QUALITY STABILIZATION WEDNESDAY, JUNE 5, 1963 U.S. SENATE, COMMITTEE ON COMMERCE, Washington, D.C. The subcommittee met, pursuant to notice, at 10 a.m., in room 5110, New Senate Office Building, Hon. Vance Hartke presiding. Senator HARTKE. Good morning, ladies and gentlemen. This morning we are beginning our hearings on S. 774, the quality stabilization bill, which was introduced by 11 distinguished Senators, both Democratic and Republican. S. 774 is quite similar to Senate Joint Resolution 159, which was considered by this committee during the 87th Congress. (The bill together with agency comments thereon follow :) [S. 774, 88th Cong., 1st sess.] A BILL To amend the Federal Trade Commission Act, to promote quality and price stabilization, to define and restrain certain unfair methods of distribution and to confirm, defne, and equalize the rights of producers and resellers in the distribution of goods identified by distinguishing brands, names, or trademarks, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) this Act may be cited as the "Quality Stabilization Act”. (b) Section 5(a) of the Federal Trade Commission Act, as amended, is hereby amended by adding at the end thereof the following new paragraphs: "(7) The owner of a brand, name, or trademark shall be deemed to retain his property rights therein, and in the trade and public goodwill symbolized thereby, regardless of any sale or transfer of the goods to which such brand, name, or trademark relates, and no such sale or transfer shall be deemed to diminish or extinguish any such rights. *(8) Any person who resells goods identified by a distinguishing brand, name, or trademark, either on the label, container, or dispenser thereof, may rightfully employ such brand, name, or trademark, but only in effecting the resale of such goods and subject to the following provisions of this paragraph. If goods usable for the same general purpose are available to the public from sources other than the owner of such brand, name, or trademark, and are in free and open competition therewith, the right of any person to employ such brand, name, or trademark in effecting resale of goods so identified may be revoked by the owner of such brand. name, or trademark, subject to the provisions of paragraph (10) of this subsection, on written and dated notice of revocation, if, within ninety days prior to the date of the written notice of revocation "(A) such person has employed goods bearing such brand, name, or trademark in furtherance of bait merchandising practices; “(B) such person, after written notice given by such owner of such owner's currently established resale price or price range, has advertised, offered for sale, or sold any such goods, acquired by such person after he has been given such notice, at a price other than such currently established resale price or at a price not within such currently established resale price range; or Staff counsel assigned to this hearing: Morris J. Levin and Samuel Stilwell. 1 "(C) such person, with intent to deceive purchasers, has published a misrepresentation or misrepresentations concerning such goods. e owner of a brand, name, or trademark who avails himself to the provisions paragraphs (7) to (17) of this subsection for the purpose of establishing a ale price or price range shall thereby subject himself, without respect to the ount in controversy, to the jurisdiction of the district court of the United ites for any district in which goods identified by such brand, name, or traderk are offered for sale, but such jurisdiction shall apply (i) only for the adlication of issues involving a complaint, by a bona fide purchaser at retail goods so identified, that the owner of such brand, name, or trademark had blished, in an offer of such goods for sale, misrepresentation as to the size, pacity, quality, condition, model, or age of such goods, upon which misrepretation such purchaser had relied with resultant unfair damage and loss to n, and (ii) only if the owner of such brand, name, or trademark is not subt to process in the courts of the State in which such purchaser acquired such ›ds. '(9) Notwithstanding revocation pursuant to paragraph (8) of this subsecn of the right of a person, in reselling goods, to employ the brand, name, or demark which identifies such goods "(A) such person may, in the regular course of his business and within a reasonable time after the date of such revocation, sell all such goods of which, on such date, he is possessed: Provided, That in such sale he shall commit none of the acts described in subparagraphs (A), (B), and (C) of such paragraph (8); or "(B) if such person, promptly upon such revocation, shall have supplied to the owner of such brand, name, or trademark a correct itemized listing of the inventory of such goods with a statement of the price paid per item and the total price (including transportation costs) paid therefor, together with a firm offer to sell and deliver all such inventory to such owner at any time within ten days thereafter upon payment of such total price plus the cost of transportation to the owner in the manner directed by such owner, then such