Schwegmann Bros. Giant Super Mkts. v. Eli Lilly & Co.

Decision Date19 October 1953
Docket NumberNo. 14440.,14440.
Citation205 F.2d 788
CourtU.S. Court of Appeals — Fifth Circuit

John Minor Wisdom, Saul Stone, Paul O. H. Pigman, and Edward B. Benjamin, Jr., New Orleans, La., for appellants.

Harry McCall, Jr., New Orleans, La., Everett I. Willis and Ross Reid, New York City, Chaffe, McCall, Toler & Phillips, New Orleans, La., Root, Ballantine, Harlan, Bushby & Palmer, New York City, for Eli Lilly & Co., appellee.

Before HOLMES, STRUM and RIVES, Circuit Judges.

Writ of Certiorari Denied October 19, 1953. See 74 S.Ct. 71.

RIVES, Circuit Judge.

The District Court delivered an able opinion1 and enjoined the appellants from selling products of the appellee below the minimum retail sale price fixed pursuant to the Louisiana Fair Trade Law.2 The essential facts are not in dispute. The appellants concede that the appellee's fair trade prices had been established by contracts entered into in accordance with the Louisiana Fair Trade Law; that appellee's products were in fair and open competition with commodities of the same general class produced by others; and that the appellants, themselves not signers of such a contract, willfully and knowingly disregarded the minimum prices established under contracts between the appellee and other Louisiana retailers. It was established also that the appellants had a uniform mark-up, employed no loss leaders, and indulged in no otherwise predatory practices. The appellants planted their defense squarely upon a challenge to the constitutionality of the Louisiana Fair Trade Law and a further challenge to the constitutionality of the McGuire Act.3

The Louisiana Supreme Court has sustained the validity of the Louisiana Fair Trade Law, and its decision is conclusive, insofar as the State constitution is concerned. Pepsodent Co. v. Krauss Co., 200 La. 959, 9 So.2d 303. The appellants contend that the State or Federal act or both together amount to an unconstitutional delegation of a legislative function, violate the due process clause, offend the commerce clause, and stem from self-defeating statutory provisions.

As to the Louisiana Fair Trade Law, the appellants say that it violates the due process clause of the Fourteenth Amendment to the United States Constitution, because it bears no substantial relation to the public welfare, and because it delegates legislative power to private individuals. The same contentions with respect to the Fair Trade Act of Illinois, S.H.A. ch. 121½ § 188 et seq. were considered and rejected by the United States Supreme Court in Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 U.S. 183, 57 S.Ct. 139, 81 L.Ed. 109, (hereafter referred to as the Old Dearborn case); and the same result was reached in The Pep Boys, Manny, Moe & Jack of California, Inc., v. Pyroil Sales Co., Inc., 299 U.S. 198, 57 S.Ct. 147, 81 L.Ed. 122, as to the California Fair Trade Act St.1931, p. 583, § 1; St.1933, p. 793, § 1½. Appellants' grounds for questioning that the Old Dearborn case controls here seem to be an assertion supported by various economic texts that the years of experience in the fair trade acts since Old Dearborn have established that the real purpose of these Acts is not so much to protect the good will of the manufacturer or trade mark owner as it is to protect the retailer from competition with other retailers, and, further, that the opinion in the Schwegmann case (Footnote 3, supra) has rendered Old Dearborn obsolete.

The Schwegmann opinion involved no constitutional question and, hence, did not refer to Old Dearborn. The Schwegmann case related to the interpretation of the Sherman Anti-Trust Act as amended by the Miller-Tydings Act, Act of July 2, 1890, c. 647, Sec. 1, 26 Stat. 209, Act of Aug. 17, 1937, c. 690, Title VIII, 50 Stat. 693, 15 U.S.C.A. § 1, with respect to the enforcement of state fair trade laws in interstate commerce. The Court decided that the intention of Congress was to authorize interstate enforcement against the signers of an express contract or agreement but not against non-signers. To meet that decision, as has been said, Congress passed the McGuire Act.

