in hand preparatory to dispensing a prescription order, the physical article is essentially a commodity. But the very act of dispensing the prescription medication, with all the attendant professional services of the pharmacist, introduces a marked change. This is the point at which a physical article passes from the world of commerce into the world of professional service.

The American Pharmaceutical Association joins the numerous other national trade and professional associations supporting H.R. 3669, the quality stabilization bill. We believe the bill is a constructive attempt to eliminate certain predatory practices involving quality products.

STATEMENT BY JOHN D. KELLY, EXECUTIVE COORDINATOR, NATIONAL ASSOCIATION OF TOBACCO DISTRIBUTORS, APRIL 24, 1963

The members of the National Association of Tobacco Distributors have long taken an active role in endorsing and supporting any and all endeavors which in their opinion would bulwark the freedom of initiative and preserve, in the public interest, the small business segment of our national economy.

In our opinion, the quality stabilization bill as contained in H.R. 3669 is critically necessary to the preservation of a marketplace economy wherein small retail and wholesale businesses can survive and hopefully even prosper.

Since the beginning of the century the "loss-leader" has been a favorite device utilized by certain retailers to bleed the vitality of competition from their less favorably circumstanced competitors. Nationally known products, or products of universal appeal, having widely established values, are disposed of by lossleader practitioners at cost or less than the actual cost of acquisition. This offer and sale at such ruinous prices is intended as an enticement calculated to increase customer traffic to the place of business of the "loss-leader" seller and to induce the purchase of other merchandise for which no standard price is generally known. The customer is thereby entrapped, without suspicion, into purchasing other goods, often at an exorbitant markup, more than sufficient to make up the loss on the "leaders."

In spite of all protestations to the contrary the consumer, and I use the term collectively to include all consumers and all the purchases made in the "lossleader" seller's store or stores, never saves anything when the loss-leader is employed.

The mercantile history of the United Statets is dotted with cases where single products and even whole companies have foundered not because of any inherent defect or lack of quality of the products themselves, but simply because the consuming public has, for some reason, lost confidence in the brand.

It has long been recognized that one of the surest ways to destroy acceptance and confidence in a product is to imply that the product is not worth what consumers are accustomed to pay for it. Use of a particular product as a loss-leader or in bait-advertising almost inevitably leaves the public with the feeling that the manufacturer or distributor of the product are taking an unwarranted or inordinate profit, in effect "gouging" the public. Anyone with the slightest knowledge of retailing and wholesaling is aware of this phenomenon.

The evil of the loss leader does not stop with the bilking of the public or the destruction of the loss leadered brand's integrity and acceptance by the consuming public.

An independent business, such as a small local wholesaler or retailer, must, of necessity, base his own image and community reputation on the quality of the brands of merchandise he carries. The public comes quickly to recognize that so and so company has such and such brand of a particular product. When one of these brands is debased and the public loses confidence in it the unfavorable public reaction almost invariably extends itself to include the innocent dealers in the community, along with the suspicion that they have been taking unfair advantage of their customers on every product they carry.

Most ethical retail and wholesale dealers live constantly with the fear that a brand in which they have invested considerable time, effort, and money in cultivating its acceptance by their customers and the general public, will find its way into the hands of a cut-price merchant. The loss leader practitioner rarely has an investment in the brand and less frequently has he an interest in its future potential. He seeks only to satisfy his own current need for a good traffic puller. He will use it for the sole purpose of getting customers into his store in the hope that he will be able to sell them other more profitable merchandise once they are there. In such situations the item is quickly discarded by the price cutter once the public has lost faith in its value and perforce will also be discontinued by ethical dealers because the market for it has been destroyed. Thus the loss leader injures every level; from the manufacturer, through wholesaler and retailer right down to the ultimate consumer.

The foregoing establishes one of the principal reasons why small business continues in its present state of decline, as testified by numerous economists and market analysts. Caught in the vise of mounting costs and cut-price competition the small businessman lacks the financial resources to fight back. Unless some method is found to proscribe this vicious method of competition, and we sincerely believe that the quality stabilization bill offers a great hope for solution, then small businessmen regardless of the efficiency with which they operate their businesses will continue to decline in numbers and vitality. Our economic system and our antitrust laws were never intended to reward business merely because it is large or penalize efficient operations merely because they are small. It is obvious that a remedy is imperative.