person, upon expiration of the ten-day term of such offer without acceptance, may so sell such goods in such inventory, in the regular course of his business and within a reasonable time thereafter, without restriction as to price, in which even each advertisement of, or offer to sell, such goods, shall state plainly that the right of the reseller, offering such goods, to employ in any way the brand, name, or trademark carried by the goods has been revoked as to any such goods not in that reseller's possession at the time of such revocation. '(10) Any person whose right to employ a brand, name, or trademark has en revoked by the owner thereof pursuant to the provisions of paragraph ) of this subsection, and who thereafter, except as authorized by paragraph ) of this subsection, resells goods identified by such brand, name, or traderk, or who otherwise employs such brand, name, or trademark in effecting sale of such goods or any other goods, shall be liable in a civil action for mages and injunctive relief by the owner of the brand, name, or trademark, prevent and restrain further violations of paragraphs (7) to (17), inclusive, this subsection. Such owner may sue in any district court of the United States the district in which defendant resides or is found or has an agent, without spect to the amount in controversy, and shall be entitled to (i) recover the ount of any damages sustained, (ii) injunctive relief to prevent and restrain ther violations of paragraphs (7) to (17), inclusive, of this subsection, ether or not specific money damages are established, and (iii) recover the st of suit including reasonable attorneys' fees. Any injunction granted under use (ii) of this paragraph shall remain in effect for one year from the date is granted unless it is the second or a subsequent such injunction issued against e same defendant in favor of the same plaintiff in which case it shall be a manent injunction, except that any such injunction, upon petition of such intiff, may be vacated unconditionally by the court granting it. "(11) In any proceeding under paragraph (10) it shall be a defense for the fendant (A) to establish that the plaintiff has not used due diligence to ectuate observance or enforcement of plaintiff's rights under paragraphs (7) (17), inclusive, of this subsection against other persons who are in substantial competition with the defendant and who are known to plaintiff to be violating the same subparagraph of paragraph (8) of this subsection on which recovation of the defendant's right to employ the brand, name, or trademark was based or (B) to establish that the plaintiff has sold the same kind of goods of like grade and quality as the goods involved in such proceeding to another person similarly situated under terms more favorable or at lower prices than those under which the plaintiff sold such goods to the defendant. "(12) No action pursuant hereto shall preclude remedial action otherwise available for wrongful use of a brand, name or trademark. "(13) Paragraphs (7) to (17), inclusive, of this subsection shall apply to all acts and transactions of the character referred to therein, in or affecting commerce, which Congress may lawfully regulate. "(14) As used in paragraphs (7) to (17), inclusive, of this subsection “(A) The term 'person,' means any individual, partnership, association, or corporation. "(B) The term 'goods' means goods, wares, and merchandise. "(C) The term 'currently established resale price' means the price for goods identified by a brand, name, or trademark specified by written notice invoking paragraphs (7) to (17), inclusive, of this subsection given by the owner of such brand, name, or trademark to the person reselling such goods. "(D) The term 'currently established resale price range' means all prices including and between the minimimum and maximum resale prices for goods identified by a brand, name, or trademark, specified by written notice invoking paragraphs (7) to (17), inclusive, of this subsection given by the owner of such brand, name, or trademark, to the persons reselling such goods. Each such currently established resale price and resale price range shall be uniform at each level of distribution within each marketing area determined by the owner of the brand, name, or trademark. Such owner of the brand, name, or trademark may so establish, for resale of a combination of two ore more items of goods, a resale price or price range different from the sum of the currently established resale prices or price ranges for the items when sold individually. Such owner of the brand, name, or trademark may also engage in other promotional activities not made unlawful by any other statute. "(15) All rights and remedies provided in paragraphs (7) to (17), inclusive, of this subsection, to owners of a brand, name, or trademark, shall be also available to any owner of a brand, name, or trademark who, in the sale of goods identified by such brand, name, or trademark, shall compete, at any level of distribution, with any reseller offering such goods: Provided, That, within each marketing area referred to in paragraph (14) of this subsection, such