Gen. Elec. Co. v. Macy & Co.

• Decision Date: 16 January 1951
• Citation: 199 Misc. 87
• Parties: General Electric Company, Plaintiff,<BR>v.<BR>R. H. Macy & Co., Inc., Defendant.
• Court: New York Supreme Court

199 Misc. 87

General Electric Company, Plaintiff,

v.R. H. Macy & Co., Inc., Defendant.

January 16, 1951.

Thomas Kiernan and Edgar Barton for plaintiff.

Kenneth M. Spence and James A. Halpin for defendant.

GREENBERG, J.

This is an action by General Electric Company under the Fair Trade Law, also known as the Feld-Crawford Act (General Business Law, § 369-a et seq.), to enjoin R. H. Macy & Co., Inc. (hereinafter referred to as "Macy"), from selling certain General Electric appliances below the minimum prices fixed by General Electric in its fair-trade agreements.

A preliminary injunction in this action was granted on April 27, 1950, and is still in effect (N. Y. L. J., April 20, 1950, p. 1393, col. 3).

The plaintiff General Electric is a manufacturer of electrical appliances which bear its trade name. The defendant Macy operates a large department store which sells electrical appliances at retail.

Macy admits its sales of General Electric appliances at prices below the fair-trade prices. Its chief defenses are:

(1) General Electric has waived and abandoned the benefits of the Fair Trade Law by failing to restrain widespread price cutting by other retailers.

(2) General Electric does not come into court with clean hands and should not be given relief because (a) It has discriminated in the enforcement of fair-trade prices and has not enforced them equitably. (b) Its wholly owned subsidiary has sold appliances at retail below the fair-trade prices.

Upon the trial of this action which lasted for seven weeks both sides adduced voluminous evidence as to the extent of price cutting on General Electric appliances and as to the degree of enforcement by General Electric. Both sides also submitted extensive memoranda on the points of law involved and the facts.

It appears from the evidence at the trial that General Electric merchandises its appliances in the New York metropolitan area through a number of franchised distributors including General Electric Supply Corporation, a wholly owned subsidiary. These distributors in turn sell to approximately thirty-five hundred retail dealers through the area. In 1946 and 1947 General Electric entered into fair-trade agreements with some of its distributors. It then established an enforcement committee at its offices in Bridgeport, Connecticut, to supervise the enforcement of these agreements. The enforcement for the most part consisted of receiving and investigating complaints, sending out registered letters to violators and, if continued violations were found, starting legal suits.

Sometime in 1948, the evidence discloses, certain so-called "discount houses" were found to be violating the fair-trade prices on General Electric appliances. These discount houses operate by issuing cards to special groups, such as employees of large business organizations, entitling the holders to discounts on all articles purchased. In March, 1948, General Electric brought suit against two of the leading discount houses and eight other retailers to enjoin fair-trade price violations. It obtained injunctions against them and thereafter brought actions to punish certain of these retailers for contempt.

In December, 1948, Macy made a complaint to General Electric regarding fair-trade price violations by discount houses. Macy, in its letter to General Electric, enclosed articles appearing in a trade publication setting forth the operations of these discount houses and the sale by them of General Electric and other appliances at discounts. General Electric's reply as to its enforcement activities apparently satisfied Macy at that time.

In November, 1949, General Electric entered into an agreement with the two leading discount houses mentioned above to vacate the temporary injunctions obtained against them in return for consent judgment to be entered against them in case of future violations. The evidence indicates that the discount houses subsequently continued violations and that there was no considerable activity on the part of General Electric to combat these violations.

On March 6, 1950, in an effort to stimulate General Electric's enforcement activities and to end its own competitive disadvantage in relation to discount houses, Macy cut prices on two General Electric appliances. There followed conferences between General Electric and Macy representatives, and Macy restored fair-trade prices until March 23d, when it notified General Electric that it intended to resume cutting prices on General Electric appliances. It thereafter again sold two General Electric appliances at cut prices until April 6, 1950, when a restraining order was served upon it.

