United States Time Corp. v. Ann & Hope Factory Outlet, Inc.

205 A.2d 125, 98 R.I. 503, 1964 R.I. LEXIS 203

Opinions

Joslin, J.

This is a bill in equity to enjoin the respondent from violating the “Fair trade act,” G. L. 1956, chap. 12 of title 6. At the prior hearing the court was evenly divided. United States Time Corp. v. Ann & Hope Factory Outlet, Inc., 97 R. I. 514, 199 A.2d 310. We were- therefore unable to answer the questions of law certified by a justice of the superior court pursuant to G. L. 1956, §9-24-26, as being of such doubt and importance as to require determination by the supreme court before further proceedings were had in the superior court on the respondent’s demurrer to the bill of complaint. The cause was heard before the full bench on rehearing, the request of the parties therefore having been granted.

The only question is the constitutionality of the fair trade act as applied to nonsigners of price maintenance contracts entered into pursuant to the act.

The bill alleges that complainant is in the business of manufacturing trademarked watches which are widely-known and have acquired a good will which constitutes a valuable asset. It further alleges that notwithstanding respondent’s knowledge that complainant had entered into •fair trade contracts in this state with retailers dealing in its products, respondent wilfully- and knowingly sold complainant’s products at less than the stipulated minimum retail resale prices, and that such sales were not exempted •from the resale price restrictions by virtue of §6-12-4.

In substance the demurrer avers that the fair trade act is null and void in that it violates certain provisions of the federal and state constitutions and is in restraint of trade contrary to the Sherman Anti-Trust Act, the Clayton Act and the federal Trade Commission Act. The decree for certification states the questions deemed of doubt and importance specifically as follows:

“Is the Rhode Island Fair Trade Act, so-called, General Laws of Rhode Island, 1956, Sec. 6-12-1 et seq., invalid in that:

“1. It is an unlawful delegation of legislative power in violation of Article III and Article IV, Sec. 1 and 2, of the Constitution of Rhode Island.

“2. It is an improper exercise of the police power of the state in that:

“(A) It is an exercise of the police power for private purposes or for the benefit of particular individuals or classes in violation of Article I, Sec. 2, of the Constitution of Rhode Island.

“(B) It is an attempt to prohibit competitive price cutting in a business not affected with a public interest in violation of Article I, Sec. 2, of the Constitution of Rhode Island.

“(C) It bears no relationship to the public health, safety, morals or general welfare.

“3. It deprives respondent of due process and equal protection of the law in violation of Amendment XIV, Sec. 1, of the Constitution of the United States.

“4. The fair trade contract is an illegal agreement in restraint of trade.

“5: It violates the Sherman Act, so-called, 15 U.S.C.A. Sec. 1 through 7.

“6. It violates the Clayton Act, 19 U.S.C.A. Art. 1, Sec. 10 [15 U.S.C.A. §12 et seq.].

“7. It violates the Federal Trade Commission Act, 15 U.S.C.A., Sec. 45 et seq.

“8. It violates Art. I, Sec. 5 of the Constitution of Rhode Island and further violates Article Y, XVI, and XXIII of the Constitution of the State of Rhode Island.

“9. It violates Article I, Sec. 10 and Amendment V of the Constitution of the United States.”

At the outset we note that notwithstanding the generality of the questions stated in the decree of certification, we construe them in the light of the factual situation as alleged in the ¡bill of complaint.

We are uninfluenced by the economic and sociological pros and cons as to> the desirability of minimum price re-sale contracts or of the act authorizing them and are unconcerned that the question of constitutionality comes before us in a time marked by prosperity whereas fair trade acts had their genesis in the depression days of the 1930’s. The arguments founded on these considerations, and both parties advanced them, should be addressed to the legislature. It enacts and repeals statutes. We pass only on the legality of what it has done.

We limit our consideration to the questions which have been presented in certain form and which state separately the specific clauses of the federal or state constitution allegedly violated. Brown v. Waldman, 93 R. I. 489, 177 A.2d 179; Haigh v. State Board of Hairdressing, 74 R. I. 106. The references in paragraphs 8 and 9 to art. I, sec. 5, of the state constitution and to art. I, sec. 10, and Amendment V of the federal constitution do not meet the required standard. Paragraph 8 also refers to arts. XVI and XXIII of the state constitution and is defective because there are no such articles. Article Y of the state constitution adverted to in paragraph 8 is entitled “Of the House of Representatives” and is clearly inapposite. For the foregoing reasons we do not answer the questions propounded in paragraphs 8 and 9.

Fair trade acts have been enacted at one time or another in all but four of the states and have been construed by the courts of last resort in thirty-eight of them. The judicial box score as to the constitutional validity of nonsigner provisions is a constantly changing one. Illustrative is the action of the court of appeals in New York which found the act unconstitutional, Doubleday, Doran & Co. v. R. H. Macy & Co., 269 N. Y. 272, and then reversed itself in Bourjois Sales Corp. v. Dorfman, 273 N. Y. 167. In Pennsylvania the reverse was the case. Burche Co. v. General Electric Co., 382 Pa. 370; Olin Mathieson Chemical Corp. v. White Cross Stores, Inc., No. 6, 414 Pa. 95. In Ohio the court first found a constitutional violation and then upon amendment of the act ruled otherwise. Union Carbide & Carbon Corp. v. Bargain Fair, Inc., 167 Ohio St. 182; Hudson Distributors, Inc. v. Upjohn Co., 174 Ohio St. 487.

