Hudson Distributors, Inc. v. Upjohn Co.

• Decision Date: 13 July 1961
• Citation: 117 Ohio App. 207,176 N.E.2d 236
• Parties: , 18 O.O.2d 182 HUDSON DISTRIBUTORS, INC., Plaintiff-Appellee, v. UPJOHN COMPANY, Defendant-Appellant. HUDSON DISTRIBUTORS, INC., Plaintiff-Appellee, v. ELI LILLY AND COMPANY, Defendant-Appellant.
• Court: Ohio Court of Appeals

Page 207

117 Ohio App. 207

176 N.E.2d 236, 18 O.O.2d 182

HUDSON DISTRIBUTORS, INC., Plaintiff-Appellee, v. UPJOHN COMPANY, Defendant-Appellant.

HUDSON DISTRIBUTORS, INC., Plaintiff-Appellee, v. ELI LILLY AND COMPANY, Defendant-Appellant.

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

July 13, 1961.

Thompson, Hine & Flory, Cleveland, Vorys, Sater, Seymour & Pease, Columbus, George M. Chapman, New York City, Robert H. Hosick, Murray D. Welch, Jr., Kalamazoo, Mich., for defendant-appellant Upjohn Co.

Henderson, Quail, Schneider & Peirce, Cleveland, Louis S. Peirce, James I. Huston, Cleveland, of counsel, for defendant-appellant Eli Lilly & Co.

Mendelsohn, Krotinger, Lane, Santora & Shaw, Cleveland, for plaintiff-appellee.

SKEEL, Judge.

These appeals came to this court on questions of law from judgments entered for the plaintiffs-appellees in the Court of Common Pleas of Cuyahoga County. The actions seek a declaratory judgment declaring the Ohio Fair Trade Act invalid and unconstitutional. Both cases involve similar facts and, with the questions to be determined by this court the same in each case, the appeals will be considered together. The assignment of error is identical in both cases.

'For its assignment of error, the Defendant-Appellant asserts that the Court of Common Pleas of Cuyahoga County erred in declaring Sections 1333.27 through 1333.34 of the Ohio Revised Code to be in violation of the Constitution of the State of Ohio, and therefore void and not binding upon the Plaintiff-Appellee, and in granting judgment for the Plaintiff-Appellee on its petition and dismissing the cross-petition of the Defendant-Appellant.'

The plaintiff, in both cases, is the operator of retail stores selling, among other things, pharmaceutical products. The defendant, in each case, is the manufacturer of pharmaceutical items, which are distributed to retailers either directly or through wholesalers or jobbers. They do not sell at the retail level. The products manufactured by these defendants for ultimate use and consumption of retail buyers are manufactured and identified under a trademark, trade or brand name, and sold at retail in free and open competition with commodities of the same general class.

These defendants or their distributors have entered into many written contracts with retail pharmaceutical establishments in Ohio, determining the retail resale price for their trademarked or branded commodities and have caused notice of these contracts and the prices therein established to be served on the plaintiff. The defendants, therefore, claim the protection of the Ohio Fair Trade Act. It is alleged in defendants' cross-petitions that the plaintiff, purchasing the defendants' trademarked or trade name or branded products in interstate commerce, with notice of the established retail resale price in Ohio are continuing to sell said articles (purchased by them after such notice) at retail at cutrate prices, below the retail price fixed by the defendants in total disregard of the Fair Trade Act. It is the contention of the plaintiff, among other claims, that the Ohio Fair Trade Act, passed effective 10/22/59, constitutes a delegation of legislative power to private persons and for that reason is unconstitutional.

