Shakespeare Co. v. Lippman's Tool Shop Sporting Goods Co.
Shakespeare Co. v. Lippman's Tool Shop Sporting Goods Co.
Opinion of the Court
Plaintiff is a Michigan corporation, manufacturing in Michigan a line of fishing tackle and related equipment. Its products bear its trademark, brand or name. It advertises and sells its products, both in Michigan and nationally, through ordinary distributor, dealer and retail channels in fair and open competition with commodities of the same general class produced by others. Its products are sold and distributed in Michigan by about 500 dealers of whom over 400 have entered into written, so-called fair-trade agreements with plaintiff, pursuant to PA 1937, No 50 (CL 1948, § 445.151 et seq. [Stat Ann 1951 Cum Supp § 19.321 et seq.]), under and in accord with which it has established minimum prices on its products. Plaintiff has such contracts with dealers and has similarly fixed minimum prices in other States under comparable fair-trade laws there in effect.
Defendant is a sporting goods retailer in Detroit. It has not entered into a fair-trade agreement with plaintiff. It willfully and knowingly advertises, offers for sale and sells plaintiff’s branded and trademarked articles at prices below the minimum fair-trade prices known by it to have been fixed thereon by plaintiff. This course of conduct plaintiff seeks to enjoin.
While admitting that it has made such sales, defendant claims that, because it is a nonsigner of a fair-trade agreement, as applied to the facts of this case, enforcement of the act against it would be violative of its rights under the equal protection and due process clauses of the Federal and the due process clause of the State Constitutions and, further, that the transactions in question were in or affected interstate commerce and, for that reason, subject only to Federal and not to State regulation,
The trial court, desiring, as it stated, to dispose of the case solely on what it terms “the broader grounds” of constitutionality under the provisions of the State Constitution, treated the transactions involved, for the purpose of the motion before it, as being exclusively in intrastate as distinguished from interstate commerce. Recognizing that the constitutionality of similar legislation, as applied to signers and nonsigners of fair trade agreements alike, had been upheld in most of the States considering the question, e.g., Bourjois Sales Corp. v. Dorfman, 273 NY 167 (7 NE2d 30, 110 ALR 1411); Max Factor & Co. v. Kunsman, 5 Cal2d 446 (55 P2d 177); Joseph Triner Corp. v. McNeil, 363 Ill 559 (2 NE2d 929, 104 ALR 1435); Ely Lilly & Co. v. Saunders, 216 NC 163 (4 SE2d 528, 125 ALR 1308); Weco ProductCo. v. Reed Drug Co., 225 Wis 474 (274 NW 426); Goldsmith v. Mead Johnson & Co., 176 Md 682 (7 A2d 176, 125 ALR 1339); Johnson & Johnson v. Weissbard, 121 NJ Eq 585 (191 A 873); and by the United States supreme court in Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 US 183 (57 S Ct 139, 81 L ed 109, 106 ALR 1476), the trial court, nevertheless, considered, as do we, that the better reasoned view is that of the Florida supreme court in Liquor Store, Inc., v. Continental Distilling Corp., 40 So2d 371, holding an act of that character unconstitutional. As applied to nonsigners of fair-trade agreements that is the only view consistent with our reasoning in People v. Victor, 287 Mich 506 (124 ALR 316). We there held a statute forbidding the giving of a premium with the retail sale of gasoline unconstitutional under Constitution 1908, ,art 2, § 16, as constituting a deprivation of property without due process of law for the reason that the legisla
In seeking to distinguish this from the Victor Case Mr. Justice Btjtzel emphasizes that the latter involved horizontal price-fixing while here it is vertical. In the cases he cites and the many others on the subject the distinction between vertical and horizontal price-fixing arrangements is made as bearing on the question of whether a monopoly, trust or restraint of trade results and is pertinent to that question alone. The consideration of whether the price fixing be vertical, horizontal, or even diagonal, or whether the regulation relates to all of a certain type of commodity as in Victor, or only to a certain brand thereof as here, although relevant when the question of monopoly needs to be determined, is of no consequence in determining the point of difference between us, namely, whether the statute in question, as applied to nonsigners, bears any reasonable relation to public health, safety, morals or. the general welfare. Neither is any relevancy to the latter question to be found in the interesting contemplation of whether the competition which most benefits the public is that between rival products or between retailers of the same product. If the act does not bear the mentioned relationship, then, as we held in Victor, it cannot be sustained as a lawful exercise of the State’s police power, impairment of defendant’s
Mr. Justice Butzel likewise distinguishes the Victor Case in that there the restriction was “automatic by legislative decree,” while here, he states, it results from “voluntary agreement between the manufacturer and dealer.” But defendant never entered into the agreement. As to it, the restriction is as “automatic by legislative decree” as in the Victor Case. The statement that the fair-trade act merely affords legislative protection to private contractual relations, true enough as relates to signers, overlooks the fact that the act ventures further, upon an unchartered sea of enforcement of contracts against those not party thereto. My Brother suggests that defendant’s constitutional rights are riot impaired by the statute because defendant is not obligated to buy or sell plaintiff’s products if it does not desire to adhere to the minimum price fixed by plaintiff and enforced by statute. As much might have been said in the Victor Case in which the defendant was not obligated to engage in the business of buying and selling gasoline if he did not desire to comply with the restrictions of the statute.