The appellants rely strongly upon the claimed inconsistency in language between the Old Dearborn and Schwegmann opinions. The Schwegmann case referred to non-signers as being coerced, whereas Old Dearborn said that willful and knowing non-signers could fairly be treated as implied assenters. The Schwegmann opinion characterized the State Fair Trade Statute as involving price fixing, whereas Old Dearborn had said that the law was not primarily a price fixing statute. In comparing the two opinions, it must be borne in mind that Old Dearborn was dealing with questions of constitutionality, whereas the Schwegmann case was dealing only with statutory interpretation. There is no implication in Schwegmann that Congressional approval of enforcement against non-signers would be unconstitutional, the implications of the opinion are to the contrary.4

The trend of economic practices as tending to show that fair trade acts are concerned more with the protection of distributors than with the protection of the producer or owner of the trade mark are matters, it seems to us, for legislative, not for judicial, consideration. Indeed, the title of the Louisiana Fair Trade Law (Footnote 2, supra) expressly includes "distributors" among the classes intended to be protected. We cannot say that the legislature was not authorized to consider distributors as in a similar position to licensees of the trade mark or brand with a direct economic interest in it as regards the sales of the trade-marked or branded article. Whether the distributors were to be protected, as well as the manufacturers or trade mark owners, was a matter, it seems to us, addressed to legislative discretion and not subject to review by courts. We have no judicial concern with the economic and social wisdom of any feature of the law, but solely with its constitutionality.

Whatever weakening effect on Old Dearborn may have been caused by Schwegmann's frank characterization of State fair trade statutes as involving price fixing against non-signers is more than off-set, it seems to us, by the weakening also of the broad concept against the validity of legislative price fixing assumed in Old Dearborn. For "the well-settled general principle that the right of the owner of property to fix the price at which he will sell it is an inherent attribute of the property itself, and as such is within the protection of the Fifth and Fourteenth Amendments". 299 U.S. at page 192, 57 S.Ct. at page 143, Old Dearborn cited Tyson-Brother-United Theatre Ticket Offices v. Banton, 273 U.S. 418, 429, 47 S.Ct. 426, 71 L.Ed. 718; Chas. Wolff Packing Co. v. Court of Industrial Relations, 262 U.S. 522, 537, 43 S.Ct. 630, 67 L.Ed. 1103; Ribnik v. McBride, 277 U.S. 350, 48 S.Ct. 545, 72 L.Ed. 913; Williams v. Standard Oil Co., 278 U.S. 235, 49 S.Ct. 115, 73 L.Ed. 287; New State Ice Co. v. Liebmann, 285 U.S. 262, 52 S.Ct. 371, 76 L.Ed. 747. As pointed out in Olsen v. State of Nebraska ex rel. Western Reference & Bond Ass'n, 313 U.S. 236, 244-246, 61 S.Ct. 862, 85 L.Ed. 1305, the Tyson, Ribnik and Williams cases can no longer be deemed controlling authority. See also, Lincoln Federal Labor Union No. 19129 v. Northwestern Iron & Metal Co., 335 U.S. 525, 536, 537, 69 S.Ct. 251, 93 L. Ed. 212; Day-Brite Lighting, Inc., v. Missouri, 342 U.S. 421, 423, 72 S.Ct. 405, 96 L.Ed. 469. It is interesting to note that Mr. Justice Sutherland who delivered the opinion of the Court in Old Dearborn had been among the dissenting Justices in Nebbia v. New York, 291 U.S. 502, at page 539, 54 S.Ct. 505, at page 517, 78 L.Ed. 940, where the Court concluded:

"Price control, like any other form of regulation, is unconstitutional only if arbitrary, discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt, and hence an unnecessary and unwarranted interference with individual liberty."

Appellants argue that there is no provision in the Louisiana Fair Trade Law requiring that fair trade contracts be made by the trade mark or brand owner himself, and that fair trade laws could not constitutionally require non-signers to observe minimum prices stipulated without participation or authorization by the trade mark or brand owner. That argument is addressed to a hypothetical case and the decision of that question, we think, should await the clarification and construction of the Louisiana statute by the Louisiana courts. We are dealing in this case with fair trade prices established by contracts to which the trade mark owner, the appellee, is a party. See Alabama State Federation of Labor v. McAdory, 325 U.S. 450, 462, 65 S.Ct. 1384, 89 L.Ed. 1725; Rescue Army v. Municipal Court of City of Los Angeles, 331 U.S. 549, 568, et seq., 67 S.Ct. 1409, 91 L.Ed. 1666; Watson v. Buck, 313 U.S. 387, 401-402, 61 S.Ct. 962, 85 L.Ed. 1416.

The Louisiana legislature has defined with particularity the type of commodity with respect to which fair trade prices may be established and enforced; namely, "a commodity which bears, or the label or container of which bears, the trade mark, brand, or name of the producer of the commodity and which is in fair and open competition with commodities of the same general class produced by others". It was, we think, within the province of the legislature to assume that economic laws constitute a sufficient restraint against capricious or arbitrary price fixing by the producer. As pointed out long ago by Louis D. (later Mr. Justice) Brandeis, the producer "establishes his price at his peril — the peril that if he sets it too high, either the consumer will not buy or, if the article is, nevertheless, popular, the high profits will invite even more competition".5 We agree with the learned District Judge that Old...

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