Miles Laboratories v. Seignious, No. 981.

CourtUnited States District Courts. 4th Circuit. United States District Court of South Carolina
Writing for the CourtStoney, Crosland & Pritchard, of Charleston, S. C., for defendant
Citation30 F. Supp. 549
PartiesMILES LABORATORIES, Inc., v. SEIGNIOUS.
Decision Date15 December 1939
Docket NumberNo. 981.

30 F. Supp. 549

MILES LABORATORIES, Inc.,
v.
SEIGNIOUS.

No. 981.

District Court, E. D. South Carolina.

December 15, 1939.


30 F. Supp. 550
COPYRIGHT MATERIAL OMITTED
30 F. Supp. 551
Buist & Buist, of Charleston, S. C., and Verne G. Cawley, of Elkhart, Ind., for plaintiff

Stoney, Crosland & Pritchard, of Charleston, S. C., for defendant.

MYERS, District Judge.

This suit for injunctive relief arises under a South Carolina statute,

30 F. Supp. 552
known as "The Fair Trade Act".1 The statute, in effect, provides as follows

That no contract relating to the re-sale of a trademarked commodity shall be deemed in violation of law because of either of the following provisions therein contained: (a) That the buyer will not re-sell at less than a fixed price; (b) that any purchaser from the original purchaser shall be required to maintain the price (with certain exceptions as to liquidation sales, damaged goods, and judicial sales); the statute further providing that the offering for sale, or selling, of any such commodity at less than the stipulated price by any person whomsoever, whether party to such a contract or not, is "unfair competition", and is actionable at the suit of any person damaged thereby.

This is an extension by state legislation of the protection given by Federal legislation to owners of patents and trademarks. With the wisdom of this policy, this court is not concerned; it is a legislative question. To the legality of the statute carrying this policy into effect, and the methods of enforcement thereof, this court now addresses itself.

Contracts made pursuant to such statutes seem to be known as "fair trade contracts"; the price established by such contracts apparently is referred to as the "fair trade price".

The plaintiff, the manufacturer of a trademarked product known as Alka-Seltzer, pleads diverse citizenship with the defendant and shows, in support of its claim of the existence of the jurisdictional amount, that, during a seven year period preceding the institution of this suit, it expended over thirteen million dollars in advertising its product, of which over eighty-eight thousand dollars was spent for, or is properly allocated to, advertising in South Carolina; that during the same seven year period it has sold the said product to an amount of over twenty-three million dollars, of which sales have been made in South Carolina of over sixty-five thousand dollars; that there are five hundred and eighty-eight retail drug stores in South Carolina, in a large number of which Alka-Seltzer is sold, and with one hundred and seventy-three of these the plaintiff has entered into "fair trade contracts". On the basis of these figures, the plaintiff asserts that its good will has a value in excess of five million dollars, and that its good will in South Carolina has a value in excess of five thousand dollars.

The plaintiff further shows that the contracts, into which it has entered as aforesaid, provide for a minimum resale price of the plaintiff's product; that the plaintiff has offered to enter into a similar contract with the defendant, who has refused to contract; that the defendant was duly notified of the existence of these so-called "fair trade contracts" and was duly notified of the minimum retail price of Alka-Seltzer under the terms thereof, but that thereafter the defendant sold Alka-Seltzer on several occasions at less than the said minimum re-sale price. Further allegations are made to the effect that the defendant's conduct will break down the plaintiff's price structure for its product, will induce breaches by other druggists of fair trade contracts, and will damage and reduce the value of the plaintiff's trademark and good will.

An answer was filed by the defendant, denying information as to the majority of the allegations of the complaint, but admitting that he had sold the product at less than the re-sale price fixed by contracts between the plaintiff and other druggists, and raising a number of constitutional questions that will be hereinafter discussed.