owner shall sell such identified goods, at whatever level of distribution, only at the price or within the price range currently established by such owner for that area and for that level of distribution. "(16) The following transactions shall be exempt from paragraphs (7) to (15), inclusive, of this subsection "(A) Sales of bulk commodities when sold without wrappers or containers. "(B) Sales by any officer acting under the orders or authority of any duly constituted court; or sales by any person in mitigation of damages or enforcement of a lien or other secured interest in said goods, when such person is not primarily engaged in the distribution of goods for resale. "(C) Sales of damaged, deteriorated, defaced, or secondhand goods, when plain notice of the condition of the goods is given to the public. "(D) Sales to or by the Federal, State, or municipal governments or their political subdivisions or agencies. "(E) Sales to charitable, educational, medical, and religious organizations for their own use and not for resale. "(17) If any provision of paragraphs (7) to (17), inclusive, of this subsection or the application of any such provision to any person or circumstance shall be held invalid for any reason it is the intention of the Congress that the remaining provisions thereof shall not be affected but shall remain in full force and effect.' AGENCY COMMENTS DEPARTMENT OF JUSTICE, OFFICE OF THE DEPUTY ATTORNEY GENERAL, Hon. WARREN G. MAGNUSON, DEAR SENATOR: This is in response to your request for the views of the Department of Justice concerning the bill (S. 774) to amend the Federal Trade Commission Act, to promote quality and price stabilization, to define and restrain certain unfair methods of distribution and to confirm, define, and equalize the rights of producers and resellers in the distribution of goods identified by distinguishing brands, names, or trademarks, and for other purposes. Except for the exemption set out in subparagraph (D) of paragraph (16) of H.R. 3669, S. 774 is identical with H.R. 3669 which is pending before the Interstate and Foreign Commerce Committee of the House of Representatives. On April 23, 1963, Assistant Attorney General Loevinger testified before the Subcommittee on Commerce and Finance of the House Interstate and Foreign Commerce Committee, expressing the Department's strong opposition to this type of legislation. Since our position is set out in considerable detail in the statement on H.R. 3669, I am taking the liberty of enclosing it as an expression of the Department's views on S. 774. The Bureau of the Budget has advised that there is no objection to the submission of this report from the standpoint of the administration's program. Sincerely yours, NICHOLAS DEB. KATZENBACH, STATEMENT OF LEE LOEVINGER, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARtment of Justice, BEFORE THE SUBCOMMITTEE ON COMMERCE AND FINANCE, HOUSE INTERSTATE AND FOREIGN COMMERCE COMMITTEE, ON QUALITY STABILIZATION ACT, APRIL 23, 1963 I am glad to have this opportunity to state the views of the Department of Justice on H.R. 3669. This bill bears the title "Quality Stabilization Act" and is a revision of Senate Joint Resolution 159 and House Joint Resolution 636 of the 87th Congress about which I testified on April 19, 1962, and June 15, 1962. The Department strongly opposes enactment of H.R. 3669. This is pricefixing legislation and as such is detrimental to the consuming public. The title "Quality Stabilization Act" is a misnomer for a bill whose real purpose is to make legal, on a nationwide basis, price fixing at the retail and wholesale levels. Enactment of this bill would substitute Federal law in an area now reserved to the States, would cause all consumers to pay higher fixed prices for products needed for daily living and would be harmful to small businesses. H.R. 3669 would amend section 5 of the Federal Trade Commission Act so that the owner of a brand, name, or trademark can establish and control resale prices on goods identified by the distinguishing mark and can revoke the right of the reseller to sell the goods at prices other than the established prices. It would accomplish this by authorizing the owner of the brand or trademark to revoke the right of the owner of the goods to resell them if the owner has (1) used them "in furtherance of bait merchandising practices"; (2) knowingly sold them at a price other than the trademark owner's "currently established resale price or price range"; or (3) with intent to deceive purchasers "published misrepresentations concerning" them. This bill is clearly a price maintenance bill of a type which the Department of Justice has repeatedly and strongly opposed over a number of years. Moreover, other interested Federal agencies have registered opposition to this type of legislation consistently over the past 25 years. The first question to be answered with respect to a proposal to establish broad exceptions to important laws is: What reason is urged for the proposal? The proponents of this type of legislation have consistently contended that it is needed in order to protect small businessmen, principally