For all of the foregoing reasons our association must unqualifiedly endorse the purposes expressed and inherent in H.R. 3669. However, we would be derelict in our responsibilities to this honorable body if we did not point out certain infelicities in draftsmanship within the current bill which may lead to radical misinterpretations of its purposes and effects. This committee is well aware of occasions in the past when laws beneficial and salutary in intent have been subverted by awkward language to nullify their main purposes and sometimes even to create an effect diametrically opposite to that intended by the sponsors of the law.

Section 14 of the present bill before you for consideration, at page 8 lines 3 through 13 inclusive, contains language which may be construed as having deleterious effects far from the intention of the bill's proponents. As presently drafted, that portion of the bill may be deemed to imply that the owner of the brand or mark may set higher prices for wholesalers than that charged direct buying retailers and that such owners, in combination sales, may sell below cost another's branded product provided that the same is tied in with the sale of his own merchandise. We are convinced that this is neither the intention nor the desire of those public spirited citizens sponsoring this legislation. Experience, however, has shown that, given the opportunity, ill-disposed individuals can seize upon apparently innocent loopholes to frustrate the most honorable of intentions and the most high minded of desires.

To obviate such untoward and unwanted likelihood, I beg leave to submit to this committee the following revisions of lines 3 through 13 inclusive of page 8 of the present bill, which revisions demonstrate conclusively that it is not the intention of the present legislation to, in any way, modify the provisions of the Robinson-Patman Act with respect to nondiscriminatory prices or the provisions of any antitrust law with respect to tie-in sales at below cost prices:

"Each currently established resale price and resale price range shall be uniform at each and nondiscriminatory to any level of distribution within each marketing area. Such owner of the brand, name, or trademark may so establish, for resale of a combination of two or more items of goods, subject to his currently established resale price or resale price range, a resale price or price range different from the sum of the current established resale price or price range for the items when sold individually. Such owner of the brand, name or trademark may also engage in other promotional activities not made unlawful by any other statute."

STATEMENT OF DR. HOWARD A. PRENTICE, EXECUTIVE VICE PRESIDENT, THE PROPRIETARY ASSOCIATION, WASHINGTON, D.C.

The Proprietary Association, an 82-year-old national association of the manufacturers of proprietary medicines, supports the principles embodied in H.R. 3669 and urges favorable consideration and passage of this bill.

The Proprietary Association's membership includes the manufacturers of drug products-packaged medicines which are completely labeled with directions for use and with warnings against misuse, and which are advertised to the public for use in home medication. Such products are known as "proprietary medicines."

Proprietary medicines are sold under brand names, many of which are registered in the Trademark Division of the Patent Office. They are nationally advertised and in several instances are internationally advertised. A tremendous amount of good will has been created for these products and their trademarks constitute a very valuable asset to their owners.

One of the important objectives of the Proprietary Association is to preserve and improve the integrity and stability of the trademarks which its members own or control and pursuant to and under which they conduct business.

Because of the importance of trademarks to the business of our members, we believe it is essential to the welfare of our industry and the public we serve to have effective, enforceable laws to protect those trademarks.

Therefore, the Proprietary Association endorses the aims of H.R. 3669.

STATEMENT OF MRS. DEXTER OTIS ARNOLD, PRESIDENT, GENERAL FEDERATION OF WOMEN'S CLUBS, WASHINGTON, D.C.

The General Federation of Women's Clubs, on behalf of its 11 million members, wishes to go on record as being opposed to the fair trade principles as set forth in H.R. 3669, the Quality Stabilization Act, which would amend the Federal Trade Commission Act.

We strongly oppose any legislation which denies free competition among retailers and which would permit price fixing by manufacturers. Such action undoubtedly would result in higher prices to the consumer and would be very detrimental to our free enterprise system.

STATEMENT OF R. LEE WATERMAN, VICE PRESIDENT-MANAGER, CONSUMER
PRODUCTS DIVISION, CORNING GLASS WORKS, CORNING, N.Y.

Corning Glass Works manufactures and sells glass, and glass ceramic cooking ware under the brand names "Pyrex Ware" and "Corning Ware."

