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savings, build buildings, expand, remodel, increase employment, and embark on long-range plans of operation.
The quality stabilization bill provides an immediate answer to the urgent call from citizens and from businessmen to whom we must look for a thriving and successful business community. I sincerely urge this committee to favorably consider the quality stabilization bill.
Mr. STAGGERS. We appreciate your testimony, Mrs. May.
Mr. STAGGERS. The next witness is our colleague from New York, the Honorable Emanuel Celler. Mr. Celler, you may proceed. STATEMENT OF HON. EMANUEL CELLER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK Mr. CELLER. H. R. 3669 is the latest version of that hardy perennial, a national “fair” trade bill, to permit, indeed encourage, retail price fixing
Concealed as usual behind a fog of euphemisms, this consumer price-increase bill is presented to you in this session, as in the last session, dressed up in the seductive sheep's clothing of a "quality stabi- . lization” bill. Last year's "quality stabilization” price-fixing bills contained a large economy-size preamble of “unfair" trade practices the bills purportedly would have prevented. At that time I suggested that the length of the preamble gave rise to the inference that a blackand-white animal resided in the bill.
This year there is no such covert attempt to conceal the price-fixing purpose of this obnoxious legislation. Nevertheless a small dose of Chanel No. 5 has been applied to this black-and-white animal by euphemistically dubbing it a “Quality Stabilization Act.”
When a cat would eat her kittens, she calls them mice.
H.R. 3669 is as drastic a “fair” trade price-fixing bill as has ever been proposed.
Before pointing out its particular features, which are the bases of this assertion, I purpose to deal with the main thrust of the bill.
I. IN THEORY AND PRACTICE THESE BILLS ARE AGAINST THE PUBLIC
I have long been an opponent of the system of price fixing that is permitted by the so-called “fair” trade laws. Such price fixing flies in the face of our antitrust laws and the free competitive system which the antitrust laws are designed to protect. This bill would gouge out a large hole in our antitrust laws.
"Fair" trade was spawned by wholesale and retail merchant associations, primarily the National Association of Retail Druggists, to permit vertical price fixing in the depression days, when the Federal Government was sanctioning horizontal price fixing by manufacturers through NRA. A powerful lobby was able to pressure 45 States into accepting the NARD's draft of a "fair" trade bill. Although manufacturers were comparatively inactive in this early effort, the rallying slogan then as now was ""protection of the manufacturers' trade name or trademark." Somehow all trade names and trademarks were elevated to Cadillac significance, subject to being sullied by association with anything but an artificially high price.
A. DETRIMENT TO THE CONSUMER
The history of the last two decades has demonstrated that "fair" trade laws work to the detriment of both the consumer and the small businessmen purportedly protected by them. Most impartial commentators have condemned them. In some 24 States the courts have invalidated “fair” trade acts, or at least their nonsigner provisions. In an appendix to this statement I have attached excerpts from the opinions of a number of such courts. Some of the sponsors of these quality stabilization bills, I note, come from States where "fair" trade laws have been invalidated in whole or in part. These bills would impose a Federal “fair” trade law even on those States where "fair" trade has been rejected.
The principal evil that results from “fair” trade—the maintenance of artificially high consumer prices-has been exposed in State after State. After the Supreme Court of Ohio ruled the nonsigner clause unconstitutional, for example, prices on automatic coffeemakers quickly dropped from the $39.95 "fair" trade price to a $29.97 competitive price. Electric frying pans, which had a list price of $19.95 were reduced to $13.87. After an initial flurry of reduced-price sales, in Ohio as in the case of other States that outlawed "fair" trade, the market soon became stable. The dire consequences that had been predicted by the "fair" traders--widespread business failures, increased concentration, and predatory excesses by monopolists—did not occur. The only result was that the consuming public received the benefit of having prices settle in the competitive market at about 20 percent lower than the former "fair" trade prices.
The Department of Justice in the past has presented to Congress several surveys which have demonstrated how much more the consumer must pay in "fair" trade States than in non-“fair”-trade States.
In 1952, when the McGuire Act was being considered, I conducted a survey and brought into the House of Representatives three baskets. I had purchased 11 identical articles in 3 different Peoples Drug Stores. I purchased one basket in the District of Columbia, where there was no "fair" trade. I purchased the same articles in Bethesda, Md., where there was "fair" trade. I purchased another basketful in Arlington, Va., where there was “fair” trade, and compared the prices that I paid for these identical articles. On no item did I pay less than 10 percent more in a "fair" trade State than in the District and on some items I paid as much as 53 percent more. My statement to the House appears in the Congressional Record of May 7, 1952, at pages 4909 and 4910, as follows:
I purchased 10 cubic centimeters of u. 40 protamine zinc Lilly insulin, used by diabetics. The price in the District of Columbia was 98 cents. The price in Maryland was $1.29. The Maryland price was 32 percent above the District price. In Virginia-in Richmond, for example the same article, Lilly's insulin, was sold at $1.48. If you can tell me that the public is protected by fair trade, I would like to know why those differences in prices.
