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

54 N.W.2d 268, 334 Mich. 109

• Court: Michigan Supreme Court
• Decided: June 27, 1952
• Docket: Docket 81, Calendar 45,272
• Status: Published

Opinions

Dethmers, J.

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 PA 1937, No 50 (CL 1948, § 445.151 et seq. [Stat Ann 1951 Cum Supp § 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 law. 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 NY 167 (7 NE2d 30, 110 ALR 1411); Max Factor & Co. v. Kunsman, 5 Cal2d 446 (55 P2d 177); Joseph Triner Corp. v. McNeil, 363 Ill 559 (2 NE2d 929, 104 ALR 1435); Ely Lilly & Co. v. Saunders, 216 NC 163 (4 SE2d 528, 125 ALR 1308); Weco ProductCo. v. Reed Drug Co., 225 Wis 474 (274 NW 426); Goldsmith v. Mead Johnson & Co., 176 Md 682 (7 A2d 176, 125 ALR 1339); Johnson & Johnson v. Weissbard, 121 NJ Eq 585 (191 A 873); and by the United States supreme court in Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 US 183 (57 S Ct 139, 81 L ed 109, 106 ALR 1476), 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 So2d 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 (124 ALR 316). We there held a statute forbidding the giving of a premium with the retail sale of gasoline unconstitutional under Constitution 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 be 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. Trade-marks and brand names, together with the good will attendant thereon, are protected in certain respects by act of Congress. 15 USCA, § 1051 et seq. The function of a trade-mark 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 trade-marks, brand names and the good will connected therewith. See Kroll Bros. Co. v. Rolls-Royce, Ltd., 126 F2d 495; Smith v. Dental Products Co., Inc., 140 F2d 140, certiorari denied, 322 US 743 (64 S Ct 1146, 88 L ed 1576); Hanover Star Milling Co. v. Metcalf, 240 US 403 (36 S Ct 357, 60 L ed 713); United Drug Co. v. Theodore Rectanus Co., 248 US 90 (39 S Ct 48, 63 L ed 141). Defendant’s cut-rate sales have breached no such trade-marlc rights of plaintiff. Plaintiff’s trademark rights do not go as far as urged by it. Sunbeam Corp. v. Wentling (CCA), 192 F2d 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 Btjtzel 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 unchartered sea of enforcement of contracts against those not party thereto. My Brother suggests that defendant’s constitutional rights are riot 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, morals and the general welfare is hardly made to appear, there would be more force to the suggestion if my Brother .did not limit its application, as he must under above noted decisions, to branded and trade-marked goods. Is not the survival of the small retailer made as difficult by the large retailer’s cut-rate sales of bulk, unbranded and nontrade-marked staples as by the like sale of branded and trademarked goods? The difference, if any, is scarcely such as to render the restriction on price-cutting valid in the one instance and invalid in the other. The difference in effect upon the general welfare in the 2 cases is difficult to discern.

Mr. Justice Butzel appears to concede that the business in question is not affected with a public interest and, clearly, it is not. See Chas. Wolff Packing Co. v. Court of Industrial Relations of the State of Kansas, 262 US 522 (43 S Ct 630, 67 L ed 1103, 27 ALR 1280); Williams v. Standard Oil Co. of Louisiana, 278 US 235 (49 S Ct 115, 73 L ed 287, 60 ALR 596). He does not question that, ordinarily, a person has the right to fix the price at which he sells his own property. That such is his right under the due process clause of the Federal Constitution, and that the power of a State legislature to restrict that right is limited to instances in which the business involved is affected with a public interest was held in Tyson & Brother — United Theatre Ticket Offices, Inc., v. Banton, 273 US 418 (47 S Ct 426, 71 L ed 718, 58 ALR 1236); Ribnik v. McBride, 277 US 350 (48 S Ct 545, 72 L ed 913, 56 ALR 1327); Williams v. Standard Oil Co. of Louisiana, supra. The nub of Mr. Justice Butzel’s contention, however, is that, despite that general rule, the minimum price restriction imposed by statute against nonsigners is sustainable as relates to branded and trade-marked articles because it thereby protects the good will of the manufacturer; that this is a substantial property right which may be protected by legislative enactment. Against what action may the State protect it? Against theft, slander, simulation and the like, no doubt. The relationship between State action in that • field and public health, safety, morals and the general welfare is obvious and has long been recognized. • The attribute of good will which constitutes the property right which the State may, in certain respects, protect, is not the nebulous something calculated merely to inflate the owner’s ego or satisfy his pride, but, rather, its propensity for producing business or sales. May every injury thereto or adverse effect be prevented by statute? This appears to be Mr. Justice Butzel’s contention. The sales and business accruing to plaintiff by reason of its good will would undoubtedly be affected adversely by the manufacture and sale of a competitive product. Can it be contended successfully that a State statute prohibiting such competition and thus protecting plaintiff’s sales accruing from its good will would bear a reasonable relation to public health, safety, morals and the general welfare? Obviously the answer must be no.

