General Electric Co. v. American Buyers Cooperative

• Decision Date: 24 October 1958
• Citation: 316 S.W.2d 354
• Parties: GENERAL ELECTRIC COMPANY, Appellant, v. AMERICAN BUYERS COOPERATIVE, Inc., Appellee.
• Court: Kentucky Court of Appeals

316 S.W.2d 354

GENERAL ELECTRIC COMPANY, Appellant, v. AMERICAN BUYERS COOPERATIVE, Inc., Appellee.

Court of Appeals of Kentucky.

June 20, 1958.

Rehearing Denied October 24, 1958.

Bullitt, Dawson & Tarrant, John E. Tarrant, Thos. S. Dawson, Louisville, for appellant.

Charles Wylie, Wm. E. Sloan, Lexington, amici curiae for appellant.

Herbert H. Monsky, Louisville, for appellee.

Robt. M. Coleman, Coleman, Harlin & Orendorf, Bowling Green, Richard L. Garnett, Glasgow, amici curiae for appellee.

STANLEY, Commissioner.

The appeal brings before us the constitutionality of the statute which regulates the resale price of commodities, generally called the Fair Trade Act. KRS 365.080 and 365.090. The statute was enacted at the Fourth Extraordinary Session of the 1936 Legislature. Ch. 24, Acts. It is patterned after statutes of other states. See Note, 19 A.L.R.2d 1139. The trial court held the second section of the Act, KRS 365.090, to be unconstitutional. The validity of the entire act was debated on the appeal.

The material part of the first section, KRS 365.080, is copied for ready reference.

"(1) No contract relating to the sale or resale of a commodity that bears, or the label or content of which bears, the trade-mark, brand or name of the producer or owner of the commodity and that is in fair and open competition with commodities of the same general class produced by others shall be deemed in violation of any law of this state by reason of any of the following provisions that may be contained in such contract:

"(a) That the buyer will not resell any such commodity except at the price stipulated by the vendor.

"(b) That the producer or vendee of a commodity will, upon the sale of such commodity to another, require the purchaser to agree that he will not, in turn, resell except at the price stipulated by the producer or vendee."

Provisions excluding certain transactions from the operation of the act are irrelevant here.

The second section of the Act, KRS 365.090, reads:

"Willfully 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 KRS 365.080, whether the person so advertising, offering for sale or selling is or is not a party to the agreement, is unfair competition and is actionable at the suit of any person damaged thereby."

The General Electric Company brought this suit against American Buyers Co-operative, Inc. to enjoin it from doing what is charged to be in violation of the statute and to recover damages therefor. The court sustained the defendant's motion for a summary judgment on the ground of unconstitutionality of the second section of the statute KRS 365.090, and dismissed the complaint.

General Electric Company (hereinafter GE), as is well known, manufactures small electric household utilities and appliances that are trade-marked and bear the brand "General (GE) Electric." The articles are sold by GE to franchised wholesale distributors who in turn sell them to retail dealers. The appliances are in fair and open competition in Louisville and elsewhere throughout the country with commodities of the same general class produced and sold by others. GE has expended large sums of money in the development of its appliances of a high quality and in promoting and advertising them and its trade-mark. As the result, its appliances have become widely and favorably known, and GE has established a valuable reputation and good will for its appliances and its trade-mark. The retail dealers handling the articles benefit from the reputation and good will associated with the appliances.

GE has entered into agreements with many retail detailers in Louisville and elsewhere in Kentucky, which agreements provide that GE appliances shall not be advertised, offered for sale or sold by the dealer at less than the minimum retail resale prices stipulated by GE. These agreements were in effect at all times material to the case. Such agreements are commonly referred to as Fair Trade Agreements, and all are in the same form, a copy of which is filed with the complaint as an exhibit.

The defendant, now appellee, American Buyers Cooperative, Inc. (hereinafter ABC), is engaged in the general business of selling merchandise, including electric appliances, at retail in Louisville, Kentucky. ABC has never signed a Fair Trade Agreement with GE and occupies the position of a nonsigner. GE notified ABC on several occasions of the existence of its Fair Trade Agreements in effect in Kentucky and of the minimum retail prices stipulated pursuant to such agreements. ABC received such notices and thereafter sold GE appliances at less than the minimum retail prices so stipulated.

The foregoing are the admitted facts of the case. They bring into application KRS 365.090.

