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Mr. LOEVINGER. My inquiries indicate that there is a division of opinion among small businessmen, as indeed these poll results will show. I believe that there are some organizations the leadership of which is very much convinced that legislation of this sort is desirable, and which, year after year, support it.
I am equally convinced that a majority of small businessmen themselves are opposed to it. This is reinforced by the other survey of the National Federation of Independent Businessmen referred to in my statement, which, as far as I know, is far and away the most extensive survey that has ever been taken.
Incidentally, the National Federation that took this survey was a fair trade advocate. It has carried the term “Fair Trade" on its masthead as an indication of its advocacy of this approach.
However, when it polled approximately 200,000 small businessmen in every one of the 50 States, it found that a slight majority was opposed.
I have spoken to the leaders of some of the larger organizations, and also to a number of businessmen, and I am persuaded that small businessmen themselves do not uniformly support this by any means.
It is, of course, very difficult to say that there is a majority one way or the other. This would require a very careful and rigorous survey; and so far as I know, this sort of thing has not been done. I doubt that anyone except the U.S. Government has the resources to do it.
Mr. Glenn. In the recitation yesterday, you also said that you were going to limit your statement to the facts rather than citation of legal principles and cases, and yet, reading your statement, it seems to me that rather than recitation of fact it is conclusions. Do you not think that these are your conclusions after considering what facts you wanted to consider in the preparation of this very fine brief?
Mr. LOEVINGER. No, sir, I do not. I think that this is the most factual statement that has been presented to this committee on the subject.
I know of no other presentation to this committee on this subject in which a similar effort has been made to examine the hard-core fig. ures. There is a good deal of talk, particularly among the advocates of the legislation, about the plight of small business, about the necessity for helping small business, about the value of small business to the country. With all of those statements the Department of Justice and I completely concur. We agree with all of the encomiums about small business that have been given. We agree that small business needs help and should be helped.
What is notable in those statements is a complete absence of any careful analysis of the operation of the proposed legislation, of the means by which it would affect small business, and finally of any pragmatic attempt to investigate what the actual effect of such legis. sation has been where it has been in operation.
We have undertaken to examine the actual operation of this proposed legislation. And this can be ascertained; this is not speculative or hypothetical, because such legislation has been in operation in many States and over relatively long periods of time.
We have also examined the results of that operation. Our examination wholly persuades us that, far from helping small business, what this proposed legislation does is handicap small business and result
in a higher rate of failure of small business than would exist without such legislation. ;:!
Mr. Glenn. Now, you mentioned failure of small business. Have you also made a study of the failures of small business within the last 3 or 4 years?
Mr. LOEVINGER. Yes, sir.
Mr. GLENN. They decreased in 1962?
Mr. GLENN. It seems to me I read somewhere that 1962 was an increase over 1961.
Mr. LOEVINGER. No, sir. I believe that is erroneous.
The generally used statistics are Dun & Bradstreet's statistics reported in the Statistical Abstract of the United States for recent years. We got the 1962 figures directly from Dun & Bradstreet, because they have not been published yet.
The total business failures started out in 1946 with a national number of only slightly over 1,000; in the postwar era there were great demands for all kinds of business, and the business failures were relatively low.
They increased steadily up through 1961, when they reached a high of 17,000. In 1962, they fell to 15,700.
It is interesting to note on the historical pattern, however, that, if you take the failure rate per 10,000 listed concerns, that the rate, the present rate, the 1962 rate is now lower than it has been at any time except during the post-World War II period and during the 2 years of 1936 and 1937. During the period from 1921 through 1935 the failure rate was higher. In 1938, 1939, and 1940 the failure rate was higher. Of course, you then got into the war period, and the rate of entry was very low in the postwar period.
It has now come back to a level that is below the level that prevailed during the relatively prosperous years of 1921 to 1931. Ånd it is lower than it was in 1961.
Mr. GLENN. Would you say the 1962 figures have not been published yet?
Mr. LOEVINGER. I do not believe so. I believe that we got them directly from Dun & Bradstreet.