Mr. Justice Butzel views the act as a valid exercise of the State’s police power because, as he says, it is aimed at “destructive price cutting” and “the evils of a price war.” Can it be said that by the process of reducing prices either war, destruction or evil are visited upon the public health, safety, morals or the general welfare? (That is the controlling question.) Such is not the concept upon which America’s competitive economy was developed. It is further suggested by my Brother that the act serves, by placing an artificial weight on the one, to equalize the uneven race between the small
Mr. Justice Butzel appears to concede that the business in question is not affected with a public interest and, clearly, it is not. See Chas. Wolff Packing Co. v. Court of Industrial Relations of the State of Kansas, 262 US 522 (43 S Ct 630, 67 L ed 1103, 27 ALR 1280); Williams v. Standard Oil Co. of Louisiana, 278 US 235 (49 S Ct 115, 73 L ed 287, 60 ALR 596). He does not question that, ordinarily, a person has the right to fix the price at which he sells his own property. That such is his right under the due process clause of the Federal Constitution, and that the power of a State legislature to restrict that right is limited to instances in which the business involved is affected with a public interest was held in Tyson & Brother — United Theatre Ticket Offices, Inc., v. Banton, 273 US 418 (47 S Ct 426, 71 L ed 718, 58 ALR 1236); Ribnik v. McBride, 277 US 350 (48 S Ct 545, 72 L ed 913, 56 ALR 1327); Williams v. Standard Oil Co. of Louisiana, supra. The nub of Mr. Justice Butzel’s contention, however, is that, despite that general rule, the minimum price restriction imposed by statute against nonsigners is sustainable as relates to branded and trade-marked articles because it there
Price-fixing agreements involving or affecting interstate commerce were illegal under the Sherman anti-trust law (26 Stat 209) until certain exceptions were carved out under the amendment of section 1 thereof by the Miller-Tydings act of 1937 (50 Stat 693 [15 USCA, §1]). See Schwegmann Bros. v. Calvert Distillers Corp., 341 US 384 (71 S Ct 745, 95 L ed 1035, 19 ALR2d 1119). In that case it was held that the Miller-Tydings exemption from the operation of the Sherman act applies only to cases of signers of fair-trade agreements, when permissible under local law, but does not extend to cases of non-signers of such agreements; that, lacking, thus, the
“It is the interstate character of Sunbeam’s commerce that is crucial and governing for it is Sunbeam’s price-fixing scheme which constitutes a trade restraint. This is the plan Sunbeam seeks to make nationwide by enforcing the nonsigner provisions*119 of local law in each of the States where a fair-trade act has been established. This marketing plan is quite similar to the one struck down by the supreme court in Dr. Miles Medical Co. v. John D. Park & Sons Co. (1911), 220 US 373 (31 S Ct 376, 55 L ed 502), where the pressure was applied against local stores making local sales.”
To the same effect is Lambert Pharmacal Co. v. Roberts Bros., 192 Or 23 (233 P2d 258). In that case the court said:
“And it is enough to bring the transactions complained of within the scope of the Sherman act that they substantially affect interstate commerce. * * *
“Nor does the fact that price-fixing or price maintenance applies only to intrastate retail sales remove the conduct from the reach of the statute if such conduct be 'an inseparable element of a larger program dependent for its success upon activity which affects commerce between the States.’ United States v. Frankfort Distilleries, Inc., 324 US 293, 297 (65 S Ct 661, 663, 89 L ed 951).”
