Hudson Distributors, Inc. v. Upjohn Co.

Decision Date08 May 1963
Docket NumberNos. 37320,37321,s. 37320
CourtOhio Supreme Court
Parties, 23 O.O.2d 133 HUDSON DISTRIBUTORS, INC., Appellant, v. The UPJOHN CO., Appellee. HUDSON DISTRIBUTORS, INC., Appellant, v. ELI LILLY & CO., Appellee.

Mendelsohn Lane, Krotinger & Santora, Cleveland, for appellant.

Vorys, Sater, Seymour & Pease, James A. Gorrell, Herbert R. Brown, Columbus, Rogers, Hoge & Hills, George M. Chapman, New York City, Thompson, Hine & Flory, Andrew C. Hartzell, Jr., Cleveland, and Robert C. Carson, Kalamazoo, Mich., for appellee in case No. 37320.

Henderson, Quail, Schneider & Pierce and James I. Huston, Cleveland, for appellee in case No. 37321.

GRIFFITH, Judge.

In Union Carbide & Carbon Corp. v. Bargain Fair, Inc. (1958), 167 Ohio St. 182, 147 N.E.2d 481, we determined that a prior Fair Trade Act (1936) containing a nonsigner provision was invalid. The syllabus reads:

'Section 1333.07, Revised Code, a part of the Ohio Fair Trade Act, which prohibits those who are not parties to a price-fixing contract between the producer of a trademarked commodity and another from selling such commodity for less than the price stipulated in such contract, represents an unauthorized exercise of the police power in a matter unrelated to the public safety, morals or general welfare, delegates legislative power to private persons, unconstitutionally denies the owner of property the right to sell it on terms of his own choosing and is invalid.'

In the Bargain Fair case we were concerned primarily with the nonsigner provisions. Following the judgment in that case, a new Ohio Fair Trade Act (128 Ohio Laws, p. 698) was enacted, which act became effective October 22, 1959, and it is this legislation that is now being assaulted and is the sole cause of this controversy.

The heart of the new act, the implied contract doctrine, is spelled out in Section 1333.28(I), Revised Code. 'Contract' is defined therein as 'any agreement, written or verbal, or arising from the acts of the parties.' That section provides further that a person who acquires a commodity 'directly from the proprietor or otherwise' after actual notice that the proprietor has established a minimum resale price is bound to observe that price; and that such a person by accepting the commodity 'shall thereby have entered into an agreement with such proprietor not to resell such commodity at less than the minimum price stipulated therefor by such proprietor.'

A person who acquires such commodity after actual notice and then sells, offers to sell or advertises to sell such commodity at a price lower than the established minimum resale price commits an act of unfair competition. Section 1333.32(A), Revised Code.

Section 2, Article XIII, should not be read out of the Ohio Constitution or rendered meaningless. The provision means just what it says--the General Assembly can pass laws 'regulating the sale and conveyance' of personal property. The new Ohio Fair Trade Act is just such a law. The new act is much more comprehensive than the prior act and introduces into the law two entirely new concepts.

It should be pointed out at this time that one element of the act cannot be overemphasized, namely, that the act applies only to trademark items which are in free and open competition with other goods of the same nature in the same general area. This is one of the most important features of this act. The act does not restrain competition since it may only apply to merchandise which is in free and open competition with goods of a like nature.

The first of the new concepts incorporated in this new act is contained in Section 1333.31, Revised Code, which reads as follows:

'A proprietor shall retain a proprietary interest in any commodity with respect to which he is a proprietor after he has sold it to distributors, so long as such commodity continues to be identified by his trade-mark or trade name, by reason of his interest in stimulating demand for such commodity through effective distribution to ultimate consumers and of his interest in continuing protection of the goodwill associated with his trade-makr or trade name.'

