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enterprise system. And I think that a broad, general policy is most appropriate when, in my opinion, it does not actually conflict with the antitrust laws. Therefore, there would be no need for me to take the time, or the judge's time, to engage in a question and answer contest:
I have great admiration for Judge Loevinger and his Department I think he is doing a good job in his position. I am sorry that we do
a not see eye to eye on this matter.
Mr. LOEVINGER. Thank you, Mr. Harris.
Mr. STAGGERS. I thank you kindly, Judge Loevinger, for your appearance here and coming back today to answer questions. Thank you.
Mr. LOEVINGER. Thank you, Mr. Chairman.
Mr. STAGGERS. Our next witness will be Prof. J. Lester Hayman of West Virginia University School of Pharmacy. And I am pleased to welcome Prof. J. Lester Hayman. And accompanying him is Miss Ann Dinardi, who operates a large pharmacy in Morgantown, W. Va., the seat of our university.
Mr. Hayman was a professor and member of the faculty at the University of West Virginia for 44 years, dean of the school of pharmacy for 25 years, and he served as president of the American Association of Colleges of Pharmacy in the past.
Professor Hayman, we are certainly pleased to have you with us this morning, and you may proceed. STATEMENT OF J. LESTER HAYMAN, PROFESSOR OF WEST VIR
GINIA UNIVERSITY SCHOOL OF PHARMACY, MORGANTOWN, W. VA.; ACCOMPANIED BY ANN DINARDI, PHARMACIST
Mr. HAYMAN. Thank you, Mr. Chairman, members of the subcommittee. I am J. Lester Hayman of Morgantown, W. Va. For more than 55 years I have been identified with the profession of pharmacy, including the retail drug operations.
I appear here as a member of the executive council of the West Virginia State Pharmaceutical Association, an organization I served as secretary-treasurer for 23 years. I have served the organization in every elective office as well as on every committee.
With your permission, I would like to make a few additional statements pertaining to my background as it pertains to my profession and the drug trade. I have been a member of the faculty of the School of Pharmacy of West Virginia University for 44 years, serving as dean for 25 years, from which position I retired 2 years ago.
I have served as president of the American Association of Colleges of Pharmacy, as second vice president of the American Pharmaceutical Association, for 9 years as a member of the national drug trade conference, as president and as secretary of the national conference of pharmaceutical association secretaries, and have been active in the work of numerous other national and State organizations identified with pharmacy and the drug business.
I am grateful for this opportunity to offer my views on the need for H.R. 3669 to promote quality and price stabilization in the distribution of goods identified by distinguished brand names or trademarks.
Let me begin with a discussion of the property rights which the quality stabilization
bill is designed to protect. Of course, I am referring to brand names and trademarks. The primary purpose and function of a brand name or a trademark is to denote the origin of the goods and to identify the source of the product to which it is applied. Basically, brand names and trademarks represent goodwill
, and I would like to emphasize goodwill. They protect consumers from misrepresentation as to the source of the product. Brand names and trademarks protect their owners against unscrupulous merchants trading on the reputation and the public acceptance which their products have earned over the years.
The manufacturers of branded and trademarked commodities, as you well know, spend millions of dollars to standarize the quality of their products and to make them known and acceptable, as qualified products, to millions of consumers. The consumer soon learns to depend upon branded and trademarked items as quality products. If this were not so, there would be no point in establishing brand names or trademarks by law or in the producer spending vast sums of money in the varying advertising media to attract consumers to the quality of his brand name or trademarked merchandise.
The U.S. Supreme Court, in 1936, in the celebrated Old Dearborn case, made it very plain that a purchaser of a brand-named or trademarked commodity owns only the material which he purchases and that he does not purchase the name nor the goodwill of the manufacturer of the commodity. In spite of this pronouncement by the U.S. Supreme Court, it appears that the predatory merchants may do with trademarked or branded merchandise what they will in spite of the interests of the producer or manufacturer or in spite of the best interests of the consumer.