I understand that we have made inquiry directly to Dun & Bradstreet to get as complete a set of figures for 1962 as possible.
It takes several months to get these figures out. This is now April, and I think that it usually takes about 6 months after the close of the year before the figures are generally published. They are now available on inquiry, however.
Mr. Glenn. Now, sir, I notice in your statement you quote from a number of supreme courts of the various States on the decisions on the so-called price-fixing, fair trade acts. And are there any States in the Union that have found fair trade acts constitutional and upheld them?
Mr. LOEVINGER. Yes, sir.
Mr. Glenn. Do you quote very many of those cases in your statemont?
Mr. LOEVINGER. No, sir. Mr. GLENN. Why not? Mr. DINGELL. If the gentleman will yield, I assume the fair trade witnesses will be back.
Mr. LOEVINGER. Well, among other things, they are not decided upon the same basis, Congressman. The issue presented, the constitutional issue presented, to the States, to the courts, that consider such legislation as this is: Is the means adopted by the legislature reasonably adapted to the securing of a proper legislative end?
Where the constitutionality of such a statute is upheld, the finding of the court is merely that within the very wide range of legislative discretion which is permissible under both State and Federal constitutions, that this does not seem to exceed the limits.
However, those courts that have found it unconstitutional have said that it goes even beyond the wide range of legislative discretion that is permissible, that either that the end sought is an improper one, and they say it is simply the aggrandizement of a few at the expense of the public; or the means adopted is so clearly improper that it cannot be permitted to stand.
Now, it seems to me that these are fairly persuasive and fairly powerful findings when they are made by as many supreme courts as have made such findings.
The contrary finding of some courts that, regardless of our personal opinion of the wisdom or unwisdom of this, it does not quite reach the extreme of unconstitutional impropriety, does not seem to me to be any fair answer to the findings of these courts that have said that the delegation of power and the ends sought, the enrichment of a few at the expense of many, is so clearly improper that it cannot be permitted to stand.
Mr. Glenn. Have there been any definite findings by the Supreme Court of the United States on fair trade acts?
Mr. LOEVINGER. The only decision by the Supreme Court of the United States is the old Dearborn case, in which it held, in 1935, that the Illinois Fair Trade Act as presented in the context of that case was not unconstitutional. This, of course, was an application of the Federal Constitution to a State act.
Mr. GLENN. You say: Was not unconstitutional ?
Mr. LOEVINGER. Yes, you can say it is constitutional. The finding is a negative sort. Again, the Supreme Court does not say: "We think this is a good act”; they say it does not transgress the bounds of legislative discretion.
Mr. GLENN. Well, sir, then for this difference between the State supreme courts—in which they apparently hold a diversity of opinions—and with this opinion of the Supreme Court which you have just mentioned, and certainly maybe this was not exactly on the basis of the bill which we have before us; do you not think it is within the realm of the legislative body to pass this act and make it the law, and then let you or someone else take it to the Supreme Court and let them pass on whether it is constitutional or not?
Mr. LOEVINGER. Certainly what Congress wishes to do, Congressman Glenn, is a matter of Congress discretion and judgment. I would assume that, if there is serious constitutional doubt about legislation, Congress might hesitate to enact it, for two reasons:
First, it may not wish to burden the Court with the kind of issue that is involved in such a constitutional trial; and, second, but more important, I think, is that where the constitutional doubt arises from such a serious attack upon the propriety of the means adopted and the ends sought, I would think it would be unwise for Congress to enact such legislation. And that is what I am urging,
I have suggested that I do not believe that the Old Dearborn case is in any respect decisive of the constitutional issue so far as Federal price-maintenance legislation is concerned. That considered only a State law and said that: “We are not prepared to strike down the economic experiment of the State under applicable Federal constitutional principles.”
It is now proposed that Congress should enact legislation which would displace all State legislation and which by Federal action would . occupy the field. Whether or not that is constitutional raises wholly different issues.
