In recognizing the right of an exclusive distributor to refuse to deal with a retailer who would not agree to maintain a stipulated retail price, a court, in Munter v. Eastman Kodak Co., 28 Cal. App. 660, 153 Pac. 737 (1915), stated that contracts fixing the resale prices of commodities were valid, there being no horizontal combination to fix prices and the prices fixed being reasonable.

Constitutionality of the Act.

The Fair Trade Act is constitutional as a valid exercise of the police power of the state, promoting the public convenience and general prosperity. The statute is not discriminatory, the classification of commodities bearing a trade-mark being a reasonable one. Max Factor & Co. v. Kunsman, 5 Cal. (2d) 446, 55 Pac. (2d) 177 (1936); Pyroil Sales Co. v. Pep Boys, 5 Cal. (2d) 784, 55 Pac. (2d) 194 (1936); aff'd 299 U. S. 198, 57 Sup. Ct. 147, 81 L. Ed. 122 (1936).

Application of the Act.

Parties Entitled to Establish Resale Prices.

A "sole exclusive distributor" has the right to establish a resale price restriction. Parrott & Co. v. Somerset House (Super. Ct. 1937), 3 CCH 25026; De Voin v. W. T. Grant Co. (Super. Ct. 1938), 3 CCH 25106.

In a dictum in Parrott & Co. v. Somerset House, supra, the court stated "If the producer neglects to determine the price of his own commodity, then any subsequent vendor thereof may fix the price by contract with his vendee and the same shall operate as a restriction upon all others with knowledge."

Methods of Establishing Resale Prices.

While the courts have not determined this question, in Parrott & Co. v. Somerset House, supra, the plaintiff had inserted resale price restrictions in contracts made with a majority of the retailers in the State, and in De Voin v. W. T. Grant Co., supra, resale prices had been fixed in agreements with several hundred retailers.

Relation of Price to Value.

A distributor of perfume can establish a resale price for one dram and can require that the same price be maintained in any sale of less than one dram. The resale price established need have no relation to the value of the article, as long as the commodity is in "fair and open competition" as required by statute. De Voin v. W. T. Grant Co.,

supra.

Removal of Brand.

A court has stated that a retailer would not be bound by a resale price restriction if the commodity is not sold under the brand or name of the manufacturer. De Voin v. W. T. Grant Co., supra.

Parties Bound by Resale Price Restrictions.

Under the statute originally passed in 1931 and not including section 12, it was held that a noncontracting dealer, with notice, could sell at less than the prices fixed in a resale price agreement. Dr. Miles California Co. v. Sontag Chain Stores Co. Ltd., 47 Pac. (2d) 540 (Dist. Ct. App. 1935). On appeal, after the enactment of section 11⁄2 and the service of an amended complaint, a noncontracting dealer with notice of the restriction was held bound by it. Id., 8 Cal. (2d) 178, 64 Pac. (2d) 726 (1937). In other cases noncontracting dealers with notice of resale price restrictions have also been held bound. Max Factor v. Kunsman, 5 Cal. (2d) 446, 55 Pac. (2d) 177 (1936); Pyroil Sales Co. v. Pep Boys, 5 Cal. (2d) 784, 55 Pac. (2d) 194 (1936); Parrott & Co. v. Somerset House, supra; De Voin v. W. T. Grant Co., supra.

In Max Factor v. Kunsman, supra, the court stated that section 11/2 was a statutory extension of the tort doctrine of interference with contractual relations.

Parties Entitled to Enforce Resale Price Restrictions.

A "sole exclusive distributor" establishing a resale price restriction can enforce it. Parrott & Co. v. Somerset House, supra; De Voin v. W. T. Grant Co., supra.

A producer, owning the trade-mark, can enforce a resale price restriction established by him. Max Factor & Co. v. Kunsman, supra.

B. PROHIBITION OF SALES BELOW COST

Gen. Laws (Deering, 1937), Act 8781, as amended by Gen. Laws (Deering, Supp., 1939), Act 8781

Unfair Practices Act

Sec. 3. Sales at less than cost.-"Cost" defined: "Cost of doing business" or "overhead expense" defined: "Loss leader": Scope of prohibitions. It shall be unlawful for any person engaged in business within this State, to sell any article or product at less than the cost thereof to such vendor, or give away any article or product, for the purpose of injuring competitors or destroying competition, and he shall also be guilty of a misdemeanor, and on conviction thereof shall be subject to the penalties set out in section 11 of this act for any such act.

The term "cost" as used in this act as applied to production is hereby defined as including the cost of raw materials, labor, and all overhead expenses of the producer; and as applied to distribution "cost" shall mean the invoice or replacement cost, whichever is lower,

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of the article or product to the distributor and vendor plus the cost of doing business by said distributor and vendor.1

The "cost of doing business" or "overhead expense" as used in this act is defined as all costs of doing business incurred in the conduct of such business and must include without limitation the following items of expense: Labor (including salaries of executives and officers), rent, interest on borrowed capital, depreciation, selling cost, maintenance of equipment, delivery costs, credit losses, all types of licenses, taxes, insurance, and advertising.

The prohibitions of this act shall be deemed among the other purposes and objects of the act to also prohibit the practice of using any article or product as a "loss leader." Loss leader, as used herein, shall mean any article or product sold at less than cost as herein defined to induce, promote or encourage, the purchase of other merchandise, or which may have the tendency or capacity to mislead or deceive purchasers or prospective purchasers, or which diverts trade from or otherwise injures competitors.