I purchased a BD Yale 26-gage 1-inch hypo needle, used to inject insulin into a sick person's body. In the District of Columbia the price was 15 cents. In Virginia the price was 20 cents-33 percent higher in Virginia. In Maryland the price was 23 cents-53 percent more in Maryland.
I purchased 100 Bayer aspirin tablets in Virginia, Maryland, and the District of Columbia. In the District of Columbia the price is 46 cents. What was the price in Virginia ? The price was 59 cents. I paid 28 percent more for the same article in Virginia. What was the price in Maryland? Fifty-nine cents. Again I paid 28 percent more for the same article in Maryland.
I purchased some 12-ounce bottles of Phillips milk of magnesia. Here are the bottles. In the District of Columbia the price was 34 cents. In Virginia it was 14 percent higher, or 39 cents. Similarly, in Maryland it was 14 percent higher, or 39 cents.
I purchased some large tubes of Ipana toothpaste. See the difference in these purchases. I paid 27 percent more for the Ipana toothpaste in Virginia than I did in the District of Columbia. In the District of Columbia the price was 37 cents. In Virginia the price was 47 cents; and, likewise, in Maryland, it was 47 cents.
I purchased packages of 20 Gillette blue blades. In the District of Columbia the price was 87 cents, whereas in Virginia I paid 11 percent more, or 98 cents, and also 11 percent more in Maryland, namely, 98 cents.
There were other articles that I purchased and for which, under fair trade, I had to pay 20, 25, and 30 percent more for the identical articles.
I am told, moreover, that in 1960 there were striking differences between fair trade and nonfair trade prices as follows, in the following nonfair trade States:
In Columbia, S.C., a sick person could buy Achromycin V capsules and Declomycin for $7.20 instead of $7.65; Serpasil for $6.50 instead of $7.50; Orinase for $6.25 instead of $6.75; Coricidin for 75 cents instead of $1.08, and Neo-Synephrine for 65 cents instead of 90 cents.
In Houston, Tex., for example, an invalid could obtain Achromycin V capsules for $6.96 instead of $7.65; and similarly as to Declomycin. Premarin could be bought for $6.73 instead of $8.75; Orinase for $5.25 instead of $6.75; Unicaps for $2.69 instead of $3.11; Theragran for $8.19 instead of $9.45. At the hearings on H.R. 6245 before the Antitrust Subcommittee last year, Senator Kefauver noted that Merck charged the retail druggist $170 for 1,000 Prednisone tablets whereas the fair trade minimum retail price is $255. Senator Kefauver added that Ciba sells 1,000 Serpasil tablets to the druggist for $39.50, while the fair trade minimum is $65.83.1 The hearings of the Senate Antitrust and Monopoly Subcommittee on the drug industry, and of the House Antitrust Subcommittee on H.R. 6245 last year, abound with instances of the astronomical profits of drug manufacturers. 2
As noted below, these very drug manufacturers would be empowered by this bill to soak the invalid by enforcing artificially inflated retail prices over and above the extortionate prices charged to the retail drugoist.
In an appendix to this statement I have listed similar examples in other cities and States, including Miami, Fla.; Indianapolis, Ind.; Louisville, Ky.; St. Louis, Mo., Seattle, Wash.; Spokane, Wash.; Huntington, W. Va.; Minneapolis, Minn.; and Cleveland, Ohio. Congressman Dingell, in his minority report on a similar bill in 1959, adduced many more instances of lower prices where fair trade did not prevail.
1 On Apr. 9. 1963, Senator Kefauver, on the floor of the Senate, noted that Ciba, the producer of Serpasil. had a markup of almost 1,500 percent.
2 While H.R. 3669 would exempt sales of prescription drugs, it would be wholly unrealistle to expect this exemption to survive in view of the sponsorship of this legislation by the NARD. The Senate bill, S. 774, significantly has no such exemption.
In September of last year I engaged in another shopping excursion.
I What did I find? For 51 cents I was able to buy Coricidin (25's) in the nonfair trade District of Columbia, but I had to pay $1.08 in Maryland (fair trade). I paid $1.77 in the District for 100 Unicaps and $3.11 for the same amount in Maryland. Bayer aspirin cost me 99 cents in Washington, D.C., and $1.48 in Maryland. I paid 54 cents for Phillips milk of magnesia in the District of Columbia and 63 cents in Maryland. The economy size Ipana toothpaste cost me 60 cents in the District, 69 cents in Maryland; 10 cubic centimeter units 40 Protamine Zinc Lilly insulin cost me 99 cents in the District and $1.48 in Maryland.
