Skaggs Drug Center v. General Elec. Co.

• Court: New Mexico Supreme Court
• Writing for the Court: CARMODY; LUJAN; KIKER
• Citation: Skaggs Drug Center v. General Elec. Co., 315 P.2d 967, 63 N.M. 215, 1957 NMSC 83 (N.M. 1957)
• Decision Date: 27 September 1957
• Docket Number: No. 6204,6204
• Parties: SKAGGS DRUG CENTER, a Corporation, Plaintiff-Appellant, v. GENERAL ELECTRIC COMPANY, a Corporation, Defendant-Appellee. MILES LABORATORIES, Inc., Plaintiff-Appellee, v. SKAGGS DRUG CENTER, a Corporation, Defendant-Appellant.

Page 967

315 P.2d 967

63 N.M. 215

SKAGGS DRUG CENTER, a Corporation, Plaintiff-Appellant, v. GENERAL ELECTRIC COMPANY, a Corporation,

Defendant-Appellee.

MILES LABORATORIES, Inc., Plaintiff-Appellee, v. SKAGGS DRUG CENTER, a Corporation, Defendant-Appellant.

No. 6204.

Supreme Court of New Mexico.

Sept. 27, 1957.

W. A. Keleher, John B. Tittmann, and T. B. Keleher, Albuquerque, for appellant.

Simms, Modrall, Seymour, Sperling & Roehl, and George T. Harris, Jr., Albuquerque, for General Elect. Co.

Rodey, Dickason, Sloan, Mims & Akin, Albuquerque, Cawley & Byron, Elkhart, Ind., for Miles Laboratories, Inc.

CARMODY, District Judge.

This case involves the questioned constitutionality of the New Mexico Fair Trade Act, being Chapter 44 of the Session Laws of 1937, which now appears as section 49-2-1 et seq., N.M.S.A., 1953. Actually, there are two consolidated cases which were consolidated by the court below and heard as one appeal in this court.

Originally the Skaggs Drug Center as plaintiff brought suit in Bernalillo County against the General Electric Company, seeking a declaratory judgment with respect to the Fair Trade Act. The General Electric Company answered and by way of counterclaim sought an injunction against Skaggs Drug Center to prevent it from further sales of General Electric fair traded products at a price below that fixed by the General Electric Company. At about the same time Miles Laboratories, Inc., brought suit against Skaggs Drug Center, seeking an injunction to prevent Skaggs from selling Alka Seltzer and One-A-Day vitamin tablets at a price less than those established by Miles Laboratories. The two cases were consolidated for the purpose of argument, the facts having been stipulated to, and the lower court found the Fair Trade Act to be constitutional and entered injunctions on behalf of both General Electric and Miles Laboratories as against Skaggs Drug Center. It was stipulated below that both General Electric and Miles Laboratories had engaged in extensive national and local advertising and had built up and established a valuable goodwill in their respective trade-marked products, that the products are in fair and open competition in the state of New Mexico with commodities of the same general class manufactured and sold by others, that Skaggs had sold products of both of the corporations at less than the retail prices fixed by them with knowledge of the existing so-called fair trade agreement and the prices fixed thereby, and that Skaggs had advertised in the local newspapers in Albuquerque extensively, calling to the public's attention the fact that the products are available at certain prices which are less than established minimum retail prices.

For the purpose of this opinion, Skaggs Drug Center will be referred to as appellant and both General Electric Company and Miles Laboratories, Inc., will be referred to jointly as appellee.

A brief background of the fair trade acts is necessary in order to give a clear understanding of the situation which now faces the court. In the early days of the 1930 depression the state of California passed the first fair trade act. The purpose of the California act, and the others passed subsequently, was to 'protect trade-mark owners, distributors and the public against injurious and uneconomic practices in the distribution of articles of standard quality under a distinguished trade-mark, brand or name', Cal.Stat.1931, c. 278, p. 583. ¹ The basic theory of this legislation was that there would be injury to the producer in cut-rate sales of his trade-marked goods where the consumer would associate a reduced price with a cheapping of brand quality, or where a distributor, in an effort to attract customers into his store at little or no profit, forces other distributors to match the price reduction and thereby makes it unprofitable for other distributors to carry the other trade-marked brand. The California act as finally amended was sustained by the Supreme Court of California in the frequently cited case of Max Factor and Company v. Kunsman, 5 Cal.2d 446, 466, 55 P.2d 177, affirmed 299 U.S. 198, 57 S.Ct. 147, 81 L.Ed. 122, and it should be noted that a great many of the subsequent cases from other jurisdictions which sustain the fair trade laws adopt the language of the above case to a very large extent.