The historical background of the Ohio Fair Trade Act began in 1936 upon the passage of what are now known as Sections 1333.05 to 1333.10, inclusive of the Revised Code. This legislation followed after the Congress and the Supreme Court of the United States, by successive acts and decisions, dealt with the right of a manufacturer who identified his products by a trade name or trademark to assure the ultimate consumer that such product was manufactured by him to protect his 'goodwill' created by producing quality merchandise as advertised from the alleged claims of injury to such 'goodwill' by price-cutting retailers. There can be no doubt but that the buying public is benefited under modern merchandising methods to be able to identify goods either desired or to be avoided by its trade name or trademark. This court can take notice of the complete change in merchandising methods over the past seventy-five years. From cracker barrel days when manufacturers found their markets in the locality of their business or sales were made to the ultimate consumer through the retailer's reputation, the retailer in turn being the object of the sales activity of manufacturers or wholesalers, to the present period when the manufacturer points his sales activities to attract the attention of the consuming public and the retailer prepares his stock to meet the demands of the buying public as influenced by the direct advertising of the manufacturer, it must follow that the manufacturer's goodwill is an important and valuable factor in the retail market of today. The manufacturer or wholesale distributor, in seeking to attract the public to buy his products, uses his distinctive trademark or trade name by which his goods are identified. So completely has the processes of merchandising consumer goods changed that the Supreme Court of Ohio held in the case of Rogers v. Toni Home Permanent Co., 1958, 167 Ohio St. 244, 147 N.E.2d 612, that an action claiming a breach of an express warranty could be maintained against the manufacturer without privity of contract, that is where the goods were purchased by the consumer from an independent retailer, the buyer (consumer) being induced to buy the manufacturer's product through the manufacturer's direct advertising and consumer sales efforts. On page 248 of 167 Ohio St., at page 615 of 147 N.E.2d, the court said:

'Occasions may arise when it is fitting and wholesome to discard legal concepts of the past to meet new conditions and practices of our changing and progressing civilization. Today, many manufacturers of merchandise, including the defendant herein, make extensive use of newspapers, periodiclas, signboards, radio and television to advertise their products. The worth, extensive use of newspapers, periodicals, are described in glowing terms and in considerable detail, and the appeal is almost universally directed to the ultimate consumer. Many of these manufactured articles are shipped out in sealed containers by the manufacturer, and the retailers who dispense them to the ultimate consumers are but conduits or outlets through which the manufacturer distributes his goods. The consuming public ordinarily relies exclusively on the representations of the manufacturer in his advertisements. What sensible or sound reason then exists as to why, when the goods purchased by the ultimate consumer on the strength of the advertisements aimed squarely at him do not possess their described qualities and goodness and cause him harm, he should not be permitted to move against the manufacturer to recoup his loss. In our minds no good or valid reason exists for denying him that right. Surely under modern merchandising practices the manufacturer owes a very real obligation toward those who consume or use his products. The warranties made by the manufacturer in his advertisements and by the labels on his products are inducements to the ultimate consumers, and the manufacturer ought to be held to strict accountability to any consumer who buys the product in reliance on such representations and later suffers injury because the product proves to be defective or deleterious. See Prosser on Torts (2 Ed.), 506, Section 84; 1 Williston on Sales (Rev. Ed.), 648 to 650, Section 244A.'

The liability of the manufacturer would be the same even though his goods were purchased from a price cutter to his claimed detriment. It would be unusual that modern trends in retail merchandising should thus create a direct liability against a manufacturer for breach of warranty in the representations inducing the sale of his goods made by the manufacturer, the sale being made by an independent retailer and then to refuse such manufacturer the right to protect his property right in his goodwill, the representations which created the inducing cause of the sale from damages to such property right by the acts of the retailer selling his goods at cut rate price in violation of the fair trade price set on the basis of a contract under the Fair Trade Act.

It is the claim of those supporting 'Fair Trade' legislation that the goodwill of the manufacturer created by his direct sales efforts, and in maintaining goodwill by the quality of his products, whereby the consuming public seeks out his goods without any sales effort on the part of the retailer whose only part in the transaction is to have the goods available for sale at the selection of the consumer purchaser, and, therefore, the goodwill of the manufacturer is damaged and his product depreciated by retail price cutting practices.

In an attempt to protect the value of a manufacturer's goodwill, established by his sales efforts (in support of the quality of his product) in relation to his trademarked goods from the claimed detriment of pricecutting retailers, both the legislatures of the several states and the Congress of the United States, beginning at about the turn of the century, have been attempting to provide regulations to protect the manufacturer's property right in his goodwill from detriment due to the uncontrolled action of price-cutting retailers. The basis of these efforts has been to provide by law the conduct between manufacturer and retailer acquiring the goods for resale that will create contractual relations between them by which a minimum retail sales price can be established.

The cases on contracts between manufacturer and retailers, whereby the retailer agrees to maintain a retail price set by the owner of trademarked or trade named goods by which the manufacturer's goods are identified and who, over the years, has, by expending time and capital, developed what is called 'goodwill' in relation to his product, these contracts being...