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With these observations of the Supreme Court in mind it is understandable that lower Federal courts have not considered themselves obligated to employ more than a sentence or two in rejecting challenges to the validity of the McGuire-Keogh Act as a regulation of interstate commerce. "As to interstate commerce it is now settled that the power of Congress is * * * plenary" (Schwegmann Bros. Giant Super Mkts. v. Eli Lilly and Co., op cit., p. 793). The refusal of the Supreme Court to grant certiorari for purposes of reviewing that decision or the decision of the New York Court of Appeals, also upholding the McGuireKeogh Act, as well as its avoidance of any comment on the validity of that act in McKesson and Robbins v. U.S. (1956) 351 U.S. 305, induced another Federal court of appeals subsequently to add the following succinct statement. "The foregoing is certainly pursuasive that the Supreme Court views the McGuire Act as not invalid on constitutional grounds" (Sunbeam Corporation v. Richardson, op. cit., p. 503; see also: (1953) 346 U.S. 856, 905; (1954) 348 U.S. 860, 892). Inasmuch as the proposed legislation would accord a limited exemption, exercisable at the option of the seller, from the present statutory ban on price fixing as a restraint of interstate trade (U.S.C. 15:1), its lack of uniformity in operation presumably would afford the only ground for challenging it as a regulation of interstate commerce. Since not all distributors will elect to utilize the resale price maintenance privilege granted by the measure, it probably will be contended that a proposed regulation, which may or may not be employed at the election of the vendor, can scarcely have more than a tenuous connection with its declared objective, the promotion and protection of interstate commerce. Enhancement of interstate trade, it will be argued, is unlikely to be attained by a regulation which participants in interstate commerce are at liberty to ignore; for the very enjoyment of such an option provides all the evidence necessary to demonstrate that the proposed measure is utterly devoid of any substantial relationship to interstate commerce and is nothing more than an arbitrary concession to private businessmen to engage in price fixing as they see fit.

Upon more careful examination this argument appears to be addressed to the expediency or practicability of the contemplated enactment rather than to its constitutionality as a regulation of interstate commerce. With the former consideration the Court repeatedly has stated it has no concern. As long as there is a reasonable basis for the conclusion of Congress that resale price maintenance will "promote the distribution in commerce of merchandise which is identified by a trademark * *", the Court will not go behind such finding for purposes of determining whether the proposed measure is a reasonable exercise of the commerce power. For satisfactory disposition of the lack of uniformity contention, all that needs to be noted is that the uniformity rule has been employed by the Court only as a test of the validity of State legislation affecting commerce and not of the constitutionality of Federal legislation regulating interstate trade (Clark Distilling Co. v. Western Maryland R. Co. (1917) 242 U.S. 311, 327: Prudential Insurance Co. v. Benjamin (1946) 328 U.S. 408).

NORMAN J. SMALL,
Legislative Attorney.

Mr. STAGGERS. We appreciate your appearance and testimony, Sena

tor.

Senator HUMPHREY. Thank you for the privilege, Mr. Chairman. Mr. STAGGERS. At this time we will hear from the Honorable Lee Loevinger, Assistant Attorney General of the U.S. Department of Justice.

Mr. Loevinger, we are glad to have you with us this morning. I am sure the Department of Justice has testified each time this bill has been before the committee. I see that you have a prepared statement.

I might say to you that for the sake of time, each time we have heard the bill, we have had several volumes, and this is the last one, and I am certain the bills are almost identical, so if you wanted to, you might present your statement for the record and give just a summary, if you wish to; whatever you wish to do.

STATEMENT OF HON. LEE LOEVINGER, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE

Mr. LOEVINGER. I would be happy to follow your suggestion, Mr. Chairman.

I think that we have tried, this time, to be particularly factual and to meet some of the arguments that have most recently been urged with respect to the legislation specifically presented by this bill, and, therefore, if the committee will bear with me, I think it might be worthwhile for me to go through at least part of my statement.

As I say, I will make every effort to be strictly factual and not to indulge in oratory or generally unsupported statements.

I am glad to have this opportunity to state the views of the Department of Justice on H.R. 3669. This bill bears the title "Quality Stabilization Act" and is a revision of S.J. Res. 159 and H.J. Res. 636 of the 87th Congress about which I testified on April 19, 1962, and June 15, 1962.

