Norman M. Morris Corporation v. Hess Brothers, Inc.

• Decision Date: 26 March 1957
• Docket Number: No. 11966.,11966.
• Citation: 243 F.2d 274
• Parties: NORMAN M. MORRIS CORPORATION. v. HESS BROTHERS, Inc., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

243 F.2d 274 (1957)

NORMAN M. MORRIS CORPORATION. v. HESS BROTHERS, Inc., Appellant.

No. 11966.

United States Court of Appeals Third Circuit.

Argued November 15, 1956.

Decided March 26, 1957.

Irving W. Coleman, Northampton, Pa., (Coleman & Kutler, Northampton, Pa., on the brief), for appellant.

Thomas A. Rothwell, New York City, (Hirsh W. Stalberg, Shapiro, Rosenfeld, Stalberg & Cook, Philadelphia, Pa., Lewis G. Bernstein, New York City, on the brief), for appellee.

Before BIGGS, Chief Judge, and McLAUGHLIN and STALEY, Circuit Judges.

STALEY, Circuit Judge.

Defendant has appealed from the issuance of a preliminary injunction restraining it from selling trade-marked "Omega" watch products at prices below those stipulated by plaintiff, such course of conduct being made actionable by the Pennsylvania Fair Trade Act, 73 P.S. § 7 et seq.

The facts are virtually without dispute. Plaintiff, a New York corporation, is the exclusive distributor in the United States of "Omega" watches. It neither produces the watches nor owns the trademark. Defendant, a Pennsylvania corporation, is the owner of a department store in Allentown, Pennsylvania. Plaintiff entered into a number of resale price contracts with various retail dealers in which it stipulated the minimum prices at which "Omega" watches might be sold. It appears that the price stipulation was initiated by the plaintiff alone, and not by the producer or owner of the mark. Defendant did not sign any contract with plaintiff but was fully aware of the minimum prices. Defendant also knowingly advertised for sale and sold "Omega" watches at prices lower than the resale prices stipulated by plaintiff.

Appellant makes three salient contentions. First, it argues that the Pennsylvania Fair Trade Act authorizes only the producer or owner of the trade-mark to stipulate fair trade prices, and not an exclusive distributor. Next, it argues that if a distributor is authorized to stipulate the resale price, then the Act contravenes both the Constitution of the Commonwealth of Pennsylvania and that of the United States. Third, it contends that the McGuire Act, 15 U.S.C.A. § 45 (a), which exempts nonsigner provisions from the effect of the Sherman AntiTrust Act, is unconstitutional.

Brief allusion to the historical development of Fair Trade Acts is expedient at the threshhold of this discussion. In 1911, the United States Supreme Court in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 407-408, 31 S.Ct. 376, 55 L.Ed. 502, struck down an agreement to maintain resale prices as an unlawful restraint of trade violative of the Sherman Anti-Trust Act, 15 U.S.C.A. § 1 et seq. It was decided that vertical price fixing between manufacturer and retailer is equivalent in effect to horizontal price fixing among the retailers themselves, and therefore against public policy. It was intimated in the opinion that vertical price fixing might be valid if authorized by statute.¹

The economic depression of the thirties, with its attendant price cutting and "loss-leader" practices at the retail level, prompted state legislatures to enact Fair Trade statutes for the avowed purpose of maintaining resale prices and rescuing small business from failure which it was thought would otherwise inevitably follow. The early statutes purported to bind only signers of resale price maintenance contracts. Underselling by those who did not sign such contracts threatened to frustrate the purpose of the Fair Trade Acts, so that today every operative state statute contains a nonsigner clause. This clause binds every vendee to sell at the minimum price or more whether or not he has signed a contract with the supplier, provided only that he have knowledge that the supplier has entered into a price stipulation contract with any vendee. This concept, alien to the law, whereby a person may be bound by a contract to which he did not give assent, indicates the desperation which impelled state legislatures in their struggle to combat a disastrous depression.

In Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 1936, 299 U.S. 183, 198, 57 S.Ct. 139, 146, 81 L.Ed. 109, the Supreme Court upheld the Illinois Fair Trade Act,² including its nonsigner provision, as affording "a legitimate remedy for an injury to the good will which results from the use of trade-marks, brands or names * * *." As an appropriate exercise of state police power in protecting the supplier's continuing property interest from price-cutting and "loss-leader" practices, the Court held that the act violated neither the due process nor the equal protection clauses of the Fourteenth Amendment.