Finally, I bought something dear to the heart and gullet of many of us. I purchased a pint of Old Crow (only 86 proof, I may add). In the District it cost me $2.30 (including 7 cents tax); in Maryland, $3.07 (including 9 cents tax).
Thus, the same items which could be bought in the nonfair trade District for $7.20 cost $10.89 in the fair trade State of Maryland. This means that if during the year I had paid $70 for these items in the District, in Maryland the cost would have been over $30 more for the same items.
Last year, at hearings on H.R. 6245 before the House Antitrust Subcommittee, there was a great deal of testimony to the adverse effect on ill and elderly persons of the high price of drugs. I think that each of us in Congress should hesitate to add to the burden of these people by enacting legislation which must have the necessary effect of increasing the price of drugs they buy. How can you justify this legislation to them, if it is passed?
We are told that the consumer need not worry since it is effective only when he can buy "goods usable for the same general purpose” as the price-fixed item. But this is small comfort indeed when, as most often happens, both items are price fixed. And the Lord only knows to what extent even this vague limitation applies where a price is fixed on several items sold as a package.
These bills will increase prices to the consumer.
B. DETRIMENT TO THE MERCHANT
And what have these fair trade laws done for the small businessman? They promoted the use by big retailers of their own privatebrand goods which could be sold for less than the smaller retailers' trade-name goods purchased from the manufacturers. They favored the inefficient retailer over the efficient retailer. They facilitated the rise of the discount house. They deprived the retailer who wanted to use price as a means to compete with his larger competitors of the right to do so. They made less service and less price an infraction of the law and insured that less service would not be accompanied by less price. They took away any incentive for retailers to urge manufacturers to lower high prices. And now the proponents of these bills, in the name of free enterprise, would impose upon businessmen and the public alike socialism in the form of federally supported and en forced price fixing.
Make no mistake, this bill is not only a consumer price increase bill, it is an anti-free-enterprise bill. The retailer cannot set a price on what he sells based upon his own efficiency, the cost savings that may be available to him because of self-help, long hours, use of cost-savings devices, selling for cash, or what have you. He is instead to become a slave of the manufacturer, and of his competitors, who wish to keep him at their level.
Recently, in Federal Trade Commission v. Sun Oil Co., 371 U.S. 505, the defendant argued (p. 524) that the retailer “is but a 'conduit for the supplier”-in that case the Sun Oil Co. The Supreme Court replied (p. 529):
Having consciously chosen not to effect direct distribution through wholly owned and operated stations, Sun cannot now claim for itself the benefits of such a system *
This bill, by giving the big manufacturer carte blanche to engage in vertical price fixing, would indeed confer on the big manufacturer "the benefits of such a system," leaving the burdens to the small retailer who would become a mere "conduit” or "outlet" for his supplier's goods at prices dictated by the supplier. If the retailer should insist on setting his own competitive price, this bill would permit the large supplier to summon the Federal courts to his aid in subjugating the retailer into economic serfdom. I should think small businessmen would be appalled at this prospect.
The Supreme Court of Pennsylvania only last month pointed out how fair trade laws shackle, if indeed they do not strangle, small businessmen. In Meade Johnson & Co. v. Breggar (CCH 1963 Trade Cases, par. 70, 721), the Pennsylvania Supreme Court said:
Price fixing is at its best a drastic curtailment of competitive free enterprise, one of the main pillars of support of the entire American economic structure. At its worst, it can become a straitjacket on initiative in business, resulting in monopoly manacling progress so as to serve a possible conspiratorial status quo.
The very idea that a commercial entity may hold in one fettering price-fixing grasp all businessmen engaged in vending a certain product, just as a herdsman holds lassoed cattle on the plains, offends against the most elementary concept of a free and independent society. The Fair Trade Act is not only in derogation of the common law, it is in defiance of principles which the Federal Government has on countless occasions enunciated in its antitrust legislation and litigation.
Since references are often made to discount houses at these hearings, a few words on that subject may be in order.
As Mr. Bicks, former head of the Antitrust Division, explained to this committee in 1959:
Initially, fair trade gave discounters an unimpeachable nationally advertised price to cut. The buyer could clearly see the savings involved. Beyond that and more important, by attempting to stifle price competition, the fair trade laws created an economic vacuum into which the discount houses rushed.
Business writers have also pointed out that:
Through the fair trade laws * * * and other devices, our legislators and courts have sought, in effect, to bottle up price competition, especially at the retail level. The discount house may be viewed as a manifestation of the explosive pressures which are likely to be generated as a result of an attempt to eliminate price competition in a competitive economy * * *3
Alexander and Hill, "What To Do About Discount Houses,” Harvard Business Review, 1955.