Shakespeare Co. v. Lippman's Tool Shop Sporting Goods Co.

Decision Date27 June 1952
Docket NumberNo. 81,81
Citation334 Mich. 109,54 N.W.2d 268
CourtMichigan Supreme Court

Watson, Lott & Wunsch, Detroit, for plaintiff-appellant.

Schmier & Schmier, Detroit, John Sklar, Detroit, of counsel, for defendant-appellant.

Before the Entire Bench.

DETHMERS, Justice.

Plaintiff is a Michigan corporation, manufacturing in Michigan a line of fishing tackle and related equipment. Its products bear its trademark, brand or name. It advertises and sells its products, both in Michigan and nationally, through ordinary distributor, dealer and retail channels in fair and open competition with commodities of the same general class produced by others. Its products are sold and distributed in Michigan by about 500 dealers of whom over 400 have entered into written, so-called fair trade agreements with plaintiff, pursuant to P.A.1937, No. 50, C.L. 1948, § 445.151 et seq., Stat.Ann. § 19.321 et seq., under and in accord with which it has established minimum prices on its products. Plaintiff has such contracts with dealers and has similarly fixed minimum prices in other states under comparable fair trade laws there in effect.

Defendant is a sporting goods retailer in Detroit. It has not entered into a fair trade agreement with plaintiff. It willfully and knowingly advertises, offers for sale and sells plaintiff's branded and trademarked articles at prices below the minimum fair trade prices known by it to have been fixed thereon by plaintiff. This course of conduct plaintiff seeks to enjoin.

While admitting that it has made such sales, defendant claims that, because it is a nonsigner of a fair trade agreement, as applied to the facts of this case, enforcement of the act against it would be violative of its rights under the equal protection and due process clauses of the federal and the due process clause of the state constitutions and, further, that the transactions in question were in or affected interstate commerce and, for that reason, subject only to federal and not to state regulation, so that the attempted price fixing by plaintiff violated the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1-7, 15 note. Plaintiff appeals from an order dismissing its bill of complaint.

The trial court, desiring, as it stated, to dispose of the case solely on what it terms 'the broader grounds' of constitutionality under the provisions of the State Constitution, treated the transactions involved, for the purpose of the motion before it, as being exclusively in intrastate as distinguished from interstate commerce. Recognizing that the constitutionality of similar legislation, as applied to signers and nonsigners of fair trade agreements alike, had been upheld in most of the states considering the question, e. g., Bourjois Sales Corp. v. Dorfman, 273 N.Y. 167, 7 N.E.2d 30, 110 A.L.R. 1411; Max Factor & Co. v. Kunsman, 5 Cal.2d 446, 55 P.2d 177; Joseph Triner Corp. v. McNeil, 363 Ill. 559, 2 N.E.2d 929, 104 A.L.R. 1435; Ely Lilly & Co. v. Saunders, 216 N.C. 163, 4 S.E.2d 528, 125 A.L.R. 1308; Weco Products Co. v. Reed Drug Co., 225 Wis. 474, 274 N.W. 426; Goldsmith v. Mead Johnson & Co., 176 Md. 682, 7 A.2d 176, 125 A.L.R. 1339; Johnson & Johnson v. Weissbard, 121 N.J.Eq. 585, 191 A. 873; and 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, the trial court, nevertheless, considered, as do we, that the better reasoned view is that of the Florida Supreme Court in Liquor Store, Inc., v. Continental Distilling Corp., 40 So.2d 371, holding an act of that character unconstitutional. As applied to nonsigners of fair trade agreements that is the only view consistent with our reasoning in People v. Victor, 287 Mich. 506, 283 N.W. 666, 124 A.L.R. 316. We there held a statute forbidding the giving of a premium with the retail sale of gasoline unconstitutional under Const. 1908, art. 2, § 16, as constituting a deprivation of property without due process of law for the reason that the legislation was outside the scope of the police power of the state inasmuch as it bore no reasonable relation to public morals, health, safety or the general welfare. Whether the statute prohibits, despite the absence of any contractual inhibition, the giving of such premium with a retail sale or prohibits the sale, by a nonsigner, of an article below the price fixed by the manufacturer is of small moment. The principle involved and the effect are the same. It is urged, however, that the instant case is distinguishable from the Victor case in that it involves not alone the sale by defendant of an article owned by it, but as well 'the wrongful appropriation of a person's property, to wit, his good will and the recognized value of his trademarks and established brand names'. This is followed by the suggestion that laws prohibiting theft, larceny or conversion do bear a relation to public morals and welfare and that, by the same token, so does the act in question. But is plaintiff's good will, trade-mark or brand name wrongfully appropriated or stolen by defendant by means of its cut-rate retail sales? It may be that they are adversely affected thereby as, indeed, they would by a competitor's placing a better product on the market for less money. Does such adverse effect in and of itself constitute a violation of plaintiff's rights or a wrongful appropriation of its good will? We think not. Trademarks and brand names, together with the good will attendant thereon, are protected in certain respects by act of congress. 15 U.S.C.A. § 1051, et seq. The function of a trademark is simply to designate the goods as the product of a particular manufacturer or trader and to protect his good will against the sale of another's product as his; to prevent confusion of the public regarding the origin of goods of competing vendors. It was for that purpose that the law created a protective shield around trademarks, brand names and the good will connected therewith. See Kroll Bros. Co. v. Rolls-Royce, 126 F.2d 495, 29 C.C.P.A., Patents, 897; Smith v. Dental Products Co., 7 Cir., 140 F.2d 140, certiorari denied 322 U.S. 743, 64 S.Ct. 1146, 88 L.Ed. 1576; Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 36 S.Ct. 357, 60 L.Ed. 713; United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 39 S.Ct. 48, 63 L.Ed. 141. Defendant's cut-rate sales have breached no such trade-mark rights of plaintiff. Plaintiff's trade-mark rights do not go as far as urged by it. Sunbeam Corp. v. Wentling, 3 Cir., 192 F.2d 7. They do not enable it to sell its cake and have it, too.