The Sherman Act was changed by the Miller-Tydings Amendment, 15 U.S.C.A. § 1, which validated resale price maintenance contracts in interstate commerce, thus placing them beyond the sanctions of the Sherman Anti-Trust Act. It was thought that the amendment affected nonsigners as well as signers; however, the Supreme Court in Schwegmann Bros. v. Calvert Distillers Corp., 1951, 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035, decided that the Miller-Tydings Amendment applied only to consensual contracts and not to nonsigner provisions. In 1952, the McGuire Act, 15 U.S.C.A. § 45(a) (3), specifically exempted nonsigner provisions from the Sherman Act.

We proceed now to discuss the question of whether an exclusive distributor for the entire United States may stipulate fair-trade prices in Pennsylvania, or whether the pricing program may be initiated only by a producer or owner of the identifying mark or brand. The Pennsylvania Fair Trade Act has been characterized as an "old-type" statute in that it does not specify who may stipulate the resale price beyond the word "vendor." The pertinent provisions of the Pennsylvania Act follow:

"§ 1. Sale of goods bearing, or vending equipment of which bears trade-mark, etc., permissible provisions

"No contract relating to the sale or resale of a commodity which bears, or the label or content of which bears, or the vending equipment from which said commodity is sold to the consumer bears the trademark, brand or the name of the producer or owner of such commodity, and which is in fair and open competition with commodities of the same general class produced by others, shall be deemed in violation of any law of the State of Pennsylvania by reason of any of the following provisions which may be contained in such contract:

"(a) That the buyer will not resell such commodity, except at the price stipulated by the vendor.

* * * * *

"§ 2. Unfair competition, defined

"Wilfully and knowingly advertising, offering for sale, or selling any commodity at less than the price stipulated in any contract entered into pursuant to the provisions of section one of this act, whether the person so advertising, offering for sale, or selling is, or is not, a party to such contract, is unfair competition and is actionable at the suit of such vendor, buyer or purchaser of such commodity." Act of June 5, 1935, P.L. 266, §§ 1 & 2, as amended June 12, 1941, P.L. 128, No. 66, § 1, 73 Purdon\'s Pa.Stat.Ann. §§ 7 & 8.

The Pennsylvania Act, in providing that the "Vendor" may initiate the pricing program, is similar to the statutes of twenty-four other states. See 1 CCH Trade Reg.Rep. ¶ 3003. The "new-type" statutes provide, typically, that the resale price may be stipulated only by the owner of the trade-mark or by a distributor specifically authorized to establish said price by the owner of such trademark. Twenty-two states have adopted the "new-type" statute. Our research discloses no Pennsylvania case deciding whether the word "vendor" includes an exclusive distributor. Several other jurisdictions with statutes similar to Pennsylvania have discussed the problem. Appellant urges for our consideration a lower court opinion from New York, Automotive Electric Service Corp. v. Times Square Stores Corp., 1940, 175 Misc. 865, 24 N.Y.S.2d 733, in which it was held that a distributor of spark plugs may not stipulate fair-trade prices. The holding of that case must be confined to its factual situation; it appeared that plaintiff was only one of more than a dozen distributors for the State of New York alone. It was the fear that each might stipulate a different price which prompted this decision.³ There are indications that the court would have reached a different result if the plaintiff were an exclusive distributor over a large area.⁴ In Bourjois Sales Corp. v. Dorfman, 1937, 273 N.Y. 167, 7 N.E.2d 30, 110 A.L.R. 1411, plaintiff was exclusive distributor for the State of New York and defendant was a nonsigner who sold below prices stipulated by plaintiff. The lower court had dismissed the complaint, although the Supreme Court of the United States at its October Term had decided Old Dearborn which, as we have said, held that a distributor may stipulate resale prices binding upon nonsigners with knowledge without constitutional violation. The New York Court of Appeals, feeling bound by Old Dearborn, reversed the lower court judgment. It would seem that in New York an exclusive distributor may stipulate resale prices, at least where he was authorized to do so by the owner of the trade-mark.⁵ Continental Distilling Sales Co. v. Famous Wines & Liquors, Inc., 1948, 273 App.Div. 713, 80 N.Y.S.2d 62.

The position of New Jersey, which also has a similar statute, is made clear by the court syllabus in Frank Fischer Merchandising Corp. v. Ritz Drug Co., Ch.1941, 129 N.J.Eq. 105, 19 A.2d 454, 455:

"1. Price maintenance contracts made under the Fair Trade Act * * by a distributor of products sold under the trade-mark of a manufacturer or producer are valid although the distributor acts without the authority or consent of the owner of the trade-mark. Schenley Products Co. v. Franklin Stores Co., 124 N.J. Eq. 100, 199 A. 402, followed."

In New Jersey, then, any distributor may stipulate resale price regardless of whether he was authorized to do so by the...