The weight of authority in favor of unconstitutionality, however, is more apparent than real. The constitutional provisions of the various states where the act has been considered in some instances differ from those in other states and from ours. For example, in Louisiana, Dr. G. H. Tichenor Antiseptic Co. v. Schwegmann Bros. Giant Super Markets, 231 La. 51, was premised on the civil law; in Montana and Utah, upon constitutional provisions against price fixing. Union Carbide & Carbon Corp. v. Skaggs Drug Center, Inc., 139 Mont. 15; General Electric Co. v. Thrifty Sales, Inc., 5 Utah 2d 326. These decisions, it is obvious, were premised on 'considerations not applicable in most other states or in this state.

The issue of whether constitutional requirements have ■been met has been exhaustively discussed in the opinions as well as in the legal periodicals and law reviews. The authorities are collected at 2 CCH Trade Reg. Rep., ¶6000 et seq. and 60 A.L.R.2d 420, and it would add nothing to refer to each citation.

While decisions of the United States Supreme Court interpreting state constitutional provisions do not bind us, they merit more than ordinary consideration particularly when they pass on provisions such as the police power and the delegation of the legislative power, both provisions being common to the federal and our own constitutions. The state courts which have upheld the constitutionality of fair trade acts have relied principally, as do we, on Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 U. S. 183. That opinion has stood the test of time. It was handed ■down in 1936 by the Hughes court, a court which not infrequently struck down legislative enactments as unconstitutional. It was reaffirmed this year in Hudson Distributors, Inc. v. Eli Lilly & Co., 377 U. S. 386, by the Warren court, a court which has not been reluctant to overrule earlier decisions on constitutional issues.

UNLAWFUL DELEGATION

The question raised in paragraph 1 relates to whether the act constitutes an unlawful delegation of the legislative power to private persons in violation of art. Ill and art. IV, secs. 1 and 2, of the state constitution.

A finding that the legislature has delegated its power must precede a finding that such delegation has been unlawful. In this respect, the court in Old Dearborn distinguished the case of a vendee purchasing with notice of price restrictions from the case of one purchasing without such notice. As to the former, it held that there had been no delegation; as to the latter, at least sub silentio, that there had been an unlawful delegation.

The rationale in Old Dearborn was that a nonsigner, going to the market place knowing that a commodity is fair traded and 'being under no compulsion to buy, assents by his purchase to the resale price restrictions and under principles of “fair dealing” becomes obligated to abide or in the alternative to suffer the consequences. “[T]he restriction, already imposed with the knowledge of appellants [vendees],” the court said at page 194, “ran with the acquisition and conditioned it.” In substance, if not explicitly, the court found that in such circumstances there was an implied contract between wholesaler or producer on the one hand and retailer on the other.

A legislative authorization to the producer or wholesaler to restrict resale prices as against a reseller under no compulsion to buy and acquiring with notice of the restriction in respect of price is not an “unlawful delegation of power to private persons to control the disposition of the property of others * * *.” Old Dearborn at page 194. Indeed it is no delegation at all because the act neither fixes prices nor delegates the price-fixing power to private persons. It does no more than permit “designated private persons to contract with respect thereto. It contains no element of compulsion but simply legalizes their acts, leaving them free to enter into the authorized contract or not as they may see fit.” Old Dearborn, at page 192.

The same result has been reached in Ohio and Virginia under fair trade statutes providing substantially that a reseller acquiring a fair-traded 'commodity with notice of a price restriction is deemed to have entered into an agreement not to resell below the stipulated price. Hudson Distributors, Inc. v. Upjohn Co., 174 Ohio St. 487; Standard Drug Co. v. General Electric Co., 202 Va. 367. We reach that conclusion on the authority of Old Dearborn without the benefit of an express statutory crutch.

What we have said as to a nonsigner acquiring a product with notice that it has been fair traded obviously has no application where the acquisition precedes notice of the resale price restriction. In the latter circumstances since the restriction does not arise from a contract either express or implied, the legislature is without power to delegate to a private person the power to fix prices.

In the posture in which this case comes before us we are unable to answer categorically the question propounded in paragraph 1. It is alleged in paragraph 11 of the bill of complaint that respondent “had at all time pertinent hereto actual notice of the existence of Complainant’s fair trade program.” Since the time of acquisition is in our view both the pertinent and the critical time, our answer to the question must be in the alternative. In doing so we observe that under §6-12-8 the invalidity of the application of the act as to any person or circumstances does not affect its validity as applied to other persons or circumstances.

We answer the question propounded in paragraph 1 as follows: That the fair trade act, §6-12-1 et seq., (a) is not an unlawful delegation of the legislative power in violation of art. Ill and art. IY, secs. 1 and 2, of the state constitution as applied to a reseller who purchases with actual notice of a stipulated minimum resale price imposed pursuant to such act, and (b) is an unlawful delegation of that power in violation of those constitutional provisions as applied to a reseller who purchases without actual notice of such stipulated minimum resale price.

