lates a price above which goods may not be sold a price ceiling has been established. When a manufacturer discriminates between his customers by granting preferential rates to some customers which are not allowed to others who purchase goods of like quality and in the same quantity, this constitutes a type of price discrimination.

In contracts between the producer and his distributors whereby the latter agree to resell only at the price stipulated by the producer we have a method of resale price maintenance. It is to be noted, however, that where such contracts have been recognized as legal under statutes relating to the subject, such agreements may only be made with respect to the goods of the producer which bear a trade mark, brand or name and which are in competition with goods of the same general class produced by others.

The question of the legality of these price maintenance contracts has been before the courts many times during the past thirty years. Quite generally, the courts have held agreements of this kind to be without the purview of the law except in cases where the producer exercises his lawful right to refuse to sell to those who would not comply with his wishes as to the price at which his goods may be sold.

LAWFULNESS OF RESALE PRICE CONTRACTS FREQUENTLY TESTED

In a leading early case involving this subject, Dr. Miles Medical Co. v. Park and Sons Co., 220 U. S. 373 (1911), the petitioner required the wholesale and retail distributors of its goods to agree to sell its prepared medicines at specified prices. The Supreme Court refused to grant an injunction which the petitioner sought against the defendant who procured petitioner's medicines and sold them at "cut prices" below those specified in the agreements. Calling attention to the fact that the policy adopted by the petitioner was in violation of the Sherman Anti-trust Act the Court, per Hughes, J., said:

"If there be an advantage to the manufacturer in the maintenance of fixed retail prices, the question remains whether it is one which he is entitled to secure by agreements restricting the freedom of trade on the part of dealers who own what they sell. As to this, the complainant can fare no better with its plan of identical contracts than could the dealers themselves of they formed a combination and endeavored to establish the same restrictions, and thus to achieve the same result, by agreement with each other. *

"But agreements or combinations between dealers, having for their sole purpose the destruction of competition and the fixing of prices, are injurious to the public interest and void. ** **

In another case involving resale price maintenance contracts which came before the Supreme Court seven years later, a distributor of a patented product of the American Gramaphone Company entered into contracts to maintain resale prices but later violated these contracts. In a suit to enjoin such violations the Court said:

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"Applying the cases thus reviewed there can be no doubt that the alleged price-fixing contract disclosed in the certificate was contrary to the general law and void. There can be equally no doubt that the power to make it in derogation of the general law was not within the monopoly conferred by the patent law, and that the attempt to enforce its apparent obligations under the guise of a patent infringement was not embraced within the remedies given for the protection of the rights which the patent law conferred." Boston Store v. American Gramaphone Co., 246 U. S. 246 (1918), per White, Ch. J.

OTHER METHODS CONDEMNED

While it is true that essentially the subject is one of the right of an individual to contract with respect to goods and that contracts of this kind have been held to be in restraint of trade, other methods used by manufacturers to insure the maintenance of resale prices for their goods have likewise been condemned by the courts.

In Bauer and Cie v. O'Donnell, 229 U. S. 1 (1913), the petitioner sought to fix the price of an article which was patented by applying a notice to the package containing the article. It was held that once the manufacturer of a patented product parted with title to such product the privilege granted by the patent laws did not extend to the right to fix the price at which such product could be resold. The court in this case held differently from what it did in an earlier case, Bement v. National Harrow Company, 186 U. S. 70 (1902), in which resale price maintenance by notice under patent was upheld. In the case of Straus v. American Publishers Association, 243 U. S. 490 (1917), there was a question of the right to enforce resale price maintenance in a license agreement under a patent. The court held that this was illegal.

In a case involving resale price maintenance by notice under copyright, the Supreme Court held that such notice was not binding except upon parties to an agreement or licensees. Bobbs-Merrill Company v. Straus, 210 U. S. 339 (1908). In a case decided in December 1913, Straus v. American Publishers Association, 231 U. S. 222, the Court held resale price maintenance under copyright to be illegal.