In the instant case plaintiff has placed in operation a price-fixing scheme, national in scope, of which the Michigan phase is but a part. Success of the attempt at restraint on local sales is dependent upon success thereof as applied to national sales, and. vice versa, so long as plaintiff’s products are in fair and open competition with the products of others manufactured elsewhere than in Michigan. The restraint on local retail sales is a cog in the wheel imposing restraints on national sales. As such it affects interstate commerce and, accordingly, comes within the inhibition of the Sherman act. See 61 Yale Law Journal, pp 381, 396-398, and 46 Illinois Law Review, pp 349, 380-382.
Affirmed, with costs to defendant.
Concurring Opinion
(concurring). The facts as far as developed by the pleadings and without a hearing have been presented by Mr. Justice Dethmers. The sole question decided by the trial court is whether a Michigan manufacturer may invoice the Michigan fair-trade law as to sales of its products by a non-signing retailer. I dissent from his holding in so far as it holds that- the Michigan fair-trade act is invalid as to nonsigners of fair-trade agreements in intrastate commerce.
The legislatures looking after the general welfare have adopted laws, in the various States approving “fair trading” and the courts have almost uniformly held them constitutional. Mr. Justice Dethmers has cited the decisions of the highest courts in 7 States and the United States supreme court to that effect. There should, also,'be added the following decisions: Fisher, Inc., v. Canfield, Colorado Dist. Ct. for City and County of Denver, No A 22837, Div 2 (CCH Trade Regulation Service, par 52,611); Broff v. Silver Liquor Stores, Inc., 5 Conn Supp 288; Auto Rental Co., Ltd., v. Lee, 35 Hawaii 77; Pepsodent Co. v. Krauss Co., 200 La 959 (9 So2d 303); W. A. Sheaffer Pen Co. v. Barrett, 209 Miss 1 (45 So2d 838); Rayess v. Lane Drug Co., 138 Ohio St 401 (35 NE2d 447); Borden Co. v. Schreder, 182 Or 34 (185 P2d 581); Welch Grape Juice Co. v. Frankford Grocery Co., 36 Pa Dist and Co 653; Miles Laboratories, Inc., v. Seignious, 30 F Supp 549 (applying South Carolina law); Miles Laboratories, Inc., v. Owl Drug Co., 67 SD 523 (295 NW 292); Frankfort Distillers Corp. v. Liberto, 190 Tenn 478 (230 SW2d 971); Sears v. Western Thrift Stores of Olympia, Inc., 10 Wash2d 372 (116 P2d 756). Thus in a total of 20 State or Federal and Territorial courts, the nonsigner provision has
Examining the 1 dissent in the field, the Florida decision in Liquor Store, Inc., v. Continental Distilling Corp., 40 So2d 371, we find that the controlling reason for the court’s determination was its reexamination of the economic soundness of fair-trade pricing in the light of changed economic conditions; The Florida holding was rejected in 2 later decisions, which, incidentally, were rendered at a time of similar economic conditions. The Mississippi and Tennessee courts, while noting the Florida "dissent, aligned themselves with the majority authority on the issue and refused to re-examine the position of Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 US 183 (57 S Ct 139, 81 L ed 109, 106 ALE 1476), and the leading State cases subsequent thereto.
Our own determination must, of course, be made after an examination of our own Constitution and governing law. However, believing as we do that the decisions of our sister States on identical issues, particularly when rendered in such overwhelming’ numbers, and the decision of the supreme court of the United States, should not be lightly disregarded, we should be inclined to rest our decision on the weight of authority alone if there were not reasons just as compelling for our ruling.
There is a presumption of constitutionality of every act of the Michigan legislature that entitles it to the highest respect by this Court. It is not our province to repeal a law which is constitutionally sound although it represents a change in the eco
In People v. Victor, 287 Mich 506 (124 ALR 316), we laid down the test of reasonability of an economic regulation (syllabi):
“The right to engage in any business riot harmful to the public is guaranteed by the Constitution.
“A business practice which has no detrimental effects to the public health, morals, safety and general welfare may not be prohibited by the legislature without resulting in a deprivation of property and liberty without due process of law.
“The constitutional right to engage in business is subject to such regulation as'may be necessary to the public welfare, health, morals and safety.”
Justice Dethmers relies heavily on People v. Victor as authority that the instant legislation, attempting to regulate price, and bearing no reasonable relation to public health, morals, safety or the general welfare is not a legitimate exercise of the police power and violates the due process clause of our Constitution. The result of People v. Victor, however, is not controlling here.