I shall present the views of a manufacturing company which has built its business and reputation on the development of new and improved materials and products through extensive research. We constantly strive to improve the quality and usefulness of the products which carry our brand names.

Our type of product is purchased relatively infrequently by any one family unit. We must, therefore, depend on wide distribution in all parts of the country to obtain sufficient volume on which to base efficient manufacturing methods. It is a fact that the price a consumer must pay for our products is determined primarily by differences in volume of production rather than by differences in distribution costs.

As an example, I cite a 9-inch Pyrex pie plate. This product was introduced in 1916, and has not changed in any essential particular since, excepting for improved glass quality. A recent survey indicated that there is at least one glass pie plate in 70 percent of the homes in this country.

In 1916 and during the early 1920's it was made on hand presses and sold in retail stores for $1.

In the late 1920's because of the introduction of semiautomatic machinery the price dropped to 90 cents.

In the 1930's a sufficient volume had been obtained to justify automatic forming machines which dropped the price to 45 cents.

Today, a constantly increasing volume has justified larger and faster forming equipment and handling machinery; and the retail price is 39 cents.

Our pie plates and related products are now purchased in sufficient volume to make possible a glass melting furnace costing over $1 million, forming presses costing approximately $250,000 each, and annealing ovens costing $80,000 eachall to product articles which retail at from 10 cents to $2.

The distribution which has made this possible has been based on the acceptance of our products by consumers, and on the cooperation of more than 300 wholesalers and 45,000 retailers in making these products available to consumers in all parts of the country. Such a relationship has also made possible the pioneering of many new products which required initially substantial investments in tools and facilities. We have concentrated our efforts over the years on furnishing the neighborhood retailer with products which his customers will buy and which are made available to him through nearby wholesale distributors. From a retail point of view, housewares is not a low-cost line to handle if the retailer accepts his responsibility to stock and sell the things which his customers want and need. Using "Pyrex Ware" as an example, a minimum assortment would include at least 26 different sizes and shapes. To these must be added replacement covers, handles, percolator pumps, etc. Such an assortment necessarily includes some items which would be rather slow turnover items, but the neighborhood retailer carries them because he is responsive to the needs of his customers, and has built his business on rendering a complete service.

As a result of the efforts of these many thousands of retailers, backed by a substantial investment in national advertising, our brand names have become well known and well accepted. They are among our most valued assets.

We are now faced with a situation in which certain retailers have asserted that it is their right to appropriate these brand names for their own publicity purposes, regardless of the interests and desires of either the manufacturer who created the brand names or the retailers who built their acceptance. These retailers select a few of the best known and fastest selling items from the line and advertise that they can sell these at from 20 to 50 percent below prices charged by the neighborhood retailer. They do not accept responsibility for service in terms of assortment and will abandon a line when it has served their publicity purposes.

The point with which we are concerned is whether a manufacturer who has built up a valuable tradename, and who believes that his ability to serve the public efficiently can be best promoted by choosing a particular plan of distribution, may take the necessary steps to control it. There is no question raised when this control is exercised by such means as private brands, consignment selling, or a manufacturer selling direct. It is only where the traditional channels through independent wholesaler to retailer are used that it is challenged.

There seem to be two common misconceptions regarding manufacturer's interest in the distribution of their products:

1. That manufacturers are seeking protection from competition by setting the conditions under which their products are resold. Nothing could be farther from reality; controlling distribution can be successful only when a manufacturer is on completely sound ground as to the real value offered to consumers by his product. He is still in direct competition not only with products made from an identical material, but from all other materials offering similar utility. In our case this includes a wide range of metals, ceramics, and plastics.

2. That giving manufacturers the right to control the distribution of branded lines would result in most of them doing so. This has not happened in States which now have fair trade laws and would not happen if the right were available broadly. This is so because a manufacturer incurs a great risk in establishing resale prices. He must be sure that he will gain more volume from broad distribution in neighborhood stores than he will lose in promotional selling through competitive cut-price advertising, and that this volume can be translated into manufacturing efficiency. If he miscalculates, he will pay the penalty..