Contracts to maintain resale prices were held to be illegal in United States v. Schrader's Sons, Inc., 252 U. S. 85 (1920). In this case the defendant set up its rights in its trade mark as a ground on which to control prices. Mr. Justice McReynolds speaking for the Court in this case said:

"It seems unnecessary to dwell upon the obvious difference between the situation presented when a manufacturer merely indicates his wishes concerning prices and declines further dealings with all who fail to observe them and one where he enters into agreements—whether express or implied from a course of dealing or other circumstances-with all customers throughout the different states, which undertake to bind them to observe fixed resale prices. In the first, the manufacturer but exercises his

independent discretion concerning his customers, and there is no
contract or combination which imposes any limitation on the
purchaser. In the second, the parties are combined through
agreements designed to take away dealers' control of their own
affairs, and thereby destroy competition and restrain the free
and natural flow of trade amongst the states,"

REFUSAL TO SELL TO PRICE CUTTERS

The policy of the courts to refuse to uphold resale price maintenance in cases in which contracts, patent and copyright notices and licenses, and similar methods were involved, left but one way open to the manufacturer to prevent continued sale of his products below specified prices. Until the decisions by the United States Supreme Court in December 1936, involving the California and Illinois Fair Trade Acts, refusal to sell to customers who would not maintain specified resale prices was the only remedy the manufacturer had against the price cutter. This was not always a very effective remedy for the reason that the price cutter could obtain the particular products from other sources and often from the manufacturer's wholesalers and other customers.

SUGGESTED RESALE PRICES

In United States v. Colgate and Company, 250 U. S. 300 (1919), the Colgate Company "indicated" to its customers the prices at which it desired its products to be sold. It did not enter into contracts with these customers establishing resale prices but merely refused to sell to those who would not charge the prices indicated until they gave assurance of complying with the policy of selling at such prices. In this case, the court referred to the fact that in Dr. Miles Medical Co. v. Park and Sons Co., supra, there was a question of the legality of contracts for resale price maintenance while here Colgate and Company did not enter into agreements with its distributors but merely indicated the resale price of its products. Calling attention to the fact that a trader may select the customers with whom he may deal, the Court said:

"In the absence of any purpose to create or maintain a monopoly, the act does not restrict the long-recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal, and, of course, he may announce in advance the circumstances under which he will refuse to sell. * * **

In another case, Federal Trade Commission v. Beechnut Packing Co.. 257 U. S. 441 (1922), wherein the right of refusal to sell was considered by the Supreme Court, there was no formal agreement between the manufacturer and its distributors regarding resale prices but the manufacturer "indicated" to its customers the price at which the goods were to be sold. Here the court found that the methods used by the defendant amounted to agreements express or implied and therefore such methods were in violation of the Sherman Act. In furtherance of its policy to refuse to sell to price cutters it urged its distributors as well as its salesmen to report

dealers selling below the indicated prices. In addition, it maintained lists of names of undesirable dealers who were reported as price cutters and would not remove the name of any dealer until he gave satisfactory assurance that he would sell the products at the prices "indicated." An elaborate system of tracing goods sold below specified prices was maintained by the manufacturer. Although the court enjoined the defendant from the above-mentioned practices used in its price maintenance policy, it declared that the order of the Federal Trade Commission was too broad in that it prohibited the defendant from using any means of maintaining prices for its products.

That a manufacturing corporation may fix the price which is to be charged for its goods by its agents has been upheld by the Supreme Court in the case of United States v. General Electric Co., 272 U. S. 476 (1926). Here the defendant distributed its patented products through 21,000 agents and specified the price at which those products were to be sold. The court was unable to find in this method of price maintenance a violation of the anti-trust act and held:

"We are of opinion, therefore, that there is nothing as a
matter of principle, or in the authorities, which requires us
to hold that genuine contracts of agency like those before us,
however comprehensive as a mass or whole in their effect, are
violations of the Anti-Trust Act. The owner of an
of an article,
patented or otherwise, is not violating the common law, or the
Anti-Trust law, by seeking to dispose of his article directly to
the consumer and fixing the price by which his agents transfer
the title from him directly to such consumer.