POLICE POWER

Paragraph 2 asks us to determine whether the act constitutes an unreasonable exercise of the police power under art. I, sec. 2, of the state constitution which reads as follows: “All free governments are instituted for the protection, safety and happiness of the people. All laws, therefore, should be made for the good of the whole * * *.”

The term “police power” is not easily defined. Amitrano v. Barbaro, 61 R. I. 424; Creditors’ Service Corp. v. Cum mings, 57 R. I. 291. The general and discretionary language is directory and imposes restraints on the legislative law-making power. In the Matter of Dorrance-Street, 4 R. I. 230. Neither the power to make laws for the good of the whole nor the restraints are without limitation. State v. Campbell, 95 R. I. 370, 187 A.2d 543; Opinion to the Governor, 75 R. I. 54. When a question arises as to whether the legislature has exceeded the bounds, the test is not whether the enactment was wise, fair or desirable, but whether it bears a legitimate or substantial relation to the public health, safety, morals or general welfare. Amitrano v. Barbara, supra; Prata Undertaking Co. v. State Board of Embalming & Funeral Directing, 55 R. I. 454. When it does, it is within the legitimate exercise of the police power and therefore valid.

In the fair trade act as applied to this cause, the legislative concern was with the protection of complainant’s trademark. In that mark complainant had a property right. That right was good will and it constituted a valuable asset acquired only after a substantial expenditure. The complainant retained its ownership of that property right notwithstanding the sale to respondent of the product to which it is attached. See Sayles Biltmore Bleacheries Inc. v. Narragansett Wiping Supply Co., 86 R. I. 99. The legislative policy was to protect that good will. The vehicle selected to accomplish that purpose was to endow complainant with the power to prevent the sale of its products plus its good will by respondent at prices of its own selection. Courts afford relief against those who exploit the good will or trademark of another, and it is within the legislative domain to provide for protection. As far as the act goes, it contains nothing which would prevent respondent from severing the good will from the product and then disposing of the latter at a price below the stipulated minimum resale price.

In determining whether the act is or is not constitutional, the questions for determination are whether the legislative plan bears a necessary relation to the general welfare and whether the means adopted by the legislature were necessary to the accomplishment of the end. Creditors’ Service Corp. v. Cummings, supra. Or stated in the negative, is the legislative plan so arbitrary, oppressive and capricious as to be without substantial relation to the general welfare of the public. Prata Undertaking Co. v. State Board of Embalming & Funeral Directing, supra.

There is no- legal litmus to provide the answers. It may be said, however, that the enactment is not arbitrary, oppressive or capricious if the questions are fairly debatable and are such that different minds might fairly and reasonably reach different conclusions thereon. Relying again on Old Dearborn, the court said at page 195:

“There is a great body of fact and opinion tending to show that price cutting by retail dealers is not only injurious to the good will and business of the producer and distributor of identified goods, but injurious to the general public as well. The evidence to that effect is voluminous; but it would serve no useful purpose to review the evidence or to enlarge further upon the subject. True, there is evidence, opinion and argument to- the contrary; but it does not concern us to determine where the weight lies. We need say no more than that the question may be regarded as fairly open to differences of opinion. The legislation here in question proceeds upon the former and not the latter view; and the legislative determination in that respect, in the circumstances 'here disclosed, is conclusive so far as this court is concerned. Where the question of what the facts establish is a fairly-debatable one, we accept and carry into effect the opinion of the legislature.”

More succinctly perhaps, but nonetheless to the same effect, the supreme court of Delaware in determining whether there was but one answer to the questions or whether they were fairly debatable said in General Electric Co. v. Klein, 34 Del. Ch. 491, 500: “Not only are these questions ‘fairly debatable’; they have been warmly debated for years, and the debate, we gather, is still going on. The legislative judgment must therefore prevail.”

In our opinion it was within the police power of the legislature to enact the fair trade act and our answers to the questions propounded in paragraph 2 are in the negative.

FEDERAL QUESTIONS

Finally, we come to the questions raised in paragraphs 3 to 7 inclusive. These relate to the federal constitution and acts of Congress. In this area the decisions of the United States Supreme Court are binding on us. Rivard v. Bijou Furniture Co., 67 R. I. 251; Jenckes Spinning Co. v. N. Y., N. H. & H. R. R., 47 R. I. 72. In Hudson Distributors, Inc. v. Eli Lilly & Co., supra, the United States Supreme Court resolved whatever doubts Schwegmann Bros. v. Calvert Distillers Corp., 341 U. S. 384, and the passage of twenty-eight years may have -cast on Old Dearborn, supra. It is now settled that neither the federal constitution nor ány congressional enactment prohibits a trademark owner from enforcing, pursuant to a state fair trade act, stipulated minimum resale prices established by written contract as against non-signers as well as signers. The questions propounded in paragraphs 3 to 7 inclusive we answer in the negative.

The papers in the -case with our answers to the questions certified are remitted to the superior court for further proceedings.