At the outset, I emphasize that we are here concerned with vertical restrictions as to prices imposed by the manufacturer, not with horizontal agreements between retailers to regulate prices in intrastate commerce. Enforcement of the statute in the Victor Case which forbade the giving of a premium with the retail sale of gasoline, if we assume its result to be minimum price-fixing (the Court treated it as the forbidding of an unfair trade practice) would have had the effect of enforcing a horizontal price-fixing agreement between retailers of gasoline and without the consideration of the interests of the manufac
People v. Vidor concerned the regulation of all of a certain type of commodity. The fair trade acts apply only to,those commodities in “fair and open competition” with other commodities of the same general class and do not serve to stifle the most desirable competition, that between different brands 'of the same commodity. Manufacturer’s price-fixing under the authority of the fair-trade act concerns only all of one brand or trade-marked commodity; not all of the commodity itself whatever its origin. Price-fixing is allowed for those commodities which are in fair and open competition with those produced by others. See dissent of Mr. Justice Holmes in Dr. Miles Medical Co. v. John D. Park, & Sons Co., 220 US 373 (31 S Ct 376, 55 L ed 502); for an early statement of the view that it is an economic fallacy to assume that the competition which benefits the public is between retailers of thé same product; it is between rival articles, a competition in excellence. See, also, discussion in Ely Lilly & Co. v. Saunders, supra.
Unlike the controls struck down in the Vidor Case, control of minimum price under the fair trade laws is not automatic by legislative decree but comes about as a result of voluntary agreement between the manufacturer and dealer which is then enforced against a nonsigner with notice as a means of protecting the value of the manufacturer’s trade-mark
In the Victor Case we emphasized that there was no showing that the blanket prohibition of the practice of giving premiums would tend to alleviate destructive price cutting; indeed, the Court implied that a statute directly aimed at the evils of a gasoline price war might be constitutional. Here, there is a considerable body of opinion to indicate that the use of brand name products for “loss leaders” and destructive price cutting is an evil which may validly be regulated by the manufacturer with the aid of the State through the fair-trade laws.
The bases of the fair-trade regulations under the police power are 2: (1) Right of the plaintiff-manufacturer to be free from injury to the good will of his business as a result of price cutting on distinctive goods; (2) Right of the plaintiff to protect one retailer from the price-cutting tactics of another with regard to .such product, as a means of promoting that good will.
The Michigan fair-trade law was passed, like those in the vast majority of States, to protect the manufacturer in the sale of his individual product, when identified by some kind of distinctive markings on the product or package delivered to the consumer. The protection of the good will of the manufacturer is a legitimate object of the fair-trade act. It is not
Mr. Justice Dethmers argues that plaintiff’s trade-mark rights were not breached by defendant’s cut-rate sales. It is true that a cut-rate sale does not represent the theft or appropriation of a trademark in itself, but it represents an injury to the good will attached thereto which might be as serious-to the manufacturer. There exists, therefore, a substantial property right wMch may be protected by the legislative enactment. The United States supreme court expressed itself on the subject in the Old Dearborn Case, supra, as follows:
*125 “Nor is section 2 so arbitrary, unfair or wanting-in reason as to result in a denial of due process. We are here dealing not wdth the commodity alone, but with a commodity plus the brand or trade-mark which it bears as evidence of its origin and of the quality of the commodity for which the brand or trade-mark stands. Appellants own the commodity; they do not own the mark or good will that the mark symbolizes. The good will is property in a very real sense, injury to which, like injury to any other
There are several decisions from other jurisdictions applying similar constitutional provisions to-fair-trade laws. In Old Dearborn Distributing Co. v. Seagram Distillers Corp., supra, it was held that such classification was not invalid, for, in fact, trademarked and branded goods are in a class by themselves. In Max Factor & Co. v. Kunsman, supra; Joseph Triner Corp. v. McNeil, supra; Ely Lilly & Co. v. Saunders, supra; and Miles Laboratories, Inc., v. Owl Drug Co., supra, this objection was also held to be unfounded. The Illinois court stated in the Joseph Triner Case:
“[The classification is] based on a real and substantial difference having a rational relation to the subject of the particular legislation.”
There is no problem under the equal protection clause. Other courts, and numerous ones, merely followed the rule of the Old Dearborn Case without further discussion of the issue. The Florida court
I am in accord with the holding of the Old Dear-born Case and those following it. The manufacturer possesses a property right in identifiable goods which does not exist in nonidentifiable goods and this may properly be made the basis of regulation protecting one class and hot the other.