Mr. GLENN. Have we not been doing that in quite a few fields within the last decade?
Mr. LOEVINGER. Yes. Congress has done that in several fields within the last decade. And I raise the issue whether or not Congress wishes to do it again in this field, which traditionally has been reserved to the States.
Mr. Glenn. Sir, do you not agree with me that one of the arguments of last resort, perhaps of lawyers and particularly lawyers that specialize in appellate work, is always one that it is unconstitutional, and, of course, whether it is or not has to be decided by some court of jurisdiction, competent jurisdiction, and I cannot see where something which is so controversial as this issue, and particularly on this new socalled quality stabilization bill, which in my opinion is not the same as those which we have had heretofore on so-called fair trade bills; whether this should not be brought before the Supreme Court and have the decision made once and for all, and the only way you are going to do that is to enact this bill into law?
Mr. LOEVINGER. That is certainly an argument, sir, and there is no question that the final adjudication of constitutionality can be made only by the Supreme Court.
I have the clipping which you asked about a moment ago, Congressman, if you want it.
Mr. GLENN. Yes.
Mr. LOEVINGER. It is from the Congressional Record for January 18, 1960, at page A363, the extension of remarks of Senator Jacob K. Javits of New York. And it refers to a poll made by the National Small Businessmen's Association.
Mr. GLENN. And when was that poll made! Does it state?
Mr. LOEVINGER. Senator Javits, speaking in January 1960, says that the poll was conducted “last summer," which would have meant sometime, I suppose, in the latter half of 1959.
Mr. GLENN. Thank you.
Now, sir, on page 2, second paragraph of your statement, you say that:
* all of the rights and privileges created by H.R. 3669 are reserved exclusively for those large business enterprises which are the owners of brands, names, or trademarks, which is to say national manufacturers and distributors."
Now, where is the language of the bill that says, “rights are reserved exclusively for large business enterprises”?
Mr. LOEVINGER. It does not say it in those terms, but those are the terms in which the bill is written. No rights are given to anyone other than the owner of a brand, name, or trademark. These are, as a matter of observation, the large companies, the large national manufacturers and distributors.
Actually, our own survey of enforcement activity under the Fair Trade Act shows that the plaintiffs are predominantly, in fact almost exclusively, large companies, and that the defendants are predominantly small local retailers.
Furthermore, this gives tremendous advantages to the large national companies that are the trademark owners. For example, referring to the provision on page 8 concerning which Congressman Dingell had a colloquy with Congressman Friedel, what this does is permit a large national company that has its own distributive system to set the prices at which it will sell its merchandise, as well as the prices at which all of its competitors will sell its merchandise. It can reserve different brands for itself and sell them at a higher or a lower price, whatever will serve its interests.
There are many cases in which so-called dual distribution systems are in operation. These are cases in which manufacturers or producers distribute their products through their own outlets and also distribute to independent outlets. This gives them complete control of the prices, both of themselves and of their competitors.
I submit that this can hardly be an effective way to help small competitors, to put them wholly within the legal power of the people who now have a great deal of power over them, their suppliers, but who will henceforth be able to control not only the costs at which they buy but the price at which they sell.
Mr. GLENN. Well, you do not mean to say, sir, do you, that there are no small business enterprises that do not own brands and names and trademarks?
Mr. LOEVINGER. There are very few, sir, and those few will mostly not be able to take advantage of the privileges accorded by this bill
, because they will not be able to afford the kind of policing system that the bill premises as necessary.
Mr. Glenn. Now, on page 2 of your statement you say the bill does not prohibit loss leaders. And I think loss leaders is one of the great cries which we are seeking to get after. Let us assume that the XYZ
manufacturing company, which owned that XYZ trademark, decides to use this law and it announces its retail price schedule and gives notice to all its dealers that it is dealing with; then assume that dealer ABC sells the XYZ product below cost, which is the loss leader system. Does this bill permit the XYZ manu. facturing company to revoke the right of ABC to use that trademark!
Mr. LOEVINGER. It all depends on whether or not the price range that