induce him to motor again to Lit Brothers' store. All these things would be things of value to the customer, but would such rewards of patronage constitute a "price-cutting" by Lit Brothers within the meaning of the Fair Trade Act, of "Sal Hepatica" and "Ipana Tooth Paste," which Lit Brothers admittedly sell along with thousands of other commodities?

While it is the purpose of the Fair Trade Act to prevent "cut-throat competition," it is not the purpose of the Act to prevent all business competition. Competition is still "the life of trade," and no public policy is sound which stifles the spirit of enterprise. If, for example, merchant A provides 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, or if he provides his customers free bus service to and from his store, merchant B has no grounds for complaint which the law will heed. Yet all these things confer benefits on the customer and some of these benefits are susceptible of pecuniary measurement. It follows, therefore, that for a merchant to confer pecuniary benefits upon his customers, which benefits some competing merchant does not confer, does not amount to such unfair competition as the Fair Trade Law forbids. Merchant A can extend his customers 30 or 60 days credit on the purchase of a commodity while merchant B refuses to extend any credit on the purchase of the same article. A is not thereby violating the Fair Trade Act. A may allow a discount of 1% on all bills paid within ten days after being rendered. B may allow no such discount. A is not thereby violating the Fair Trade Act.

It is clear to us that the practice indulged in by Lit Brothers, of issuing trading stamps with the sales of its merchandise falls within the sphere of legitimate competition and does not constitute a "selling [of] any commodity at less than the price stipulated" and that it is not "unfair competition" within the meaning of the act appellant invokes. To come within the prohibitions of the act, Lit Brothers would have to either (1) cut directly the price of the commodities within the act's protection, or (2) accomplish the same result in respect to the commodities by a device which was a palpable subterfuge resorted to for the purpose of circumventing the law. The law still, as Chief Justice SHAW said in Com. v. Hunt,45 Mass. 111, "looks at truth and reality through whatever guise it may assume." What Lit Brothers did in this matter is neither a direct price-cutting of certain commodities nor is it a palpable subterfuge to conceal a law evasion. It is not a "guise" assumed to cloak "reality." The issuing of trading stamps is and long has been a legitimate means of attracting customers to the store issuing them. It has not met with express legislative condemnation in this Commonwealth and there is nothing in the act invoked to indicate that its provisions were intended to prevent the practice.

There is also a time-honored maxim of the law which applies to this case, to wit: "De minimis non curat lex." As BROOM says in his "Legal Maxims": "Courts of justice generally do not take trifling and immaterial matters into account." In "The Reward," 2 Dods. Adm. R. 269, 270, Sir W. SCOTT observed that "the court is not bound to a strictness at once harsh and pedantic in the application of statutes. The law permits the qualification implied in the ancient maxim, de minimis non curat lex. Where there are irregularities of very slight consequence, it does not intend that the infliction of penalties should be inflexibly severe. If the deviation were a mere trifle, which, if continued in practice, would weigh little or nothing on the public interest, it might properly be overlooked."

If, for example, a customer spent $99 in Lit Brothers' store for the purchase of 396 tubes of "Ipana Tooth Paste (a supply adequate for a long lifetime) and upon the presentation to the Stamp Company of the 990 trading stamps he received with his purchase, he was given an article worth $1.75, he would be obtaining in the form of merchandise a discount of 1.76%. Applying this to each 25 cent purchase of tooth paste, it would amount to four and 4/10ths mills on that purchase. When the further facts are considered that this "discount" is not in cash and that fewer than 2/3rds of the purchasers of commodities at Lit Brothers' store ask for or accept trading stamps, the infraction charged appears to be still more trifling than above indicated.

President Judge OLIVER of the court below, sitting as chancellor in this case, appropriately said in his adjudication: "In this particular case the plaintiff has failed to show that it either has sustained or will sustain any injury or damage as a result of defendant's continuing to issue trading stamps. In the language of one of the plaintiff's executive officers who testified on its behalf, the retail dealers who complained to the plaintiff merely stated that, if plaintiff did not stop the issuance of trading stamps by defendant, they 'would be forced to meet the competition.' . . . There was no evidence that any dealers had cancelled, or threatened to cancel, their contracts with plaintiff, or that they had refused to buy any further merchandise from the plaintiff, or that plaintiff had suffered any damage at all. . . . Even if such issuance of trading stamps did constitute a violation of the act, no injunction should be issued in the present case because the injury to the plaintiff, if any, is slight, whereas the damage to the defendant caused by a restraining order might well be substantial and irreparable — certainly out of all proportion to the benefits which the plaintiff might derive from the issuance of such order."

A suitor who seeks a decree which will do him no good but will work a hardship on another is not armed with a cause that will make any appeal to a court of equity. As this court said in Reynolds v. Boland, 202 Pa. 642, 647, 52 A. 19: "Equity springs from conscience and is administered through it." The Supreme Court of the United States expressed the same principle in Deweese v. Reinhard, 165 U.S. 386, as follows: "A court of equity acts only when and as conscience commands."

The decree is affirmed at appellant's cost.