A pre-trial hearing was held, under the provisions of Rule 16, Rules of Civil Procedure for District Courts, 28 U.S.C.A. following section 723c, at which the defendant admitted that he had no testimony to offer in disproof of any of the factual allegations of the complaint, and that he did not desire to contest them, and upon such admission the court without objection from either party entered an order herein dated January 30, 1939, that disposed of the factual issues of the case in favor of the plaintiff, and left open for consideration only the questions of constitutionality raised by the answer. On the basis of the admissions made by the defendant at the pre-trial hearing, the court now finds the facts in the case to be as pleaded by the plaintiff, and as above set out.

The economic philosophy of statutes such as this is interesting. While at first it might seem that price cutting by a retailer would not be particularly harmful to a manufacturer, yet, after hearing argument and

30 F. Supp. 553
on more careful consideration it appears that there is respectable opinion to the contrary. The argument in support of this runs as follows: Protection against price cutting in drug products in necessary to enable the small volume druggist to secure a fair profit, and to maintain his competitive position with the drug store doing a large volume of business. Undoubtedly the corner drugstore is the economic unit most seriously affected by price cutting, yet it seems that the financial health and welfare of the innumerable small volume druggists dispensing a product to the public is a matter of serious interest to the manufacturer of such product. Moreover, the maintenance of a fair margin of profit encourages the retailer to offer a standard product of good quality to the public rather than to endeavor to substitute a sub-standard or inferior product in the effort to meet price cutting competition. This in turn affects the public weal. The Supreme Court of the United States has said in Old Dearborn Distributing Company v. Seagram-Distillers Corp., 299 U.S. 183, 57 S.Ct. 139, 145, 81 L.Ed. 109, 106 A.L.R. 1476, "There is a great body of fact and opinion tending to show that price cutting by retail dealers is not only injurious to the goodwill and business of the producer and distributor of identified goods, but injurious to the general public as well". The rationale of permitting this price control of the trademarked product into the hands of the consumer is explained in the same case: "The primary aim of the law is to protect the property — namely, the good will — of the producer, which he still owns. The price restriction is adopted as an appropriate means to that perfectly legitimate end, and not as an end in itself. * * * The ownership of the good will, we repeat, remains unchanged, notwithstanding the commodity has been parted with. Section 2 of the act Smith-Hurd Stats.Ill. c. 121½ § 189 does not prevent a purchaser of the commodity bearing the mark from selling the commodity alone at any price he pleases. It interferes only when he sells with the aid of the good will of the vendor; and it interferes then only to protect that good will against injury. It 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.'"

To the same effect see the recent decision of the North Carolina court in Ely Lilly & Co. v. Saunders, 216 N.C. 163, 4 S.E.2d 528.

The opposing argument is that it is to the advantage of the public to purchase as cheaply as possible; that, if a trademarked product is forced into a free and unhampered market, competitive conditions will adjust the price to a fair figure; and that there is no sound reason for giving a competitive advantage to trademarked products by allowing price control that is not permitted as to other goods.

A solution of these opposing economic views is not necessary to the decision and is not undertaken by the court.

Upon the final hearing three primary questions of law have been presented to the court. The first of these is whether, after a pre-trial hearing under Rule 16, and an admission made at the hearing by a party that he does not contest certain issues of fact made by the pleadings, it is nevertheless incumbent upon the opposing party to offer testimony in support of these facts. The second is the question whether there is a sufficient allegation of jurisdictional amount. The third is whether the statute in question is in conflict with the Constitution of the State of South Carolina.

The question under Rule 16 arises by reason of the point made by the defendant at the trial that the case should be dismissed because of failure of the plaintiff to offer proof of its allegations of jurisdictional facts, regardless of the order entered upon the pre-trial hearing. One of the primary purposes of the Rules of Civil Procedure, recently promulgated, is to simplify practice in the Federal courts, and to eliminate the doing of useless things. It would certainly be a futile waste of time of both the court and the litigants if admissions made by the parties at pre-trial hearings were so meaningless that thereafter the parties must go forward and submit ritualistic proofs of uncontested...