General Electric then began a very active and vigorous enforcement drive, spearheaded by this present action against Macy. Since March, 1950, General Electric has brought over one hundred fifty actions against retailers to enjoin sales below fair-trade prices and in nearly every instance obtained either consent judgments or orders by the court enjoining the violators. In April, 1950, it entered consent judgments against the two large discount houses referred to above. In May, 1950, it cancelled the distributorship franchise of its wholly owned subsidiary, General Electric Supply Corporation, as a result of disclosures in General Elec. Co. v. Maritime Watch & Jewelry Co. (N. Y. L. J., May 3, 1950, p. 1570, col. 7), that the subsidiary had made a sale to a New York City fireman at a discount from the fair-trade price. Since that time, General Electric has also brought a very large number of contempt proceedings to punish violations of injunctions.

While this current enforcement campaign was provoked by Macy's challenge in cutting prices, it is clearly no mere facade to serve as a background for this case but, rather, a widespread and determined attempt to wipe out price cutting in this area.

Macy urges that this court should not grant General Electric relief:

(1) Because General Electric has failed to enforce its fair-trade prices effectively, with the result that widespread price cutting exists and will continue. Macy contends specifically that the following inadequacies exist in General Electric's enforcement procedure: (a) General Electric maintains no policing staff; (b) The enforcement committee located in Bridgeport has a passive procedure and does not investigate violations efficiently; (c) General Electric's system of doing business through distributors who compete with each other for the business of retail dealers, fosters price cutting and prevents the enforcement of fair-trade prices; and (d) General Electric has failed to require distributors to cut off the supply to violating dealers.

(2) Because such enforcement as has been carried on by General Electric has been discriminatory. Macy contends that General Electric enforced fair-trade prices against department stores but allowed violations by discount houses and others who did not display cut prices publicly, with the result that Macy is at a competitive disadvantage and its good will has been injured.

(3) Because a wholly owned General Electric subsidiary has made sales below fair-trade prices.

Macy further urges that the increased enforcement activity on the part of General Electric since the commencement of this action should not even be considered by this court because General Electric should not be allowed to purge itself during the course of this action.

The determination of the validity of these objections requires some reference to the underlying statute and the cases decided thereunder.

The Fair Trade Law is, in effect, a general statement of policy sanctioning vertical price fixing of commodities bearing the mark of the producer. It makes actionable in the courts, as unfair competition, any sales at prices below those fixed in accordance with the Fair Trade Law. This general statement of policy has been left on the doorstep of the courts without benefit of administrative protection or rules and regulations for its development. While the advantages and disadvantages of this policy have been the subject of much controversy, the policy having been enacted into law in this State, it is the duty of the courts to interpret and enforce it so as to carry out the purposes of the Legislature. The chief purpose of the statute is expressed as being to protect a producer against injury of his good will, resulting from price cutting of goods bearing his trade-mark. There are also expressed objectives as to the protection of distributors of these goods and the public. (General Business Law, § 369-a; Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 U. S. 183; Guerlain, Inc., v. Woolworth Co., 297 N.Y. 11; Port Chester Wine & Liquor Shop v. Miller Bros. Fruiterers, 253 App. Div. 188.)

The courts on the whole have enforced the statute vigorously. In the absence of statutory standards, they have imposed equitable safeguards designed to ensure the functioning of the statute for the purposes expressed by the Legislature. The first requirement for enforcement is an obvious and basic one: that there be a fair-trade price structure which has a real and not merely a "paper" or "illusory" existence. The second, which is closely related, is that there has been reasonable and diligent enforcement of the existing fair-trade prices. The third is that the relief sought be for the sole purpose of enforcement and not for any ulterior purposes. Finally, the courts, as in all equitable cases, retain the power to refuse relief where the plaintiff has indulged in any practices offensive to the conscience of the court. (American Safety Razor Corp., v. International Safety Razor Corp., 26 F.2d 108.)

Where there is in fact no existing price structure to protect, the courts have refused to grant relief. Thus, in Automotive Elec. Service Corp., v. Times Square Stores Corp. (175 Misc. 865) the court denied an injunction where it found that price cutting had been so general and long continued that sales on...