retailers, against loss leader selling which is allegedly engaged in by chainstores and large business enterprises that have the financial ability to compete in this unfair manner. Occasionally it is also argued that such proposed legislation is helpful to the large national manufacturers of branded merchandise. However, the arguments made to Congress in support of this proposal are almost wholly made in the name and on behalf of small business. Examination of the proposed bill discloses the weakness of these arguments. It does not prohibit loss leaders. It does not lessen economic advantages of chainstores or curb the power of big business in any manner. It does not give any rights or protection whatsoever to small business. On the contrary, all of the rights and privileges created by H.R. 3669 are reserved exclusively for those large business enterprises which are the owners of brands, names or trademarks, which is to say national manufacturers and distributors. Examination of the operation of resale price maintenance laws shows that they do not help small business. Regardless of whether or not legislation of this type is enacted, the national manufacturers of branded commodities set their price levels to please their principal customers and maximize their own profits. The large national chainstores have much greater influence with the national manufacturers than the small local retailers. Thus, prices are set which serve the interests of the chainstores rather than those of small retailers. On commodities which can most advantageously be sold by the chains at a low margin, the price set by the manufacturer for resale is low. On commodities in which it is advantageous to retail at a high margin, the retail price is set high. Small retailers with limited buying power have very limited independence with respect to the prices at which they sell. Their sales are necessarily confined largely to branded products of national manufacturers. Under legislation of this type, they are forced by law to sell at the fixed price. On the other hand, chainstores and very large retail establishments have both the power and the independence to price their goods largely as they like. Such large retail establishments have a much larger choice among the various brands that they may choose to carry and sell and, in addition, are able to secure private branded and unbranded merchandise. Thus, their freedom to establish the price of their goods is not restricted as is that of small business. Chainstores and large enterprises will continue, regardless of any legislation, to dominate the advertising media. Where small retailers have fixed prices on most commodities, the chainstores and big business naturally feature those commodities which they are able to offer at relatively low prices. This is always a wider range than competitive small business is able to offer. Once attracted into the chainstore by advertising, the patron knows that the prices on branded products are the same as those offered elsewhere. Consequently, there is no inducement for the customer to shop around. The result is that the chainstores and the big business retailers increase their market share of both branded and unbranded merchandise. The statistics show that this process has been operating in States having resale price maintenance laws. The Department of Justice has undertaken to analyze the figures showing business failures in those States having resale price maintenance laws, those States not having such laws and those States in which such laws are partially operative. These statistics demonstrate that the rate of business failure is consistently higher in States having resale price maintenance laws than in those States permitting price competition. Table 1 to this statement shows that in 1962 the business failure rate per 10,000 business concerns was 71 in States having operative resale price maintenance laws, 51 in States in which such laws were partially operative, and only 29 in States having competitive pricing. Inspection of the list of the States involved shows that this disparity is not explicable on the basis of degree of industrialization, size or population, or some other irrelevant factor. Furthermore, as shown in table 2, the same correlation is found consistently for every year from 1946 through 1962 inclusive. These figures as to business failures also indicate the number and rate of failure of wholesale and retail distributive businesses, which are supposed to be the principal beneficiaries of such laws. Our analysis shows that the number of failures in wholesale and retail distributive business has averaged about 50 percent of all business failures nationally since World War II and that the rate of business failures for wholesale and retail distributive business is almost completely correlated with the failure of all businesses both for the entire period and for each separate year. A year ago legislation of this type was urged on the ground that the number and rate of business failures had been increasing and that this increase required such legislation. However, the record of the past year suggests that the advo |