Weco Prods. Co. v. Reed Drug Co.

• Citation: 225 Wis. 474,274 N.W. 426
• Parties: WECO PRODUCTS CO. v. REED DRUG CO.
• Decision Date: 21 June 1937
• Court: United States State Supreme Court of Wisconsin

225 Wis. 474

274 N.W. 426

WECO PRODUCTS CO.

v.REED DRUG CO.^*

Supreme Court of Wisconsin.

June 21, 1937.

Appeal from a judgment of the Circuit Court for Milwaukee County; Gustave G. Gehrz, Judge.

Reversed.

Action brought by Weco Products Company against the Reed Drug Company for a permanent injunction under subsection (5) of section 133.25, Stats. (designated therein the “Fair Trade Act”), to enjoin the defendant from advertising, offering for sale, or selling certain trade-marked articles, produced by the plaintiff, at prices below those specified in contracts entered into under the Fair Trade Act between the plaintiff and some 600 retail druggists in Wisconsin. Upon a trial, without a jury, of the issues of fact raised by the pleadings, the parties agreed upon findings of fact which were made by the court, and upon which it reached conclusions of law on which judgment was entered dismissing the complaint on the merits. Plaintiff appealed from that judgment.Herbert L. Mount, of Milwaukee (Edward S. Rogers, William T. Woodson, and James H. Rogers, all of Chicago, Ill., of counsel), for appellant.

Wright & Thatcher, of Milwaukee (Singer & Singer, of Cleveland, Ohio, of counsel), for respondent.

FRITZ, Justice.

There is no controversy in respect to the findings of fact upon which the court based its conclusions of law and judgment dismissing the complaint. For consideration of the issues of law presented on this appeal, it suffices to note the following facts: The plaintiff, an Illinois corporation, licensed to do business in Wisconsin since November 5, 1935, is the producer of tooth brushes and tooth paste sold under labels or in containers bearing its trade-name and registered trade-mark “Dr. West's,” of which it is the owner by virtue of its exclusive use thereof as its trade-name and trade-mark for upwards of fifteen years; and in that period the plaintiff by advertising and otherwise created a valuable good will for that trade-name and trade-mark and its products sold thereunder, and also created a valuable dealer good will by cooperation, service, and the maintenance of prices yielding a fair profit to retailers. Those commodities have been and are widely and extensively sold in Wisconsin under and by that trade-name and trade-mark by retail drug stores and others, including the defendant, and are in fair and open competition with many other commodities of the same general class produced by others. In the course of years there developed in the drug trade a practice of cutting prices of commodities sold in such stores, including various well-advertised commodities well known to the public, and sold and identified under distinctive trade-marks, brands, and names. Under that practice some retail dealers offered such products at prices conspicuously lower than the marked or established prices thereof, as so-called “leaders,” as a means to draw trade. Stores at which that practice was prevalent became known as “Cut-Rate Drug Stores,” and such retailers considered the use of such “leaders” a valuable trade advantage in that, with other things, it gave them an opportunity to persuade customers who were attracted thereby and the cut-rate prices announced therefor to purchase other merchandise in place of such advertised “leader” or additional merchandise sold at a profit; and, in either event, the profits realized on such other or additional merchandise exceeded the loss necessarily sustained on any “leader” sold as stated. That price cutting practice engendered a condition by which other dealers were forced to meet the cut prices, and one cut produced another in retaliation, so that ultimately in a particular community well-known articles identified by trade-marks, brands, and names, with prices established by the producers or manufacturers thereof, were offered at prices reduced to a point which yielded little or no profit, and, in some cases, represented an actual loss, so that the dealers' incentive to sell such commodities was destroyed, and that they often refused to handle or stock the same, or were reluctant to sell them when called for by the public, or would urge the sale of other products upon which greater profits could be made. As a further result of those practices, the producer or manufacturer of identified merchandise, which had been handled in that manner by “Cut-Rate” stores, suffered a severe loss of market and facilities for distribution, and his business and good will became seriously interfered with, and, in some cases, was practically destroyed.