This so-called Fair Trade Act, in the same or similar language, has been enacted in most of the states. It has been assailed everywhere as violating constitutional rights. The various courts have reached different conclusions as to its constitutional validity and vary in their reasons for the decisions, pro and con. The cases may be found in the opinions and appended annotations in the American Law Reports. See Doubleday, Doran & Co. v. R. H. Macy, 269 N.Y. 272, 199 N.E. 409, 103 A.L.R. 1325; Joseph Triner Corp. v. McNeil, 363 Ill. 559, 2 N.E.2d 929, 104 A.L.R. 1435; Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 U.S. 183, 57 S.Ct. 139, 81 L.Ed. 109, 106 A.L.R. 1476; Bourjois Sales Corp. v. Dorfman, 273 N.Y. 167, 7 N.E.2d 30, 110 A.L.R. 1411; Ely Lilly & Co. v. Saunders, 216 N.C. 163, 4 S.E.2d 528, 125 A.L.R. 1308; Schwegmann Bros. v. Calvert Dist. Corp., 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035, 19 A.L.R.2d 1119; Bristol-Myers Co. v. Picker, 302 N.Y. 61, 96 N.E.2d 177, 22 A.L.R.2d 1203.

In order to focus attention upon the specific character of the particular statute with which we are dealing, we may point out that it is unlike our statute that condemns the sale of commodities below cost or the giving of rebates and the like for the purpose of injuring a competitor or as tending to destroy competition. KRS 365.050 et seq. See Jefferson Ice & Fuel Co. v. Grocers Ice & Coal Storage Co., Ky., 286 S.W.2d 80, 54 A.L.R.2d 80. And although comparable, the statute relating to minimum mark-up resale prices of alcoholic beverages, KRS 244.380 et seq., is distinguishable, for its constitutional validity rests on the broad legislative power to regulate and control intoxicating liquor. See Reeves v. Simons, 289 Ky. 793, 160 S.W. 2d 149.

A significant feature of the present statute is that it is confined to products bearing a trade-mark, brand or name. The enactment of such statutes and the decisions upholding them rest in a large measure upon the concept that good will of the owners of the trade-mark, brand or name continues to adhere to the commodity until it reaches the ultimate consumer and that the owner is entitled to protect its good will by controlling the price of the product.

Beyond that concept, particularly with respect to the section relating to persons who are parties to such contracts, the courts have upheld the law as having a constitutional objective that is within the police power of a state in order to preserve the general welfare of the people and as not delegating legislative power or depriving a person of his property without due process of law. But a number of courts hold to the contrary and say that the act is arbitrary, monopolistic, invades the right of property, and constitutes an unlawful delegation of governmental power.

Putting aside the opinions of other courts with their diversities, which rest in some cases upon different constitutional provisions of the particular states, we turn to our own constitution and general public policy.

We are not concerned with the economic and social philosophy of such laws or the wisdom of the legislation. We are concerned only with the question of whether it is within the power of the Legislature under the Kentucky constitution to enact a statute which sanctions the fixing of minimum retail prices as described. The question is divisible. One part relates to the approval of an express contract made with a retailer directly or indirectly. The other relates to a retailer who is not a party to such a contract. The right to judicial relief from violation of such a contract and such a prohibition is, of course, implicit in the legal question.

First section, KRS 365.080. This part of the statute declares that a contract of the kind described shall not be deemed to be in violation of any law of this state. It is apparent, therefore, that the premise of the statute is that such a contract might or would otherwise be monopolistic or an illegal restraint of trade. Section 198, Kentucky Constitution, imposes the duty upon the General Assembly to enact such laws as it deems necessary to prevent trusts and other combinations formed "to depreciate below its real value any article, or to enhance the cost of any article above its real value." This constitutional provision is not self-executing. The General Assembly is left to its discretion to determine the need for legislation upon the subject. Owen County Burley Tobacco System v. Brumback, 128 Ky. 137, 107 S.W. 710; Gay v. Brent, 166 Ky. 833, 179 S.W. 1051. Various statutes dealing with trade practices are embraced in Chapter 365 of the Kentucky Revised Statutes. The present statute does not appear to conflict with any other. If it does, of course, it is, nevertheless, within the power of the Legislature to enact the statute unless it offends § 198 or some other provision of the Constitution, such as being an unreasonable discrimination, which is barred by § 3. The same would be true if the statute should be regarded as different from the common law applying to contracts in restraint of free trade. In any event, as stated in Ely Lilly & Co. v....