I presume that I first realized the need for quality stabilization legislation early in the 1920's as I recall, when the manufacturer of the Ingersoll dollar watch was forced into bankruptcy when their “dollar watch” was predatorily cut to 57 cents by large merchandisers across the country. I remember, gentlemen, the area of the so-called pine board drugstores in the early 1930's when these establishments were only interested in predatory merchandising in large volumes. In our State of West Virginia, Mr. Chairman and members of the committee, the pine boards were mostly interested in the sale of whisky on prescription. Our State was "dry" and a physician's prescription order was the only means the public had to obtain this U.S. pharmacopoeial product. The pine boards employed pharmacists because the law required that they do so, but they did not have enough chemicals, pharmaceuticals and equipment to fill any other type of prescription. They were a sham and a fraud but their ruinous pricing put many an independent out of business.
This was the time, Mr. Chairman, when our mutual friend Mr. E. V. Romig of Keyser was president of our State pharmaceutical association, and when the small merchants of our State and every other State were using every legitimate means to obtain the passage by Congress of a quality stabilization bill, then known as the Capper-Kelly bill. On January 23, 1930, when the House Interstate and Foreign Commerce Committee favorably reported that bill, Congressman Clyde Kelly stated that
The action of the committee is proof of the justice of the contention urged through many years that predatory price cutters shall not be permitted to destroy standard, quality goods and independent distributors through cutthroat competition.
I am sure, gentlemen, that you know that the Capper-Kelly bill never became law. The predatory retailing practices were not curbed, the well-known, brand-named merchandise continued to be footballed by fast-buck merchandisers; the switch artists continued to gyp the unwary or the unsuspecting consumer; the price wars continued to destroy profits, to close the outlets that could not compete, and to eliminate jobs. May I repeat the statement made a few moments ago where the U.S. Supreme Court made it plain that,
The purchaser of a trademarked or brand-named item owns only the material which he purchases and that he does not purchase the name nor the goodwill of the manufacturer of the commodity.
The predatory seller of trademarked or brand-named merchandise is not at all interested in selling the manufacturer's product as such, but is only interested in selling at cutrate prices when the material is identified with the trademark or brand name. May I illustrate with an example?
I have here a well-known toothpaste which is trademarked and very popularly known. Now, the cutrate merchandisers would like to sell this material at cost or below cost as a loss leader item, so long as it is identified with this trademark. But if I removed the trademark they are not interested in selling it at all, and the consumer is not at all interested, because they know nothing of this product when it is not identified with the trademark.
Many witnesses have brought to the attention of the committee that
Nothing in the proposed legislation would bar a distributor from removing the trademark or brand name from a product
Which I have just illustratedthus separating the physical property, which he owns, from the goodwill which is another's property-and then selling the commodity at his own price or in his own way, so long as he does so without making use of the goodwill of the latter to reach his end.
For some few years in the late thirties and forties, the fairminded distributors and retailers were afforded some relief from the chaotic retailing practices of the early 1930's, but in many States, including West Virginia, the condition has again changed and retailing prac. tices in some of our areas are far worse than I have seen them in my more than 50 years of experience.
Gentlemen, unless the Congress provides some legislation which includes the provisions now embraced in H.R. 3669, I would predict that the small merchant who must depend upon fair merchandising and a reasonable profit will be nonexistent in another two decades.
If I may be permitted a few more minutes, I would like to include some brief information resulting from a visit I had on April 15 with the oldest and one of the most respected practicing pharmacists in West Virginia and the holder of pharmacist's certificate No. 1 in the State of Ohio. This 93-year-old gentleman is the principal owner and the manager of five drugstores in Wheeling, W. Va. and one in Ohio.
I was informed that this company bought almost every item direct from the manufacturers in quantity lots and that in every instance they took advantage of available cash discounts. I was also told that within two blocks in the city of Wheeling there are nine so-called discount retailers which are attempting to cut prices lower than their competitor. My friend informed me that these predatory retail outlets were telling their customers that if they could find a lower price on any item they were selling that all the customer had to do was to name the price and they would undersell the competitor's quoted price. Such pricing tactics have only one objective-destruction of all smaller competitors. Whoever has the long purse will win that price war.