In seeking to distinguish this from the Victor case Mr. Justice BUTZEL emphasizes that the latter involved horizontal price fixing while here it is vertical. In the cases he cites and the many others on the subject the distinction between vertical and horizontal price fixing arrangements is made as bearing on the question of whether a monopoly, trust or restraint of trade results and is pertinent to that question alone. The consideration of whether the price fixing be vertical, horizontal, or even diagonal, or whether the regulation relates to all of a certain type of commodity as in Victor, or only to a certain brand thereof as here, although relevant when the question of monopoly needs to be determined, is of no consequence in determining the point of difference between us, namely, whether the statute in question, as applied to nonsigners, bears any reasonable relation to public health, safety, morals or the general welfare. Neither is any relevancy to the latter question to be found in the interesting contemplation of whether the competition which most benefits the public is that between rival products or between retailers of the same product. If the act does not bear the mentioned relationship, then, as we held in Victor, it cannot be sustained as a lawful exercise of the state's police power, impairment of defendant's rights under the due process clause results from its enforcement, and it is our duty to deny such enforcement and brand the act for what it is, unconstitutional.

Mr. Justice BUTZEL likewise distinguishes the Victor case in that there the restriction was 'automatic by legislative decree', while here, he states, it results from 'voluntary agreement between the manufacturer and dealer.' But defendant never entered into the agreement. As to it, the restriction is as 'automatic by legislative decree' as in the Victor case. The statement that the fair trade act merely affords legislative protection to private contractual relations, true enough as relates to signers, overlooks the fact that the act ventures further, upon an uncharted sea of enforcement of contracts against those not party thereto. My brother suggests that defendant's constitutional rights are not impaired by the statute because defendant is not obligated to buy or sell plaintiff's products if it does not desire to adhere to the minimum price fixed by plaintiff and enforced by statute. As much might have been said in the Victor case in which the defendant was not obligated to engage in the business of buying and selling gasoline if he did not desire to comply with the restrictions of the statute.

Mr. Justice BUTZEL views the act as a valid exercise of the state's police power because, as he says, it is aimed at 'destructive price cutting' and 'the evils of a * * * price war'. Can it be said that by the process of reducing prices either war, destruction or evil are visited upon the public health, safety, morals or the general welfare? (That is the controlling question.) Such is not the concept upon which America's competitive economy was developed. It is further suggested by my brother that the act serves, by placing an artificial weight on the one, to equalize the uneven race between the small retailer and the large. While the relationship between that objective and the public health, safety,...

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