with serious effect upon all competing retailers in his area and even beyond. It is one of the producer's chief problems, therefore, to propitiate his retailers; to protect their profits; and to hold their loyalty. Above all, he must protect them from unfair competition, among themselves, by destructive price-cutting upon his products. When such price-cutting occurs, disaster follows, as described in the Old Dearborn case, supra (199 U. S., at p. 187):

Appellant (a retailer) sold the products in question at cut prices-that is to say, at prices below those stipulated-and continued to do so after appellee's demand that it cease such practice. The result of such price cutting was a diminution of sales during the price-cutting period suffered by appellee and retailers other than appellant. Some dealers ceased to display the products, and notified appellee that they could not compete with appellant and would discontinue handling the products unless the price cutting was stopped.

Such conditions cause serious damage in two ways. The first impact of price cutting is felt by dealers who cannot afford to cut, or have contracted not to, and therefore try to maintain prices in the face of competitive slashing which entices away their customers. Secondly, the dealers who are made to suffer in this way, presently disfavor the goods upon which prices are cut: the goods are no longer profitable; they may have to be unloaded at a loss; stocks on hand are frozen in place unless the dealers will sacrifice the expectancy of profit on which the goods were bought. All this undermines the dealers' desire to buy and resell the goods, and to that extent deteriorates the producer's goodwill. If the price cutting extends over a large area, goodwill is correspondingly infected; if it lasts long enough, goodwill is permanently withered because numerous dealers become wholly alienated and will no longer bother with the producer's goods.

The purpose of the Fair Trade Act is to enable the producer to cure the difficulties referred to by preventing or arresting unfair price cutting among dealers on his goods in order to safeguard the profits and satisfaction of the dealers and thereby conserve their desire to sell those goods, which desire is an essential part of the producer's goodwill.

THE PROVISIONS OF THE ACT

The act gives to the owner of the trade-mark, brand, or name (for convenience, generally designated herein as the "producer"), or his specifically authorized distributor, the right to invoke the power of the courts to compel price maintenance under conservatively defined circumstances. The producer's right must be founded upon his possession of contracts obligating some, at least, of his marketing agencies to maintain his stipulated prices. The act validates such contracts, if they conform to certain requirements.

In the first place, the affected commodity must bear, or its label or container must bear, "the trade-mark, brand, or name of the producer or distributor * * *"that is, the symbol of the producer's goodwill by which the trade and public identify his products. This symbol is relied upon by the buyer (whether marketer or consumer) when he expresses his desire for the identified product; the desire which is a fraction of the producer's goodwill. Any misuse of the symbol that diminishes such desire is an attack upon the goodwill. A striking example of such misuse, is the employment of the symbol by a dealer who slashes prices on the branded product for the purpose of luring into his store a rush of customers who are expected to buy

numerous other profitably priced items from his general stock of merchandise, and with the effect of diverting patronage from competitive dealers who try to maintain normal prices. In that misuse, the producer's symbol itself is the destructive weapon of the price cutter. If it were not for the producer's goodwill and its symbol upon his product, price cutting would be futile. Except that consumers desire to buy the product and identify it by the trade-mark, brand, or name, the dealer could not attract customers by cutting prices. The public cannot be stampeded into buying nondescript merchandise at any price. Standards of goodwill and normal price must be established and popularized, before purchasers can know whether a retail price is subnormal or whether a pretended cut price represents a special bargain. The only way in which a dealer can gain patronage through price cutting, is by exploiting a low price that is in contrast with the familiar, conventional price of a product which is popular because identified with a respected goodwill. The trade-mark, brand, or name is the essential instrument of price cutting which the dealer misuses for his own benefit, and the result is to discourage his competitors' desire to deal in the products, and coextensively to drain away the producer's goodwill. For the sake of a temporary unfair advantage, the price cutter corrupts the very thing that gives him that advantage.

The permissible price-maintenance contracts must relate to commodities which not only are identified by trade-mark, brand, or name, but also are "“* in free and open competition with commodities

* *

of the same general class produced or distributed by others This means that a producer may regulate price competition as to his own branded products, only where there is "free and open competition" between his products and those of others. To avail himself of the act, the producer must retain in his own control all the customary resources of competition against other producers. He cannot contract with anyone, or assume any obligation, to limit that phase of competition. By express provision of the act, the right to establish resale prices is restricted exclusively to the "owner of the trade-mark, brand, or a distributor specifically authorized to establish said price(s) by the owner of such trade-mark, brand, or name." Horizontal contracts or agreements (i. e., between or among producers or distributors, or between or among wholesalers, or between or among retailers) as to sale or resale prices are expressly forbidden.

or name

* * *

If the commodities of a producer are trade-marked, branded, or named, and are freely and openly competitive with commodities of the same general class of other producers, then he is entitled to make contracts containing any of the following provisions:

(A) That the buyer will not resell such commodity at less than the minimum price stipulated by the seller.