The 93-year-old active pharmacist and store owner said that he had never before competed with such demoralizing practices and that he could not continue to stay in business were it not for the professional reputation that he had built in the community over the many, many years that he has served those needing his service.
Gentlemen, I need not dwell on the fact that the quality stabilization bill is not mandatory on the manufacturer, the distributor, or the consumer. Others have or will discuss this point far better than I.
May I say that the organization which I represent wholeheartedly approves of the remarks made by the Honorable Ray J. Madden on the quality stabilization legislation made in the House of Representatives on April 16, 1962, and of the speech made in the Senate of the United States by the Honorable Hubert H. Humphrey, both of which were printed in the Congressional Record, and which i hope have been made or will be made a part of the record of these hearings.
I urge you to give serious and favorable consideration to this proposed legislation which I believe to be in the best interests of the manufacturer, the distributor, and the consumer of trademarked and brand-named merchandise.
Mr. Chairman, may I make one further statement?
Mr. HAYMAN. I understood the previous witness to say that in the Old Dearborn case that the Supreme Court did not say whether or not the Congress had the power to pass legislation having to do with goodwill of trademarked and brand-named merchandise.
I have here a copy of one of our national magazines, dated December 4, 1936, with very large headlines which reads:
Supreme Court declares, "goodwill is a real property, injury to which is a proper subject for legislation."
If I may, I would like to include that as a part of this testimony.
(The newspaper article referred to has been placed in the committee files.)
Mr. STAGGERS. Does that conclude your statement ?
Mr. STAGGERS. The committee wishes to thank you for appearing, Professor Hayman, and for your very scholarly and comprehensive presentation before the committee; and we would like to ask at this time if Miss Dinardi has any statements she would like to add to the presentation.
Miss DINARDI. Mr. Chairman and subcommittee, the most important part of this bill that has come up is to protect our young graduates that are expecting to go into further business. I have worked with them, I have been their secretary for almost 25 years, and I know their problems. They are all hesitant in going into their own private business or making any further ventures. And if they are more protected with bills of this sort, they would not hesitate. They will give some contribution to the world.
Mr. STAGGERS. Thank you very kindly. Do you have any questions, Mr. Dingell?
Mr. DINGELL. No questions, Mr. Chairman. Mr. STAGGERS. Mr. Glenn? Mr. GLENN. I would just like to comment, Mr. Chairman, Mr. Hayman made a very fine statement.
And I wonder if you will agree with me that the example that you quoted as an example of the tactics being used by big business today would have been considered unethical 20 or 25 years ago and we had no such thing in those days; and that what we are probably doing, unfortunately, is legislating on ethics, but there is no other way we can bring such actions to a stoppage.
Mr. HAYMAN. Congressman Glenn, I can remember very vividly 25 and 30 years ago, when such products as the one I have demonstrated here, as well as other products, were sold at a price which was quoted on the label. We did not have predatory price cutting, and the small merchants were able to make a living, a decent living, and stay in business. We did not have these predatory price conditions at that time.
Mr. Glenn. Thank you very much.
Mr. Van DEERLIN. Mr. Hayman, the gist of your testimony is that this is consumer protection legislation as well as protection for the businessman; is this right?
Mr. HAYMAN. In my opinion, sir, it is mostly a protection for the manufacturer of the branded and trademarked names, but also through that, it does protect the fairminded retailer as well as the consumer.
As I illustrated here a little while ago, without the brand name on a product, the consumer has no idea as to what the product is or what the quality is; and therefore, of course, they would not want to buy it. I do not believe.
Mr. VAN DEERLIN. I was thinking about such products as aspirin or other products like Serpasil and one thing and another, which I would assume under present law must conform to certain absolutely well defined standards and must contain labels indicating what they contain.
And I was wondering whether the Food and Drug Administration and other such policing agencies are doing an adequate job in consumer protection or whether they should be supplemented by new legislation.
Mr. HAYMAN. Well I presume that you are referring to the products which may be sold over the counter, which must have certain statements insofar as the Federal food, drug, and cosmetic law is concerned.
In my opinion, I think the statements that are necessary and the