The Department strongly opposes enactment of H.R. 3669. This is price-fixing legislation and, as such, is detrimental to the consuming public. The title "Quality Stabilization Act" is a misnomer for a bill whose real purpose is to make legal, on a nationwide basis, price fixing at the retail and wholesale levels. Enactment of this bill would substitute Federal law in an area now reserved to the States, would cause all consumers to pay higher fixed prices for products needed for daily living, and would be harmful to small business.

H.R. 3669 would amend section 5 of the Federal Trade Commission Act so that the owner of a brand, name, or trademark can establish and control resale prices on goods identified by the distinguishing mark and can revoke the right of the reseller to sell the goods at prices other than the established prices.

It would accomplish this by authorizing the owner of the brand or trademark to revoke the right of the owner of the goods to resell them if the owner has (1) used them "in furtherance of bait merchandising practices"; (2) knowingly sold them at a price other than the trademark owner's "currently established resale price or price range": or (3) with intent to deceive purchasers "published misrepresentations. concerning" them. This bill is clearly a price-maintenance bill of a type which the Department of Justice has repeatedly and strongly opposed over a number of years. Moreover, other interested Federal agencies have registered opposition to this type of legislation consistently over the past 25 years.

The first question to be answered with respect to a proposal to establish broad exceptions to important laws is: What reason is urged for the proposal? The proponents of this type of legislation, of whom you have heard several speaking this morning most eloquently and effectively, have consistently contended that it is needed in order to protect small businessmen, principally retailers, against loss leader selling which is allegedly engaged in by chainstores and large business enterprises that have the financial ability to compete in this unfair manner. Occasionally it is also argued that such proposed legislation is helpful to the large national manufacturers of branded merchandise. However, the arguments made to Congress in support of this

proposal are almost wholly made in the name and on behalf of small business.

Examination of the proposed bill discloses the weakness of these arguments. It does not prohibit loss leaders.

Incidentally, I might say that legislation to prohibit loss leaders has been offered in this House and in the other body. It has notably failed to excite not merely the support, but even the interest of those who are so avid in their support of this legislation.

The proposed legislation does not lessen economic advantage of chainstores or curb the power of big business in any manner. It does not give any rights or protection whatsoever to small business. On the contrary, 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.

Examination of the actual operation of resale price-maintenance laws shows that they do not help small business. Regardless of whether or not legislation of this type is enacted, the national manufacturers of branded commodities set their price levels to please their principal customers and maximize their own profits, quite properly. The large national chainstores have much greater influence with the national manufacturers than the small local retailers. Thus, prices are set which serve the interests of the chainstores rather than those of small retailers. On commodities which can most advantageously be sold by the chains at a low margin, the price set by the manufacturer for resale is low. On commodities in which it is advantageous to retail at a high margin, the retail price is set high. Small retailers with limited buying power have very limited independence with respect to the prices at which they sell. Their sales are necessarily confined largely to branded products of national manufacturers. Under legislation of this type, they are forced by law, to sell at the fixed price.

On the other hand, chainstores and very large retail establishments have both the power and the independence to price their goods largely as they like. Such large retail establishments have a much larger choice among the various brands that they may choose to carry and sell and, in addition, are able to secure private branded and unbranded merchandise. Thus, their freedom to establish the price of their goods. is not restricted as is that of small business.

What happens is this: Chainstores and large enterprises will continue, regardless of any legislation, to dominate the advertising media. Where small retailers have fixed prices on most commodities, the chainstores and big businesses naturally feature those commodities which they are able to offer at relatively low prices. Whether it is called bait merchandising or loss leaders, they are going to advertise the commodities that they have at "sensationally" low prices. These ads will continue to come out. Consumers will continue to be attracted by them. Large enterprises and chainstores always have a wider range than competitive small business is able to offer. Once attracted into the chainstore by advertising, the patron knows that the prices on branded products are the same as those offered elsewhere. Consequently, there is no inducement for the customer to shop around. The result is that the chainstores and the big business retailers increase their market share of both branded and unbranded merchandise.

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The merchandise that is not subject to price fixing under legislation of the price maintenance kind, can continue to be advertised at low prices to attract customers. As to the other merchandise on which the small retailers are relying upon the fixed retail level, there is no competition, and, consequently, the customers in the chainstores and in the discount stores buy all of their goods there, and the small retailers are left out altogether.

