Menley and James Laboratories, Limited v. Vornado, Inc.

• Decision Date: 02 March 1966
• Docket Number: Nos. C--1096,C--1326,s. C--1096
• Citation: 90 N.J.Super. 404,217 A.2d 889
• Parties: MENLEY & JAMES LABORATORIES, LTD., a corporation, Plaintiff, v. VORNADO, INC., d/b/a 'Two Guys from Harrison' and Janice Products, Inc., Defendants. MENLEY & JAMES LABORATORIES, LTD., a corporation, Plaintiff, v. MAYFAIR SUPER MARKETS, INC., a corporation, d/b/a 'Big W' Discount Super Markets, Defendant.
• Court: New Jersey Superior Court

Page 404

90 N.J.Super. 404

217 A.2d 889

MENLEY & JAMES LABORATORIES, LTD., a corporation, Plaintiff, v. VORNADO, INC., d/b/a 'Two Guys from Harrison' and Janice

Products, Inc., Defendants.

MENLEY & JAMES LABORATORIES, LTD., a corporation, Plaintiff, v. MAYFAIR SUPER MARKETS, INC., a corporation, d/b/a 'Big W'

Discount Super Markets, Defendant.

Nos. C--1096, C--1326.

Superior Court of New Jersey Chancery Division.

March 2, 1966.

John P. Hauch, Jr., Camden, for plaintiff (Archer, Greiner, Hunter & Read, Camden, attorneys).

Dean Sandford, Perth Amboy, for defendants (Wilentz, Goldman & Spitzer, Perth Amboy, attorneys).

WICK, J.S.C.

Plaintiff instituted these actions seeking to permanently enjoin defendants, their servants, agents and employees and all persons acting in concert with them or under their authority or control from advertising, offering for sale or selling at retail plaintiff's commodities 'Contac' and 'Contac Nasal Mist' at prices less than the stipulated minimum retail resale price established by plaintiff's fair trade contract entered into in New Jersey. Plaintiff is a wholly-owned subsidiary of Smith, Kline and French Laboratories. In 1961 plaintiff developed at great expense a new product for the relief of nasal congestion due to the common cold and hay fever. This product is marketed under the trademark 'Contac,' which is registered to plaintiff, and also under plaintiff's trademark 'Menj,' a mark in the form of a monograph used to identify any product made by plaintiff. Plaintiff's capsules bear its trademark 'Menj,' and the cardboard packets in which they are packaged and sold to the customer bear its trademark 'Menj' and its name 'Menley & James Laboratories.' 'Contac' is sold by retail establishments over the counter to the consuming public in free, fair and open competition with many commodities of the same general class produced by others.

'Contac' is produced and warehoused by employees of Smith, Kline and French Laboratories. Plaintiff, however, pays for these services. Plaintiff also has spent in excess of $6,000,000 continuously and extensively advertising its product, trademarks and name to the consuming public.

Pursuant to the New Jersey Fair Trade Act, N.J.S.A. 56:4--3 et seq., plaintiff has entered into a fair trade contract with a retailer, 'Napoleon's Pharmacy,' the terms of which stipulate minimum retail prices of $1.49 for plaintiff's product 'Contac' in its standard size package of 10 capsules, $2.75 for plaintiff's product 'Contac' in its 20-capsule package, and $1.29 for 'Contac Nasal Mist.'

By letter dated November 19, 1964 plaintiff informed defendants of plaintiff's fair trade contract in New Jersey and the minimum retail prices established thereunder. Defendants were also informed of plaintiff's intention to enforce the minimum retail prices. The letter was signed by plaintiff's attorney and was personally delivered to the person in charge of defendant Vornado's store in Cherry Hill Township on November 20, 1964. Despite this notice defendants admit having sold 'Contac' at less than the stipulated minimum retail prices.

Defendants contend that plaintiff has no standing to sue under the New Jersey Fair Trade Statute, N.J.S.A 56:4--3 et seq. N.J.S.A. 56:4--6 makes the willful and knowing advertising, offering for sale or selling of any commodity at less than the price stipulated in the fair trade contract actionable 'at the suit of the producer or distributor of such commodity.' The evidence in this case has established that the trademarks 'Contac' and 'Menj' are registered to plaintiff and that the trademark 'Menj' appears on the capsule, and both trademarks, as well as plaintiff's corporate name appear on the cardboard packet in which the capsules are packaged. The product is manufactured by Smith, Kline and French employees and warehoused in the parent's warehouse, but it has been shown that plaintiff pays for these services. Moreover, the advertising expenses which exceed $6.000,000 per year, are borne by plaintiff. Under these circumstances it must be held that plaintiff is the 'producer' of 'Contac' and 'Contac Nasal Mist' and does have standing to sue under N.J.S.A. 56:4--6.