We urge your favorable consideration of H.R. 3669 and others on the basis that it will enable us as a manufacturer, and others who are similarly situated, to more efficiently and economically produce and distribute products which the American consumer has demonstrated that she wishes to buy and use.

STATEMENT OF THE INDEPENDENT GARAGE OWNERS OF OHIO, INC., AT THE REQUEST OF THE ASSOCIATION MEMBERSHIP ON THE QUALITY STABILIZATION BILL, S. 774

I would like to express to the House Commerce Subcommittee hearing this bill the opinion of the independent auto repair service people who are members of our association. Through our 25 local units here in Ohio we conducted a vote of this bill. These units then instructed their delegates to the State board of directors to vote at our State board meeting to urge support of this legislation for the following reasons:

1. Because some types of business operations make it a habit to use name brand merchandise as a "football" to secure traffic to the point where an independent retailer can no longer profitably handle the item, thereby putting the manufacturer in the position of either cutting quality to produce a lower price product or go out of business.

2. This results in an inferior grade of product to the public. As an example, a name brand copper tubing used to repair brake lines on motor vehicles was used in this manner by a store in Cleveland last year. They sold this copper tubing at a price below the wholesale cost to the retailer, to the public. Because of this difference in price, the retailers in this area could no longer sell this product to the public. Because they could not sell this product, they could not buy it from their supplier, the automotive parts wholesaler. When copper tubing began to pile up on the wholesaler's shelf, he inquired why. He was told by the retailers that because this "bargain barn" was selling it to the public at a price below what the retailer could buy it for, he no longer had a market for it. The wholesaler in turn, still wanting to sell copper tubing, turned to other sources of supply. He found that he could purchase copper tubing made in Japan at a price that would allow him to sell the retailer at a price the retailer could compete with the "bargain barn" on.

The results, however, did great harm to the public. How much, we have no way of knowing. The reason was that the Japanese copper tubing was not only lower in price but lower in quality. It had their spots in the wall of the tubing that could cause great harm if a brake line was made of this thinwalled tubing. Under stress it could well give way and cause a serious accident.

The quality stabilization bill is an ideal solution to this problem in that it protects the entire market, including the public, from those who would prostitute a name brand qaulity product and cause such a condition as described above and yet permit the public to still have an opportunity to have available to them products built to a "price" if they so desire.

There is so much of this prostituting of quality products going on at this time in our industry that unless something is done now about this, we are going to find ourselves in the position of either closing our doors, not only in the automotive service business but other small businesses as well, or joining the trend of handling inferior products in order to compete.

The United States cannot afford to lose the small business people in our economy. The public cannot afford to be subjected to a deterioration of quality in their purchases that is developing in this country as a result of the chaos now prevailing in retailing. The quality stabilization bill will bring order out of chaos because while it will provide protection to name brand quality products, it still leaves the door open to "price" built merchandise.

We earnestly hope this committee will recommend passage of the quality stabilization bill.

STATEMENT OF MICHAEL DAROFF, PRESIDENT, BOTANY INDUSTRIES, INC.,
PHILADELPHIA, PA.

Mr. Chairman, I support the quality stabilization bill, H.R. 3669. I am president of Botany Industries and also of H. Daroff & Sons, makes of "Botany" 500 clothing for men, and the House of Worsted-tex, makes of Worsted-tex clothing for men. These two firms comprise the largest division of Botany Industries.

I was head of the two clothing manufacturing firms before becoming president of Botany Industries and have spent nearly 40 years in the men's clothing industry. So I am essentially a manufacturer of brand name clothing.

The "Botany" 500 and Worsted-tex firms together are the largest men's brand clothing manufacturers in the country, making over a million units a year. This clothing is distributed in all States of the union through 2,700 independent, franchised retailers and by more than 50 of our own retail stores. A majority of our 2,700 independent dealers represent small and medium size businesses.

Our two brands are nationally advertised. We began the production of our first branded clothing 21 years ago. Since that time we have spent $40 million and over to make the names, "Botany" 500 and Worsted-tex, accepted names in the men's clothing field.

The quality tailoring and the materials used in our nationally branded clothing is the rock on which our volume, the reputation of our brands, and therefore our business has been built. Year after year our clothing has been given top ratings by a widely known consumers research organization.