(B) That the buyer will require of any dealer to whom he may resell such commodity an agreement that he will not, in turn, resell at less than the minimum price stipulated by the seller.

(C) That the seller will not sell such commodity:

(1) to any wholesaler, unless such wholesaler will agree not to resell the same to any retailer unless the retailer will in turn agree not to resell the same except to consumers for use and at not less than the stipulated minimum price, and such wholesaler will likewise agree not to resell the same to any other wholesaler unless such other wholesaler will make the same agreement with any wholesaler or retailer to whom he may resell; or

(2) to any retailer, unless the retailer will agree not to resell the same except to consumers for use and at not less than the stipulated minimum price.

And for the purpose of preventing evasion of the resale price restriction, it is provided that (except to the extent authorized by the fairtrade contract):

(a) The offering or giving of any article of value in connection with the sale of such commodity;

(b) The offering or the making of any concession of any kind whatsoever (whether by the giving of coupons or otherwise) in connection with any such sale; or

(c) The sale or offering for sale of such commodity in combination with any other commodity, shall be deemed a violation of such resale price restriction, for which the remedies prescribed by section of this Act shall be available.

The contractual prohibitions against resale at prices below those stipulated, are subject to the following exceptions set forth in the act:

(A) In closing out the owner's stock for the bona fide purpose of discontiuing dealing in any such commodity and plain notice of the fact is given to the public; provided the owner of such stock shall give to the producer or distributor of such commodity prompt and reasonable notice in writing of his intention to close out said stock, and an opportunity to purchase such stock at the original invoice price;

(B) When the goods are altered, second-hand, damaged, defaced, or deteriorated and plain notice of the fact is given to the public in the advertisement and sale thereof, such notice to be conspicuously displayed in all advertisements and to be affixed to the commodity;

(C) By any officer acting under an order of court.

The producer having established his resale prices by contract entered into in pursuance of section - of the act, there is no doubt that he may have a cause of action, on such contract, to prevent pricecutting, against all marketing agents who will contract with him to that end. The question remains whether the producer and his contracting dealers (wholesalers or retailers) must tolerate price-cutting on his goods, however demoralizing and destructive, by dealers who will not so contract. The producer may contract with dealers A, B, and C who are obligated to maintain stipulated prices. But may dealer D (who has not contracted) cut prices at will on the producer's goods, even with the effects of unfairly damaging A, B, and C, restraining or eliminating their competition, enabling D to dominate the market for those goods in his territory and thereby temporarily or permanently suppressing his competitors' desire to sell them and impairing the producer's goodwill?

The State fair-trade acts clearly answer these questions. The apparent reasoning of the legislators was this: Destructive price-cutting per se is no more evil when committed in breach of contract than when practiced willfully to the damage of others without breaching a contract. The disastrous results are not different whether caused by an impulse of greed, or in defiance of contractual obligations. The need of the producer to protect his goodwill is the same, whether or not he can make contracts with all, or only a few, of his dealers. The need of the dealers, particularly the retailers, to be secured against cut throat rivalry is not dependent upon contracts. The economic and social purposes to be served by permitted price restrictions, are the same, contract or not contract. As a matter of public policy, unfair price cutting, in certain circumstances, should be preventable, contract or not contract.

To carry out this policy, the acts provide that "willfully and knowingly" reselling below "the price stipulated in any contract" made under the act, whether the price cutter "is or is not a party to such

contract," "is unfair competition and is actionable at the suit of any person damaged thereby."

If then, a producer or his privies succeed in negotiating, with some of their marketers, contracts under which the latter agree to maintain stipulated resale prices, and if notice of the existence and terms of those contracts and the stipulated prices is communicated to the competing dealers who are not under contract-those competing dealers must then elect either not to handle the affected commodities at all, or else to handle them on the same stipulated resale-price basis. The noncontracting dealers are wholly free to make their election; but if they choose to trade in the affected commodities, and thereby to participate in the goodwill which attaches to them and is symbolized by their trade-marks or names, the dealers are bound to maintain prices.

If the contracting or the noncontracting dealers "willfully and knowingly" cut below stipulated resale prices, they are guilty under the act of "unfair competition." The "competition" here referred to is necessarily that between the price cutter and his fellow marketers who handle the affected commodities and wish to maintain prices. A price-cutting wholesaler is not in "competition" with the producer who supplies the commodities; he is, however, in competition with other wholesalers and, in a sense, with all other marketers who deal in the commodities. Similarly, there is no competition between the producer and the retailers who handle his goods; but the retailers are in competition among themselves and with other marketing agencies.