On May 2, 1935, there became effective chapter 52, Laws 1935, which created sections 133.25 to 133.27, Stats., and designated section 133.25 as the “Fair Trade Act (as amended by Laws 1935, c. 477).” On November 18, 1935, the plaintiff tendered to members of the retail trade in this state handling its products, including the defendant, a proposed fair trade contract, with provisions, including a stipulated price, that were authorized by and in accordance with subsections (3) and (4) of section 133.25, Stats. Those contracts, after being prepared and signed by the plaintiff's officer in Chicago, were sent to Wisconsin for distribution among retail dealers, and here they were executed and entered into by about 600 or 50 per cent. of such retailers. The defendant, owning and operating six retail “Cut-Rate” drug stores in Milwaukee and one in Kenosha, refused to execute such a fair trade contract, when it was tendered by the plaintiff; but on December 10, 1935, the defendant was notified by the plaintiff of the effectiveness of the contracts which it had entered into with other dealers, as stated above, and also of the Fair Trade Act. The minimum resale prices stipulated in those contracts are fair and reasonable (a) as in comparison with competitive commodities, (b) upon the basis of plaintiff's manufacturing and distribution costs, (c) upon the basis of merit, quality, and popularity, and (d) upon the basis of the margin of profit allowed to the retail and wholesale trade; and no complaint was filed by the defendant or any other party with the State Department of Agriculture and Markets, under subsection (7) (a) of section 133.25, Stats., in respect to those prices.

In April, 1936, the defendant, with knowledge of those contracts, including the minimum resale prices stipulated therein, and in furtherance of its business in the manner and by the use of the price cutting practices, described above, willfully and knowingly advertised, offered for sale, and sold tooth brushes and tooth paste under plaintiff's trade-name and trade-mark “Dr. West's” at prices which were below the minimum resale prices stipulated in those contracts. Those acts and competitive practices of the defendant caused the plaintiff substantial but indeterminable loss and damage, and if they are continued by the defendant, the plaintiff will continue to suffer similar damage for which pecuniary compensation would not afford adequate relief.

Before and after the Fair Trade Act went into effect, the plaintiff's sales of its products for delivery to wholesale and retail dealers in Wisconsin were consummated and concluded in Illinois and those sales constituted, as the court rightly concluded, interstate commerce. In view of the facts stated above, the court also concluded that the Fair Trade Act by its terms, and the terms of the plaintiff's fair trade contracts, was applicable only to transactions consummated in Wisconsin, and in connection with sales made between the contracting parties; that, therefore, those contracts have no binding effect upon the defendant, who had in no manner become a party thereto; that subsection (5) of section 133.25, Stats. (which provides that price cutting which is in violation of section 133.25, Stats., is unfair competition and actionable at the suit of any person damaged thereby), is void and unconstitutional in that it attempts to delegate legislative power to private individuals; and that the plaintiff was not entitled to the injunction prayed for in its complaint.

The appellant's principal contention on this appeal is that the court erred in concluding that subsection (5) of section 133.25, Stats., attempts to delegate legislative power to private individuals, and is therefore void and unconstitutional. However, as the respondent claims that “the price maintenance agreements plaintiff seeks to bind defendant to, by force of subsection (5) of section 133.25 of the Act, are illegal because they are violative of the Federal Anti-Trust Laws [15 U.S.C.A. § 1 et seq.],” in that “they constitute an agreement to restrain interstate commerce,” and that it is therefore not necessary to pass upon the validity of the Fair Trade Act, we shall first consider whether the plaintiff can recover herein because of any such alleged illegality in those agreements.

At the outset it must be noted that, as the court rightly concluded, the “plaintiff brings this action against defendant solely under and pursuant to subsection (5) of section 133.25, Wis. Stats.” It is an action for relief based on acts committed by the defendant which are injurious to the plaintiff's good will and its right to profits from the sales of its trade-marked goods in the manner declared wrongful and actionable under section 133.25 (5), Stats. The material and essential facts, upon which the plaintiff claims to be entitled to relief herein, are that the defendant willfully and knowingly advertised, offered, and sold the plaintiff's products at less than the minimum resale prices stipulated in the fair trade contracts entered into by the plaintiff under section 133.25 (3), Stats., with the 600 Wisconsin retailers who accepted the contracts and sell the plaintiff's products only in this state, and who agreed therein not to advertise, offer, or sell them in this state under the plaintiff's trade-name or trade-mark at less than the stipulated prices. By an express provision...