Mead Johnson & Co. v. G-E-X Inc. of Albany

• Decision Date: 02 January 1963
• Docket Number: G-E-X
• Citation: 37 Misc.2d 491,235 N.Y.S.2d 951
• Parties: MEAD JOHNSON & COMPANY, Plaintiff, v.INC. OF ALBANY, Defendant.
• Court: New York Supreme Court

Page 951

235 N.Y.S.2d 951

37 Misc.2d 491

MEAD JOHNSON & COMPANY, Plaintiff, v. G-E-X INC. OF ALBANY, Defendant.

Supreme Court, Trial Term, Albany County.

Jan. 2, 1963.

Whalen, McNamee, Creble & Nichols, Albany (David Sterling Williams, Albany, of counsel), for plaintiff.

George Myers, Albany (Benjamin, Galton, Robbins & Flato, by Louis Flato, New York City, and Jesse H. Brenner, New York City, of counsel), for defendant.

ISADORE BOOKSTEIN, Justice.

This is an action for a permanent injunction to restrain defendant from violating the Fair Trade Law of this state, to wit, General Business Law, Article XXIV-A, and is brought pursuant to Section 369-b thereof.

The following facts are not disputed:

Defendant is a non-contracting retailer. The licensee of its drug department has made sales of plaintiff's products at prices below the minimum retail prices set by plaintiff, after notice of the existence of fair trade contracts with other retailers. Defendant did not make such sales itself, but rather such sales were made by a separate corporate entity, which has a license for the drug department in defendant's establishment. Defendant, however, concedes that, if plaintiff's fair trade agreement is valid and enforceable, it is applicable to it, where its licensee or tenant of the drug department in its establishment, violates the same. Cf. Bulova Watch Co. v. Sattler's Inc., 208 Misc. 257, 143 N.Y.S.2d 742.

On this basis, plaintiff has established its prima facie cause of action.

Defendant has asserted certain affirmative defenses, which it claims defeats plaintiff's right to an injunction.

The first such defense is to the effect that the prices fixed by the contract have for a long period of time been generally disregarded and violated by a large number of persons and stores selling the products in defendant's competitive area and are still doing so, and that plaintiff has failed, refused and neglected to demand that such stores maintain the prices set forth or, that plaintiff, with the exercise of reasonable diligence, should have known that such persons were making such sales.

The record is barren of any proof by defendant of actual knowledge on the part of plaintiff of violations by retailers, which it did not seek to halt promptly. The only proof on that subject is the discovery by plaintiff of occasional violations, and in each instance it resorted to appropriate steps to obtain compliance, without resorting to legal action; and that, where such efforts were unsuccessful, it instituted legal action against the offenders and obtained injunctions either by consent or by default.

The next defense is that plaintiff has failed to enforce its fair trade contract uniformly and thus has discriminated against some and in favor of others.

The evidence fails to sustain that defense.

It is true that after this action was started, defendant had two shoppers make some purchases in some retail drug stores in the tri-city area, at prices below the minimums fixed. Such sales were made without plaintiff's knowledge. Promptly upon hearing thereof, plaintiff's representative called upon the retailers involved, all but one of whom, who was not available, testified upon the trial.

In each of these cases, the articles in question were on the shelves of the store with the retail price marked on the containers either in crayon or on pasters affixed thereto. The prices thus appearing were the minimum fair trade prices in existence at the time that the containers were marked and placed upon the shelves. Periodically, plaintiff issues supplemental price lists, showing changes in the minimum prices. In each of the instances referred to, there was a failure or omission to make a correction in the prices affixed to the containers of the product, in accordance with the supplemental price list.

Upon the error being called to the attention of the retailers, they acted promptly to correct the situation. It is clear that in not one of the instances referred to was there a wilful and intentional violation by the retailer. There was simply human error, easily understandable when one considers the vast number of small packages on the shelves of a retail drug store.

Interweaved with these defenses, is the defense of abandonment of plaintiff's rights by failure to have a proper enforcement program.

This defense, too, is without adequate proof to support it.

The evidence clearly shows frequent inspection by representatives of plaintiff of the stores of retailers to ascertain if its minimum prices are maintained; if a violation is found it is promptly reported to higher authority of plaintiff, which sends letters to the offenders, to cease and desist; if such letters do not produce compliance, the matter is referred to local counsel, who employ a private detective agency to shop the offending retailer's store, and if the violation is found to be continuing, actions for injunctions are promptly instituted.

The law is clear that,

'while the mere fact that there are other violators is not of itself a defense which will defeat an injunction against one violator, it is necessary that the producer make a sincere and diligent effort to prevent price-cutting, and where price-cutting is so general and long continued as to indicate that the producer has waived or abandoned his rights under the statute and the price fixing contracts, an injunction against one price cutter will be denied.' General Electric Co. v. S. Klein-on-the-Square, Inc., Sup., 121 N.Y.S.2d 37, at page 54.

The fact that others violate the fair trade contract, is not, ipso facto, a defense to this action.

Eastman Kodak Company v. Schwartz, Sup., 133 N.Y.S.2d 908(913); Calvert Distillers Corp. v. Nussbaum Liquor Store, Inc., 166 Misc. 342(346), 2 N.Y.S.2d 320, 325; Mead Johnson & Company v. R. H. Macy & Co. Inc., 28 Misc.2d 322, 208 N.Y.S.2d 574.

What is required of a manufacturer is that it make a sincere and diligent effort to prevent price-cutting.

The evidence in this case clearly shows such effort, constantly in vogue. Cf. Revere Copper & Brass, Inc. v. Economy Sales Company, D.C.Conn., 127 F.Supp. 739. Eastman Kodak Company v. Home Utilities Company, D.C.Md., 138 F.Supp. 670; Dart Drug Corporation v. Eli Lilly & Company, 216 Md. 20, 139 A.2d 272; General Electric Co. v. R. H. Macy & Co., 199 Misc. 87(95), 103 N.Y.S.2d 440, 448, 449.

Defendant argues that plaintiff has shown no actual damage, i. e., any loss of business, by reason of price-cutting. This may very well be due to the effectiveness of its enforcement policy. In any event, the statute, Section 369-b expressly declares that the underselling is unfair competition and is actionable at the suit of any person damaged thereby.

Defendant argues that since the suit must be by any person damaged thereby, actual damage is a prerequisite to plaintiff's cause of action.

The statute is not subject to such a narrow interpretation. Indeed, in Old Dearborn D. Co. v. Seagram-Distillers Corp., 299 U.S. 183, at page 195, 57 S.Ct. 139, at page 145, 81 L.Ed. 109, the United States Supreme Court said:

'It [the Fair Trade Act] proceeds upon the theory that the sale of identified goods at less than the price fixed by the owner of the mark or brand is an assault upon the good will, and constitutes what the statute denominates 'unfair competition". (Emphasis supplied)

The base of unfair competition is an assault upon good will. Such injury to good will, actual or threatened, may be enjoined, even though proof of specific money damage is not supplied. Bristol-Myers Co. v. Picker, 302 N.Y. 61(70), 96 N.E.2d 177, 181, 22 A.L.R.2d 1203.

As I view the statute, the reference to the person damaged is a reference to the person who is the manufacturer, who is the victim of what the statute expressly states is 'unfair competition' and for whose benefit such 'unfair competition' is made actionable, as the one damaged thereby.

There can be no doubt that the authorities in...