Defendants also contend that since plaintiff sells its product directly to drug wholesalers or to retail chain stores which have at least ten outlets and its own warehouse facility, and a registered pharmacist employed in each outlet, while maintaining fair trade agreements with retailers only, plaintiff has no standing to bring this action since it has not sold the product to the retailer. The pertinent statute is N.J.S.A. 56:4--5 which, after a general descriptive paragraph as to who and what are covered, set off as section (1), enumerates specifically the agreements which are not to be deemed illegal. These are:

'(a) That the buyer will not resell such commodity except at the price stipulated by the vendor;

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

It is readily apparent that the material portion of the statute is subsection (a). Defendants urge that that subsection be interpreted to be limited to agreements by a vendor and his immediate vendee, and not be extended to agreements between producers and remote vendees who intend to offer the product for resale. This issue has never been determined in a New Jersey case. However, in a Massachusetts case in which the court was faced with a statute whose language was identical to that of N.J.S.A. 56:4--5(1)(a) and (b), it was held that 'a fair trade contract may be made between a producer and retailer who do not trade directly with each other. The statute applies not only to contracts between the parties, but to any contract 'relating to the sale or resale of a commodity', whether the sale is between the parties or not because the object is to protect the trade mark, brand or name of the producer or owner, whoever makes the sale'. General Electric Company v. Kimball Jewelers, 333 Mass. 665, 132 N.E.2d 652, 656 (Sup.Jud.Ct.1956). It is the producer or manufacturer who is primarily interested in protecting his trademark, and it is common knowledge that many of these do not sell directly to retailers but through middlemen. Corning Glass Works v. Max Dichter Co., 102 N.H. 505, 161 A.2d 569, 574 (Sup.Ct.1960). In General Electric Company v. Home Utilities Company, 131 F.Supp. 838 (D.Md.1955) affirmed 227 F.2d 384 (4 Cir. 1955), a fair trade agreement between a producer and retailer was upheld despite the fact that the producer distributed through middlemen but had never fair-traded at the wholesale level because it was found that it would be administratively too difficult and not as effective against price cutting as fair-trading at the retail level. This court feels that these cases are sound and chooses to follow them because it is the opinion of this court that the integrity of the product is best preserved in the eyes of the public by regulating the price at which the public can buy the product. These cases are certainly in line with the policy of the Fair Trade Act, as announced by the New Jersey courts, which is to prevent a destruction of the producer's good will, which is often established at great cost. Johnson and Johnson v. Weissbard, 121 N.J.Eq. 585, 191 A. 873 (E. & A.1937) and United States Time Corp. v. Grand Union Co., 64 N.J.Super. 39, 165 A.2d 310 (Ch.Div.1960).

Defendants contend that the instant fair trade contract which provides that the 'retailer will not * * * sell any of said commodities at less than the minimum retail prices stipulated' does not comply with the precise language of N.J.S.A. 56:4--5(1)(a), which provides 'That the buyer will not resell such commodity except at the price stipulated by the vendor * * *.' Defendants contend that 'stipulated price' is inherently irreconcilable with 'stipulated Minimum retail price.' (Emphasis added) It is the settled law of New Jersey that fair trade contracts are not to be deemed invalid because they contain minimum rather than absolute or stipulated prices. Lionel Corp. v. Grayson-Robinson Stores, 15 N.J. 191, 104 A.2d 304 (1954), appeal dismissed 348 U.S. 859, 75 S.Ct. 87, 99 L.Ed. 677 (1954). In line with the Lionel case it must be held that the instant fair trade contract does comply with the New Jersey Fair Trade Act, even though it sets a minimum retail price rather than a single stipulated price.

Plaintiff admits that it will sell to only two classes--'wholesalers' and 'chain stores with over 10 outlets, a central warehouse and a registered pharmacist at each outlet.' The wholesalers are given a 15% Trade discount, a 3% Promotional discount, plus an additional 2% Discount if a cash payment is made within 30 days. The chain stores are given a 10% Trade discount, a 3% Promotional discount and a 2% Cash discount. The 5% Differential is awarded to the wholesalers because of additional service they perform on behalf of plaintiffs. The chain stores are obviously retailers and are given discounts. Defendants do not fall within this class and must, therefore, purchase 'Contac' from the wholesalers without the benefit of the discount from plaintiff. Defendants claim that this practice favors certain members of their class, retailers, over defendants, and is, therefore, an equitable bar to recovery under the fair trade contracts. Defendants contend that this is a discriminatory practice which bars plaintiff from enforcing its fair trade program.

The cases defendants cite for this proposition are clearly distinguishable from the case at bar. Texas Co. v. Di Gaetano, 39 N.J. 120, 187 A.2d 721 (1963), was a case in which the manufacturer sought to exclude from its fair trade price, sales at retail to certain commercial consumers. This is entirely different from a trade discount to...