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18 practice notes
  • Shakespeare Co. v. Lippman's Tool Shop Sporting Goods Co., No. 81
    • United States
    • Supreme Court of Michigan
    • June 27, 1952
    ...Or. 34, 185 P.2d 581; Welch Grape Juice Co. v. Frankford Grocery Co., 36 Pa. Dist. & Co. 653; Miles Laboratories v. Seignious, D.C., 30 F.Supp. 549, applying South Carolina law; Miles Laboratories v. Owl Drug Co., 67 S.D. 523, 295 N.W. 292; Frankfort Distillers Corp. v. Liberto, 190 Ten......
  • State on Information of Dalton v. Miles Laboratories, No. 42152
    • United States
    • United States State Supreme Court of Missouri
    • October 10, 1955
    ...106 A.L.R. 1476; Hills Bros. v. Federal Trade Commission, 9 Cir., 9 F.2d 481, 485-486(11); Miles Laboratories v. Seignious, D.C.S.C., 30 F.Supp. 549, 14 Under the Sherman Anti-Trust Act [15 U.S.C.A. §§ 1-7], similar 'in substance' to our anti-trust statutes [State ex inf. Attorney General v......
  • Breswick & Co. v. United States
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • July 21, 1955
    ...11 A. 484, 487; Columbia College of Music, etc., v. Tunberg, 64 Wash. 19, 116 P. 280, 282; Miles Laboratories v. Seignious, D.C.E.D.S.C., 30 F.Supp. 549. 1 An intervenor has computed the plaintiffs' interest as comprising only .002% of the outstanding common 2 If plaintiffs' standing to sue......
  • Sears v. Western Thrift Stores of Olympia, Inc., 28330.
    • United States
    • United States State Supreme Court of Washington
    • September 12, 1941
    ...the supreme court of South Carolina has not yet passed upon the act, the Federal District Court in Miles Laboratories, Inc. v. Seignious, 30 F.Supp. 549, upheld it. The adjudicated decisions may be divided into two groups: (1) States possessing anti-monopoly statutes and (2) states possessi......
  • Request a trial to view additional results
18 cases
  • Shakespeare Co. v. Lippman's Tool Shop Sporting Goods Co., No. 81
    • United States
    • Supreme Court of Michigan
    • June 27, 1952
    ...Or. 34, 185 P.2d 581; Welch Grape Juice Co. v. Frankford Grocery Co., 36 Pa. Dist. & Co. 653; Miles Laboratories v. Seignious, D.C., 30 F.Supp. 549, applying South Carolina law; Miles Laboratories v. Owl Drug Co., 67 S.D. 523, 295 N.W. 292; Frankfort Distillers Corp. v. Liberto, 190 Ten......
  • State on Information of Dalton v. Miles Laboratories, No. 42152
    • United States
    • United States State Supreme Court of Missouri
    • October 10, 1955
    ...106 A.L.R. 1476; Hills Bros. v. Federal Trade Commission, 9 Cir., 9 F.2d 481, 485-486(11); Miles Laboratories v. Seignious, D.C.S.C., 30 F.Supp. 549, 14 Under the Sherman Anti-Trust Act [15 U.S.C.A. §§ 1-7], similar 'in substance' to our anti-trust statutes [State ex inf. Attorney General v......
  • Breswick & Co. v. United States
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • July 21, 1955
    ...11 A. 484, 487; Columbia College of Music, etc., v. Tunberg, 64 Wash. 19, 116 P. 280, 282; Miles Laboratories v. Seignious, D.C.E.D.S.C., 30 F.Supp. 549. 1 An intervenor has computed the plaintiffs' interest as comprising only .002% of the outstanding common 2 If plaintiffs' standing to sue......
  • Sears v. Western Thrift Stores of Olympia, Inc., 28330.
    • United States
    • United States State Supreme Court of Washington
    • September 12, 1941
    ...the supreme court of South Carolina has not yet passed upon the act, the Federal District Court in Miles Laboratories, Inc. v. Seignious, 30 F.Supp. 549, upheld it. The adjudicated decisions may be divided into two groups: (1) States possessing anti-monopoly statutes and (2) states possessi......
  • Request a trial to view additional results

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