It follows that the price cutter's primary offense under the fairtrade acts, is his unfair competitive conduct that injures other marketers that is, his conduct in the more or less horizontal field in which the trouble arises and the damage begins. The price cutter first injures his competitors who wish to maintain prices, particularly the ones who have contracted to maintain them. The repercussions cause the harm to the producer's goodwill. When the acts characterize the price-cutter's offense as unfair competition, the result is to authorize a direct attack upon the first cause of the damage. If the "unfair competition" is stopped, the aim of the acts is achieved; the producer's goodwill is protected against the particular evil the act seeks to remedy; and incidentally the marketers collectively are greatly benefited.'

*

Under the acts, "unfair competition * * is actionable at the suit of any person damaged thereby": that is, the damaged person has a cause of action to restrain or redress the unfair competition. Probably the cause of action accrues not only to a producer whose branded commodities have been subjected to unfair competition, but also to any or all marketers of those commodities who are directly or indirectly damaged or threatened with damage by price cutting on those commodities. The language of the statute in this respect seems to have been made deliberately broad in scope.

However that language may be interpreted in the future, as affecting causes of action asserted by marketers, there can be no doubt that the fair trade acts intend the cause of action to be available against any price-cutter subject to the acts, in behalf of the producer who owns the goodwill and the trade-mark or name threatened by the pricecutting.

The Fair Trade Act is extremely simple and direct. It does not announce rigid substantive law. Rather, it declares public policy

as opposed to certain trade stratagems and then leaves it to the concerned parties and to the courts to proceed along customary lines. in order to effectuate that policy. Reduced to its fundamentals, the act does three things:

(1) It deprecates a newly appreciated wrong which, as the legislators decided, should be remediable;

(2) It defines with precision the character of that wrong, so that it may be readily identified by the parties and the courts; and

(3) It confers upon injured parties a cause of action for a new species of unfair competition.

There is no great novelty in any of this: The bill represents merely one increment of enlightened progress toward the prevention of inequitable business practices and the protection of fair traders. In general-perhaps without exception-the new causes of action will be asserted in equity; and so the chancelors will be enabled to promote a judiciously controlled evolution of remedial jurisprudence along lines hitherto neglected. Because the new causes of action are placed by the act in the category of unfair competition, long-familiar procedure is available for the initiation, trial, and disposal of suits.

CUTTHROAT PRICES-THE COMPETITION THAT KILLS

(Louis D. Brandeis, Harper's Weekly, November 15, 1913)

"I cannot believe," said Mr. Justice Holmes, "that in the long run the public will profit by this course, permitting knaves to cut reasonable prices for mere ulterior purposes of their own, and thus to impair, if not destroy, the production and sale of articles which it is assumed to be desirable the people should be able to get."

Such was the dissent registered by this forward-looking judge when, 2 years ago, the Supreme Court of the United States declared invalid contracts by which a manufacturer of trade-marked goods sought to prevent retailers from cutting the price he had established. Shortly before, the Court had held that mere possession of a copyright did not give the maker of an article power to fix by notice the price at which it should be sold to the consumer. And now the Court, by a 5-to-4 decision, has applied the same rule to patented articles, thus dealing a third blow at the practice of retailing nationally advertised goods at a uniform price throughout the country.

Primitive barter was a contest of wits, instead of an exchange of ascertained values. It was, indeed, an equation of two unknown quantities.

Trading took its first great advance when money was adopted as the medium of exchange. That removed one-half of the uncertainty incident to a trade; but only one-half. The transaction of buying and selling remained still a contest of wits. The seller still gave as little in value and got as much in money as he could. And the law looked on at the contest, declaring solemnly and ominously: "Let the buyer beware." Within ample limits the seller might legally lie with impunity; and, almost without limits, he might legally deceive by silence. The law gave no redress because it deemed reliance upon sellers' talk unreasonable; and not to discover for one's self the defects in an article puschased was ordinarily proof of negligence. A good bargain meant a transaction in which one person got the better of another. Trading in the "good old days" imposed upon the seller no obligation either to tell the truth or to give value, or to treat all customers alike. But in the last generation trade morals have made great strides. New methods essential to doing business on a large scale were introduced. They are time-saving and labor-saving; and have proved also conscience-saving devices.

The greatest progress in this respect has been made in the retail trade; and the first important step was the introduction of the one-price store. That eliminated the constant haggling about prices, and the unjust discrimination among customers. But it did far more. It tended to secure fair prices; for it compelled the dealer to make, deliberately, prices by which he was prepared to stand or fall. It involved a publicity of prices which invited a comparison in detail with those of competitors; and it subjected all his prices to the criticism of all his customers. But while the one-price store marked a great advance, it did not bring