By this section, the General Assembly has extended the original concept of the trademark, that of protecting the owner from others marketing their goods under his trademark, to include as a part of the ownership a continuing proprietary interest in the trademark or trade name on the merchandise to the extent that the proprietor can control the resale price of the merchandise even after it has left his possession and ownership. It is contended that the General Assembly has no power to create such ownership. In this the opponents of this legislation fail to take into consideration that all ownership of property and the incidents relating thereto arise only as a matter of law. Inasmuch as all ownership of property arises only by law, the law may also impose such reasonable conditions and incidents of ownership as are necessary to protect not only the owner but the public in general, i. e., such conditions as are necessary for the general welfare. Many such conditions are imposed by law. For example, land may be conveyed only by following the procedure prescribed by statutes, motor vehicles may be transferred only by certificate of titile, and it is only because the law so provides that property may be transmitted by will. It is fundamental that property may be used only so long as its use does not interfere with the public welfare. Thus, although one may own a motor vehicle, the use thereof is subject to strict regulation. The ownership of property secured by the Constitution is necessarily subject to regulation by law. The General Assembly, after extensive and exhaustive hearings, determined that such extension of proprietary rights was necessary not only to protect the property rights incorporated in the ownership of a trademark or trade name but also to protect the small-business man and the public in general.

In such a matter, in the absence of conclusive evidence to the contrary we cannot substitute our judgment for that of the legislative body. Where the wisdom of a legislative act is debatable, the legislative determination must stand.

'Where such questions of fact [the need for fair-trade legislation] are fairly debatable, this court does not substitute its judgment for that of the General Assembly but accepts and carries into effect its declared policy.' Kinsey Distilling Sales Co. v. Foremost Liquor Stores, Inc., 15 Ill.2d 182, 188, 154 N.E.2d 290, 293.

This brings us to a consideration of the second of the new concepts incorporated in the new act. Section 1333.28(I), Revised Code, reads as follows:

"Contract' means any agreement, written or verbal, or arising from the acts of the parties. The establishment by a proprietor of a minimum resale price for any commodity pursuant to the provisions of section 1333.29 of the Revised Code and the proprietor's permission for a distributor to acquire and use the proprietor's interest in the trademark or trade name in reselling the commodity shall constitute a contract and sufficient consideration from the proprietor for a promise by the distributor not to sell such commodity at less than the minimum price established by the proprietor. Any distributor (whether he acquires such commodity directly from the proprietor or otherwise) who, with notice that the proprietor has established a minimum resale price for a commodity, accepts such commodity shall thereby have entered into an agreement with such proprietor not to resell such commodity at less than the minimum price stipulated therefor by such proprietor.'

This provision is the core of the act. When read in conjunction with the rest of the act, it provides in essence that, when a retailer with notice that an item has been fair-traded procures it for resale, he is deemed to have entered into an implied contract with the owner of the trademark that he will sell the item at the fair-trade price.

There is no question that express maintenance contracts are valid. Garst v. Harris, 177 Mass. 72, 58 N.E. 174, Grogan v. Chaffee, 156 Cal. 611, 105 P. 745, 27 L.R.A.,N.S., 395.

The statute creates an implied contract by act of the parties. The doctrine of implied contracts is almost as old as the law of contracts. The simple illustration of the appellees that, where one takes a candy bar from a grocer's shelf and eats it, he obligates himself to pay for it is a basic example of an implied contract by act. No word need be said; conduct creates the contract.

It must be remembered that there is no compulsion on a retailer to handle the trademarked goods. Since the act applies only to goods which are in free and open competition with goods of the same nature, he may select other goods for sale. If he selects the fair-trade goods, it is his voluntary act, and he must abide by the conditions imposed thereon by the proprietor. The fact that he may not like the conditions is inconsequential. Most of us are forced by circumstances to enter into contracts where we do not like the conditions imposed on us, yet if we voluntarily accept the merchandise we must abide by the conditions attached thereto. For example, in purchasing a home, there are in most instances restrictive covenants as to use. We may not like such conditions, but if we accept the contract we must abide thereby. Liking or not liking the conditions of acquiring property has no effect on the validity of the contract. If the retailer chooses to accept the goods, he is bound by the conditions imposed thereon, in this instance, the fair-trade price.

It is stated as follows in Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 U.S. 183, 193, 194, 57 S.Ct. 139, 144, 81 L,.ed. 109:

'Appellants here acquired the commodity in question with full knowledge of the then existing restriction in respect of price which the producer and wholesale dealer had imposed, and, of...

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