Subsequent to the original California enactment and principally during the depression years, most of the other states in the Union adopted a similar or identical law, until at the present time 45 states have enacted this type of legislation, only Texas, Missouri, and Vermont having resisted such an enactment, by reason of constitutional provision or otherwise. It is of interest to note that the so-called fair trade acts have been before the highest appellate courts of 27 states, and in 16 of the states the legislation has been sustained as constitutional, and in 11 as unconstitutional; however, these figures by themselves are almost meaningless because of the varying constitutional provisions in the different states and also by reason of the fact that the various courts have ruled either favorably or unfavorably, as the case may be on widely differing theories. In addition to state decisions, the Supreme Court of the United States has been called upon on several occasions to rule upon these laws and the principal case relied upon by the proponents of the laws is the Old Dearborn Distributing Company vs. Seagram-Distillers Corporation, 299 U.S. 183, 57 S.Ct. 139, 81 L.Ed. 109. This was an opinion by Mr. Justice Sutherland, which was the unanimous opinion of the court. Basically, the court's decision in this case is that the ownership of a trade-mark and goodwill constitutes property in a real sense, and injury to which, as with other species of property, is subject to litigation; that price cutting by retail dealers is injurious to the goodwill and business of the producer and distributor and injurious to the general public as well. It is interesting to note that the New York Court of Appeals which originally held the fair trade acts unconstitutional, Doubleday, Doran & Co. v. R. H. Macey & Co., 269 N.Y. 272, 199 N.E. 409, 103 A.L.R. 1325, one year later, following the Old Dearborn decision, supra, ruled the fair trade laws constitutional in a very short opinion, Bourjois Sales Corp. v. Dorfman, 273 N.Y. 167, 7 N.E.2d 30, 110 A.L.R. 1411, in effect merely adopting the ruling of the Supreme Court of the United States. Actually, most of the states whose highest courts affirmed the constitutionality of the statutes did so in the 1930 and early 1940 era. Conversely, the greater bulk of the decisions declaring the statute unconstitutional have been by rulings of appellate courts in more recent years, although, of course, there are exceptions to both of the above statements.

The section of the statute involved appearing in the N.M.S. Annotated (1953) Compilation, Sec. 49-2-2, is as follows:

'Sale below stipulated price declared unfair competition--Liability of vendor.--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 1 (49-2-1) 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 any person damaged thereby.'

The basic attack on the statute over the years in practically all courts has been upon the theory that Sec. 2 of the acts provides that the sale of the trade-marked items at a price less than that stipulated to is a violation of the act, whether the seller is a party to the stipulated price contract or not. This is referred to throughout the various decisions as a 'vertical agreement', fixing the resale prices of a commodity. Thus, in theory at least, if a manufacturer of a trade-marked article has a contract with one retailer in a state which fixes the minimum price, then all other retailers in that state selling the same product are bound thereby. It can be readily seen that such a provision is readily amenable to considerable litigation, the manufacturer or distributor contending that it is valid in order to protect his property interest in the trade-mark or goodwill, and the retailer who wishes to sell the same for less contending that he is the owner of the property and should be able to sell it at whatever price he desires. The above is a very great simplification of the problem. It should be mentioned that the so-called non-signer or vertical provision of the Fair Trade Act has been determined by the Supreme Court of the United States as in violation of the Sherman Anti-Trust Act, 15 U.S.C.A. Secs. 1-7, 15 note. See Schwegmann Brothers v. Calvert Distillers Corp., 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035, 1045 and prior cases cited therein. Shortly after this decision in 1951 Congress passed the McGuire Act, 15 U.S.C.A. Sec. 45, 66 Statute 632, for the specific purpose of exempting the non-signer provision from the prohibition of the Sherman Act. So much for the background of the present controversy.

Appellant contends, in the first instance, that the Fair Trade Act violates Article 4, Sec. 38 of the New Mexico Constitution, this being the restraint-of-trade provision, which is as follows 'The legislature shall enact laws to prevent trusts, monopolies and combinations in restraint of trade'.

Appellant's argument is that at the time this provision was written into the New Mexico Constitution in 1911 the Sherman Anti-Trust Act had been in effect for twenty years, and that the Supreme Court of the United States had ruled that the Sherman Act prohibited as an illegal combination in restraint of trade the type of price-fixing scheme which is provided for in the Fair Trade Act, Dr. Miles Medical Co. v. John D. Park and Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502, and that,...