MOVEMENT FOR PRICE CONTROL LEGISLATION

The inability of manufacturers to enforce contracts and other means of maintaining resale prices for their goods except by the more or less ineffectual method of refusing to deal with price cutters, led to agitation for laws to legalize price maintenance agreements. As far back as the latter part of the nineteenth century certain producers whose goods enjoyed a nation-wide reputation were confronted with complaints from their distributors who were unable to move their goods because large department stores were making great cuts in prices for identical products which were being used as loss leaders. The retailer, on the other hand, was not so much interested at the time in resale price maintenance but wanted some assurance from the manufacturer that he could sell the products he bought. One manufacturer followed another in urging the enactment of legislation which would enable them to limit, if not to put a complete stop to the destructive price cutting methods of the department stores and the chains, the latter having become an important factor in retail merchandising with the turn of the century, due no doubt in some measure to their ability to sell at reduced prices. This effort to stop the price cutting tactics of certain customers of the manufacturer resulted in the introduction into Congress, on February 12, 1914, of the Stevens Bill (H. R. 13305) to legalize resale price maintenance by contract. This Bill was followed several days later by the Metz Bill (H. R. 13860) for legalizing a uniform retail price by a notice applied to or connected with the commodity. How

ever, support for this Bill began to wane and the proponents of this type of legislation centered their efforts on price maintenance by contract. These proposals for legislation were followed in 1931 by the Kapper-Kelly Bill (H. R. 11) which continued to occupy the attention of those interested in the subject until the establishment of the codes under the National Recovery Administration.

Some manufacturers became lukewarm if not entirely indifferent toward the drive for remedial legislation to uphold agreements prohibiting resale below stipulated prices. Their new attitude on the subject resulted from the fact that the large orders from price cutters enabled them to maintain sales and often to increase their output. The purchaser of large quantities was able to sell for less by reason of lower costs and greater discounts.

Shifts in attitudes on this subject occurred with changes in distributing methods. Very recently there has arisen a new marketing device referred to quite generally as the "cut rate" store. These are mainly engaged in the sale of drugs and related products. The ability of these new marketing outlets to sell below not only the individual dealer but also the chains has resulted in a different view toward the enactment of legislation on the part of some of the latter. Thus we find that not only manufacturers but also their distributors have pressed for appropriate action by the law-making bodies, state as well as federal.

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STATE LEGISLATION SOUGHT

The proponents of this legislation, which included many in the drug trade, sought action through State legislatures. One would think that efforts to obtain the passage of similar laws in forty-eight states would meet with almost insurmountable obstacles. Although the earliest Act passed a result of this movement was that of California, passed in 1931, in the years between 1933 and 1937 approximately forty additional states joined the vanguard and enacted somewhat similar laws. The difficulties in obtaining federal legislation were still present but by a rider to the District of Columbia Tax Bill (H. R. 7472) approved August 17, 1937, federal cooperation was extended by the recognition of the legality of contracts entered into in those states where such contracts could be upheld in accordance with state law.

CALIFORNIA FAIR TRADE ACT

The first of more than forty Fair Trade Acts recently enacted in as many states was that called the "Badham Fair Trade Act" (Assembly Bill 1228) which passed the California Legislature in 1931. It was the initial step in the movement to obtain legal sanction to agreements, with respect to the maintenance of resale prices, between producers and vendors on one hand and vendees on the other. Approved May 8, 1931, it became effective on August 14, 1931, and is as follows:

"An act to protect trade mark owners, distributors and the public against injurious and uneconomic practices in the distribution of articles of standard quality under a distinguished