The statistics show that this process has, in fact, been operating in States having resale price-maintenance laws. The Department of Justice has undertaken to analyze the figures showing business failures in those States having resale price-maintenances laws, those States not having such laws, and those States in which such laws are partially operative. These statistics demonstrate that the rate of business failure is consistently higher in States having resale price-maintenance laws than in those States permitting price competition.

Table 1 to this statement shows that in 1962 the business failure rate per 10,000 business concerns was 71 in States having operative resale price-maintenance laws, 51 in States in which such laws were partially operative, and only 29 in States having competitive pricing. Inspection of the list of the States involved shows that this disparity is not explicable on the basis of degree of industrialization, size, or population, or some other irrelevant factor. Furthermore, as shown in table 2. the same correlation is found consistently for every year from 1946 through 1962, inclusive, despite the fact that the States having resale price maintenance have changed during this period, and, therefore, the list is different during the various years.

These figures as to business failures also indicate the number and rate of failure of wholesale and retail distributive businesses, which are supposed to be the principal beneficiaries of such laws. Our analysis shows that the number of failures in wholesale and retail distributive business has averaged about 50 percent of all business failures nationally since World War II and that the rate of business failures for wholesale and retail distributive business is almost completely correlated with the failure of all businesses both for the entire period and for each separate year.

A year ago legislation of this type was urged on the ground that the number and rate of business failures had been increasing and that this increase required such legislation. However, the record of the past year suggests that the advocates of the legislation were in error. The legislation was not enacted, but both the number and the rate of business failures declined during 1962.

Incidentally, Senator Proxmire has referred to figures that he has gotten from the New York Times showing the decline in the number of distributive businesses in New York State. Now, I am not familiar with the foundation of the statistics that Senator Proxmire has cited, although I have heard him cite these statistics before. I think it is significant, however, that during the period that is covered by these statistics, New York State had a resale price-maintenance law in full force and effect.

On the other hand, it is also significant that throughout the country during the same period the number of States having resale pricemaintenance laws in effect was declining, and throughout the country during the period that is referred to in Senator Proxmire's statistics,

the total number of retail businesses, overall, increased and reached an alltime high of some 2,022,000 in 1962.

It has never before been so high.

Mr. KEITH. Mr. Chairman, may I interrupt at that point?

Mr. STAGGERS. Perhaps we should withhold questions until after the statement is completed. Go right ahead.

Mr. LOEVINGER. Thus, the actual facts available, as distinguished from the claims and emotional appeals, seem to point almost conclusively to the lesson that legislation of this type does not help small business, tends rather to handicap and therefore to hurt small business, and is not required because of the number or rate of business failures.

Small business itself seems to be aware of these facts, although many of the advocates of this legislation purport to speak in the name of small business. Our investigations suggest that, while opinion is divided, the majority of small businessmen do not desire such legislation. A survey reported in the Congressional Record in 1960 discloses that a national organization of small businessmen had polled the small business community and found that 52 percent opposed so-called fair trade laws whereas only 43 percent supported them, with 5 percent undecided. It also found that in New York State, which at that time had such a law, the percentage of small businessmen opposing such a law was even greater. Another organization of small businessmen, reputedly the largest in the country, made a survey in 1962 of some 179,000 small businessmen located in every State in the Union. This group voted 51 percent in opposition to quality stabilization legislation, 45 percent in favor and 4 percent undecided. This proposed legislation would also deprive the States of the right to decide whether or not price-fixing laws should prevail within their borders. Some States have never adopted such laws; some States have declared such laws to be unconstitutional either in whole or in part; some States have allowed only minimum resale prices to be set; and other variants have been adopted by other States. The proposed legislation would override the decision of every State on this subject, whether made by its legislature or its courts. As the Texas attorney general said with respect to a similar bill:

To sum up, this bill invades an area that has heretofore been reserved to the States. It would, in effect, preempt the area and nullify a large portion of the area covered by the Texas antitrust laws under which we have operated since the early 1880's.1

Finally, the Department of Justice has found by economic surveys that consumers in States with price maintenance, or so-called fair trade, laws pay from 19 percent to 27 percent higher prices than consumers in States without such laws. Projecting an average price increase of 20 percent for all sales that may be covered by the operation of a national price maintenance law shows that it would cost the American consumer billions of dollars and have a powerfully inflationary effect.

All of these points, as well as others, have been recognized and articulated in recent years by various State courts that have con

1 Hearings before the Committee on Interstate and Foreign Commerce, House of Representatives, 86th Cong., 1st sess. (1959), "Fair Trade," p. 494.

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