Price-fixing agreements involving or affecting interstate commerce were illegal under the Sherman anti-trust law (26 Stat 209) until certain exceptions were carved out under the amendment of section 1 thereof by the Miller-Tydings act of 1937 (50 Stat 693 [15 USCA, §1]). See Schwegmann Bros. v. Calvert Distillers Corp., 341 US 384 (71 S Ct 745, 95 L ed 1035, 19 ALR2d 1119). In that case it was held that the Miller-Tydings exemption from the operation of the Sherman act applies only to cases of signers of fair-trade agreements, when permissible under local law, but does not extend to cases of non-signers of such agreements; that, lacking, thus, the approval of Congress, the provision of the State statute making the fixed minimum resale price binding' on nonsigners is invalid as relates to interstate commerce. Plaintiff seeks to avoid the effect of that holding on the ground that the transactions here involved are solely in intrastate commerce because they represent the sale by defendant in Michigan of articles manufactured by plaintiff in Michigan. This overlooks the full reach of the Schwegmann decision. In that case plaintiff shipped, from out-state, and sold its product to wholesalers in Louisiana who resold it, in intrastate commerce, to retailers and the latter sold it, in intrastate commerce to retail customers. In denying plaintiff the right to restraint of such retail sales at cut-rate prices the court looked to the effect on interstate commerce of the restraints on the intrastate, retail sales and held the latter, accordingly, subject to the reach of the Sherman act. Similarly, in Sunbeam Corp. v. Civil Service Employees’ Co-op Ass’n (CCA), 192 F2d 572, plaintiff contended that, because defendant conducted only a local business, its retail sales were all in intrastate commerce subject to the State fair trade law and beyond the reach of the Sherman act. There, as in the Schwegmann Case, the goods originally came from without the State but came to rest in the hands of the wholesalers to whom plaintiff had sold, were resold by them in intrastate commerce to retailers and by the latter in intrastate commerce to retail customers. The court held that under the Schwegmann decision the local retail sales so affected interstate commerce as to come within the Federal purview, saying:

“It is the interstate character of Sunbeam’s commerce that is crucial and governing for it is Sunbeam’s price-fixing scheme which constitutes a trade restraint. This is the plan Sunbeam seeks to make nationwide by enforcing the nonsigner provisions of local law in each of the States where a fair-trade act has been established. This marketing plan is quite similar to the one struck down by the supreme court in Dr. Miles Medical Co. v. John D. Park & Sons Co. (1911), 220 US 373 (31 S Ct 376, 55 L ed 502), where the pressure was applied against local stores making local sales.”

To the same effect is Lambert Pharmacal Co. v. Roberts Bros., 192 Or 23 (233 P2d 258). In that case the court said:

“And it is enough to bring the transactions complained of within the scope of the Sherman act that they substantially affect interstate commerce. * * *

“Nor does the fact that price-fixing or price maintenance applies only to intrastate retail sales remove the conduct from the reach of the statute if such conduct be 'an inseparable element of a larger program dependent for its success upon activity which affects commerce between the States.’ United States v. Frankfort Distilleries, Inc., 324 US 293, 297 (65 S Ct 661, 663, 89 L ed 951).”

In the instant case plaintiff has placed in operation a price-fixing scheme, national in scope, of which the Michigan phase is but a part. Success of the attempt at restraint on local sales is dependent upon success thereof as applied to national sales, and. vice versa, so long as plaintiff’s products are in fair and open competition with the products of others manufactured elsewhere than in Michigan. The restraint on local retail sales is a cog in the wheel imposing restraints on national sales. As such it affects interstate commerce and, accordingly, comes within the inhibition of the Sherman act. See 61 Yale Law Journal, pp 381, 396-398, and 46 Illinois Law Review, pp 349, 380-382.

Affirmed, with costs to defendant.

North, C. J., and Carr, Busi-inell, Sharpe, and Boyles, JJ., concurred with Dethmers, J.