Defendant argues that the fair-trade law represents an unlawful delegation-of price-fixing power to private persons. That legislative power may not be delegated in Michigan was settled by G. F. Redmond & Co. v. Michigan Securities Commission, 222 Mich 1; Chemical Bank & Trust Co. v. County of Oakland, 264 Mich 673; and Argo Oil Corp. v. Atwood, 274 Mich 47. However, we do not have here an instance of such unlawful delegation.
I find unfounded defendant’s argument that—
“Except for the Florida court, supra little consideration is given in the decisions to the fact that the effect of the act is to delegate price-fixing power to individual manufacturers or suppliers without any standards or criteria controlling the exercise of such powers.”
In Old Dearborn Distributing Co. v. Seagram-Distillers Corp., supra, it was stated that no unlawful delegation of power existed as only sales by the manufacturer made subsequent to the establishment of the fair-trading system could be subject to its provisions, and that no retailer therefore needed to be bound'by it unless he so desired. Similar contentions were rejected in Goldsmith v. Mead Johnson & Co., 176 Md 682 (7 A2d 176); W. A. Sheaffer Pen Co. v. Barrett, supra; Johnson & Johnson v. Weiss-
The standards governing the delegation of power are inherent in the act itself. The manufacturer’s prices are controlled by competition or the act is not brought into play. Fair trading of articles is permissible only when there exists “free and open competition.” "We have here a grant of power over the conduct of others growing out of a basic property right, and then and only then may it be exercised. I am, therefore, in accord with majority authority that there has been no unlawful delegation of price-fixing power.
It has been said that freedom of contract of the retailer is violated by the nonsigner provision of the act. But no retailer is obliged to buy any identifiable commodity and upon doing so with knowledge he-should be held to have accepted the consequence. He is only punished if he advertises at below fair-trade prices wilfully and knowingly. He is privileged to sell if the commodity is not identified with its trade-mark or brand name on the commodity or the package or wrapper. See Old Dearborn Distributing Co. v. Seagram-Distillers Corp., supra; W. A. Sheaffer Pen Co. v. Barrett, supra; Johnson & Johnson v. Weissbard, supra; and Sears v. Western Thrift Stores of Olympia, Inc., supra, for further discussion.
Defendant has other objections going to the validity of this legislation as an exercise of police power under the due process clause. It contends that the legislative labeling of simple price reduction as “un
I have carefully examined all of defendant’s arguments going to the constitutionality of the statute herein and have rejected them for the reasons stated above or set forth in other leading cases I have cited on identical issues, which it would be useless to further review. Our conclusion then should be that this act is a valid exercise of the police power of this State as applied to wholly intrastate transactions; that it is wholly constitutional and is properly enforceable by a. court of equity in cases coming within its purview. I am, therefore, in total disagreement with the decision of the trial court which was based on the constitutionality of the fair-trade act under the Constitution of the State.of Michigan.
The question of the validity of the application of the fair-trade act under the laws of the United States was first raised in the briefs of both parties in the instant case, and I am in accord with the opinion of Mr. Justice Dethmers to the extent that it holds that the act cannot be enforced against nonsigners of fairtrade agreements concerning articles sold in interstate commerce. This- was the holding of the majority ’ of the United States supreme court in Schwegmann Bros. v. Calvert Distillers Corp., 341 US 384 (71 S Ct 745, 95 L ed 1035, 19 ALR2d 1119). Additional cases cited by Mr. Justice Dethmers would indicate that all of plaintiff’s goods sold in a nationwide distribution program are to be construed
There' is legislation pending in the United States Congress which would legalize enforcement of fair-trade agreements against nonsigners in interstate commerce, and restore the situation which existed before the Schwegmann decision, making fair-trade laws of a State effective also as to fair-trade articles of interstate commerce sold within the State. If such a law is passed the Michigan fair-trade law, if upheld under the State Constitution, would be effective1 in ■ both intrastate and interstate commerce. ' The decision, as to its validity under the. Michigan Constitution is, therefore, important, and it can be, only' assailed at the present time on the ground thatit offends the present Federal law as set forth in the.' Schwegmann Case.
For the reasons above stated, I-concur in the result reached by Mr. Justice Dethmers.
Reference
- Full Case Name
- Shakespeare Company v. Lippman’s Tool Shop Sporting Goods Company
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- Published