Colgate-Palmolive Co. v. Elm Farm Foods Co., COLGATE-PALMOLIVE

• Decision Date: 11 March 1958
• Docket Number: COLGATE-PALMOLIVE
• Citation: 337 Mass. 221,148 N.E.2d 861
• Parties: COMPANY v. ELM FARM FOODS CO. (and five companion cases). * Supreme Judicial Court of Massachusetts, Suffolk
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 861

148 N.E.2d 861

337 Mass. 221

COLGATE-PALMOLIVE COMPANY v. ELM FARM FOODS CO. (and five companion cases). ^* Supreme Judicial Court of Massachusetts, Suffolk.

Argued Nov. 4, 5, 1957.

Decided March 11, 1958.

John F. Groden, Boston, Sidney Coggan, New York City, and Charles C. Worth, Boston, for plaintiff.

George E. Lodgen, Boston, Samuel M. Lane, New York City, Robert F. Young, Dayton Ohio, Edward H. Bennett, Jr. and Thomas M. Joyce, Boston, for defendants.

Before WILKINS, C. J., and RONAN, SPALDING, COUNIHAN and WHITTEMORE, JJ.

SPALDING, Justice.

The plaintiff, a manufacturer of toilet articles, brings these bills in equity under the fair trade law (G.L. [Ter.Ed.] c. 93, §§ 14A-14D) to enjoin the defendants from issuing to their customers trading stamps or cash register receipts, redeemable in merchandise, in connection with sales of fair traded items. The defendants are Elm Farm Foods Co. (hereinafter called Elm Farm), Stop & Shop, Inc. (hereinafter called Stop & Shop), Star Market Co. (hereinafter called Star), and Supreme Markets, Inc. (hereinafter called Supreme). ¹

Many facts were stipulated by the parties. Evidence was introduced, on the basis of which the judge found additional facts. He then reported the case, without decision, on the pleadings, the facts, his rulings, and the evidence. See G.L. (Ter.Ed.) c. 214, § 31.

The plaintiff, prior to the commencement of these suits, by contract with certain retailers had, under G.L. (Ter.Ed.) c. 93, §§ 14A and 14B, as amended, established minimum fair trade prices on certain toilet articles manufactured and distributed by it which bore its trade mark, brand or name. These articles are in 'fair and open competition with commodities of the same general classes' produced by others, and the plaintiff has spent large sums of money in advertising and promoting these products, and has established a valuable reputation and good will for them. None of the defendants had entered into any fair trade contracts with the plaintiff.

Each defendant conducts a chain of supermarkets, so called, in which are sold meats, groceries, vegetables, toilet articles, household wares, and other merchandise commonly sold in such markets. All sales are for cash only, except that credit is extended in three small stores in the Stop & Shop chain (which amount to one per cent of its entire sales), and four per cent of Star's sales are on credit.

The defendants sell the plaintiff's fair traded products as part of their retail business, but sales of fair traded items are only a small part of their business (about two per cent) and sales of the plaintiff's fair traded products are an even smaller part (about two tenths of one per cent) of their business. At all times here relevant the defendants have had knowledge that fair trade contracts have been in effect on many of the plaintiff's products, and have been informed by the plaintiff of the fair trade prices established by such contracts.

In order to attract customers to their stores, the defendants have adopted plans whereby customers, after making a minimum amount of purchases, receive additional merchandise, the value of which depends on the value of the purchases made.

Elm Farm started using the S & H green stamp plan in 1954 and Stop & Shop started using the Top Value stamp plan in 1955. Briefly these plans operate in this way. On making a purchase in an Elm Farm or Stop & Shop store the customer is given one S & H green stamp or one Top Value stamp, as the case may be, for each full ten cents worth of merchandise purchased. Thus a customer making a purchase of $1.19 receives eleven stamps. The customer is given a book in which to paste the stamps, and when at least one book has been filled he may redeem the stamps for merchandise either at a redemption center maintained by the stamp company or by mail at one of its warehouses. It takes purchases of $120 to fill and S & H stamp book and purchases of $150 to fill a Top Value Book. Under both plans the value of the merchandise redeemed is about two and one half per cent of the purchases made.

The S & H and Top Value plans are operated respectively by the Sperry & Hutchinson Company and Top Value Enterprises, Inc., in many parts of the country. The retail store using the plan does so under a license issued by the stamp company. The stamp company sells the stamps to the retailer, supplies the stamp books, merchandise and catalogs, and operates the redemption centers and warehouses. They also license other stores in the community so that the customer can participate in the plan at a number of stores.

Star's plan, the Star Tape-Savers Club, is similar in principle to the stamp plans. There are, however, differences in its operation. Instead of issuing stamps, Star has a special cash register tape (called Gold Tape) which the customer saves until he has enough for redemption. Star issues a catalog which lists the merchandise which may be redeemed with Gold Tapes, and the amount of Gold Tape purchases required for each item. Star maintains no redemption store. When a customer has accumulated enough value in tapes to obtain the article he wants, he makes known his choice and turns in the required tapes at any Star market, and in due time receives the merchandise. The retail value of merchandise thus obtained is between two per cent and three per cent of the amount indicated on the tape.

Supreme has a tape plan quite similar to Star's It has no catalog and the merchandise available for redemption is on display as its stores. The retail value of this merchandise is between three per cent and four per cent of the amount indicated on the tapes and may be obtained on the presentation of tapes totaling from $29 to $69.

In all of the plans described above the stamps and tapes are issued on all items purchased, regardless of whether they are fair traded or not.

From evidence introduced below, the judge found that stamps and tapes are 'typical discounts for cash at the retail level'; that the normal cost of extending credit in well managed retail stores is three per cent to four per cent of gross sales; that stamps and tapes are a form of institutional or store promotion rather than product promotion; and that stamps and tapes do not have any 'economic effect upon the individual product brand sold by the retailer, or its good will.'

The question for decision is whether the above described stamp and tape plans when used in conjunction with the sale of the plaintiff's fair traded products constitute price cutting of the sort forbidden by our fair trade law. G.L.(Ter.Ed.) c. 93, §§ 14A-14C. Under § 14A it is lawful, with exceptions not here material, to make a contract fixing the price of a commodity bearing the trade mark, brand or name of the producer or owner provided such commodity is in fair and open competition with commodities of the same general class produced by others. Section 14B, as amended by St.1939, c. 313, reads: '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 preceding section, whether the person so advertising, offering for sale or selling is or is not a party to such contract, is hereby declared to constitute unfair competition and to be actionable at the suit of any person damaged thereby. Any person advertising, offering for sale or selling any commodity as aforesaid shall, in addition, forfeit through civil process to the commonwealth the sum of fifty dollars.'

The constitutionality of the fair trade law was challenged and upheld in General Electric Co. v. Kimball Jewelers, Inc., 333 Mass. 665, 132 N.E.2d 652. Although the question whether stamp and similar plans constitute a reduction of price not sanctioned under fair trade laws has been before courts in other jurisdictions, the question is one of first impression here. The Supreme Court of Pennsylvania in Bristol-Myers Co. v. Lit Brothers, Inc., 336 Pa. 81, 6 A.2d 843, held by a divided court (five to two) that a stamp plan substantially similar to those here did not constitute a violation of the Pennsylvania fair trade act, 73 P.S. Pa. §§ 7, 8. This decision was recently followed by a unanimous court in Gever v. American Stores Co., 387 Pa. 206, 127 A.2d 694. The same result was reached by the District Court of Appeals of California in Weco Products Co. v. Mid-City Cut Rate Drug Stores, 55 Cal.App.2d 684, 131 P.2d 856. On the other hand in Bristol-Myers Co. v. Picker, 302 N.Y. 61, 96 N.E.2d 177, 22 A.L.R.2d 1203, the New York Court of Appeals by a divided court (five to two) held that a cash register receipt plan substantially the same as those under consideration amounted to a price reduction not permitted by the New York fair trade law, General Business Law, § 369-a et seq. ² And see Colgate-Palmolive Co. v. Max Dichter & Sons, Inc., D.C.Mass., 142 F.Supp. 545, holding that a stamp plan identical to one here constitutes a quantity discount not permitted by our fair trade law.

The defendants' main contentions are (1) that the issuance of stamps and tapes in conjunction with the sale of the plaintiff's fair traded products is not a price reduction and (2) that this practice has no adverse effect on the plaintiff's good will.

The defendants argue that the stamps and tapes are merely means of promoting the store as a whole in contradistinction to promotion directed toward a particular product. As used by them these plans are not limited to fair traded items but are given in conjunction with all purchases made at their stores. Thus, it is argued, these do not differ from other store promotional schemes such as free parking, free taxi transportation, air conditioning, free delivery service and the like. We assume that such services do not constitute...