The prohibitions of this section shall embrace any scheme of special rebates, collateral contracts, or any device of any nature whereby a sale below cost is effected in violation of the spirit and intent of any provisions of this act. (Amended Stats. 1935, p. 1548; ch. 860, Laws of 1937, ch. 175, Laws of 1939.)

Sec. 4. Purchases at forced or bankrupt sales; "ordinary channels of trade."-In establishing the cost of a given article or product to the distributor and vendor, the invoice cost of said article or product purchased at a forced, bankrupt, close-out sale, or other sale outside of the ordinary channels of trade may not be used as a basis for justifying a price lower than one based upon the replacement cost as of date of said sale of said article or product replaced through the ordinary channels of trade, unless said article or product is kept separate from goods purchased in the ordinary channels of trade and unless said article or product is advertised and sold as merchandise purchased at a forced, bankrupt, close-out sale, or by means other than through the ordinary channels of trade, and said advertising shall state the conditions under which said goods were so purchased, and the quantity of such merchandise to be sold or offered for sale. "Ordinary channels of trade" shall mean those ordinary, regular, and daily transactions in the mercantile trade whereby title to an article or product, in no way damaged or deteriorated, is transferred from one person to another, and shall not include sales of bankrupt

For sec. 1 dealing with unlawful practices, see Antidiscrimination Legislation: General Prohibitory Laws, infra.

For sec. 2 dealing with prosecution of officers and agents, see infra.

stocks, close-out goods, dents, sales of goods bought from a business or merchant retiring from business, fire sales, and sales of damaged or deteriorated goods, which damage or deterioration results from any cause whatsoever; provided that this last listing herein shall not be held to be all inclusive but as example only. (Amended by Stats. 1931, p. 1335; Stats. 1935, p. 1548; Stats. 1937, p. 2397.)

Sec. 5. Proof of intent; cost surveys; presumptive evidence.-In any injunction proceeding or in the prosecution of any person as officer, director, or agent, it shall be sufficient to allege and prove the unlawful intent of the person, firm, or corporation for whom or which he acts. Where a particular trade or industry, of which the person, firm, or corporation complained against is a member, has an established cost survey for the locality and vicinity in which the offense is committed, the said cost survey shall be deemed competent evidence to be used in proving the costs of the person, firm, or corporation complained against within the provisions of this act.

Presumptive evidence. In all actions brought under the provisions of this act proof of one or more acts of selling or giving away any article or product below cost or at discriminatory prices, together with proof of the injurious effect of such acts, shall be presumptive evidence of the purpose or intent to injure competitors or destroy competition. (Amended by Stats. 1931, p. 1335; Stats. 1935, p. 1548; Stats. 1937, p. 2398.)

Sec. 6. When sale at less than cost permitted. The provisions of sections 1, 3, 4, and 5 shall not apply to any sale made:

(a) In closing out in good faith the owner's stock or any part thereof for the purpose of discontinuing his trade in any such article or product and in the case of the sale of seasonal goods or to the bona fide sale of perishable goods to prevent loss to the vendor by spoilage or depreciation, provided notice is given to the public thereof;

(b) When the goods are damaged or deteriorated in quality, and notice is given to the public thereof;

(c) By an officer acting under the orders of any court;

(d) In an endeavor made in good faith to meet the legal prices of a competitor as herein defined selling the same article or product, in the same locality or trade area and in the ordinary channels of trade as herein defined; or in an endeavor made in good faith by a manufacturer, selling an article or product of his own manufacture, in a transaction and sale to a wholesaler or retailer for resale to meet the legal prices of a competitor selling the same or a similar or comparable article or product, in the same locality or trade area and in the ordinary channels of trade as herein defined.

Any person who performs work upon, renovates, alters or improves any personal property belonging to another person, shall be construed to be a vendor within the meaning of this act. (Amended by Stats. 1935, p. 1549; Stats. 1937, p. 2398.)

Sec. 6.1. Notice. The notice required to be given to the public under section 6 shall not be sufficient unless the subject of such sales is kept separate from other stocks and clearly and legibly marked with the reason for such sales, and any advertisement of such goods must indicate the same facts and the number of items to be sold. (Added by ch. 175, Laws of 1939.)

Sec. 7. Rebates, refunds, etc.-The secret payment or allowance of rebates, refunds, commissions, or unearned discounts, whether in the form of money or otherwise, or secretly extending to certain purchasers special services or privileges not extended to all purchasers purchasing upon like terms and conditions, to the injury of a competitor and where such payment or allowance tends to destroy competition, is an unfair trade practice and any person, firm, partnership, corporation, or association resorting to such trade practice shall be deemed guilty of a misdemeanor and on conviction thereof shall be subject to the penalties set out in section 11 of this act. (Amended by Stats. 1935, p. 1549.)

Sec. 8. Repealed.

Sec. 9. Illegal contracts.--Any contract, express or implied, made by any person, firm, or corporation in violation of any of the provisions of sections 1 to 7, inclusive, of this act is declared to be an illegal contract and no recovery thereon shall be had. (Added by Stats. 1935, p. 1549.)

Sec. 2. Officers and agents.-Any person who, either as director, officer, or agent of any firm or corporation or as agent of any person, violating the provisions of this act, assists or aids, directly or indirectly, in such violation shall be responsible therefor equally with the person, firm or corporation for whom or which he acts.

In the prosecution of any person as officer, director, or agent, it shall be sufficient to allege and prove the unlawful intent of the person, firm or corporation for whom or which he acts. (Amended by Stats. 1931, p. 1334; Stats. 1935, p. 1547.)

Sec. 10. Action to enjoin violation; witnesses; immunity from prosecution. Any person, or any trade association, may bring and maintain an action, or actions, to enjoin and restrain any violation, or violations, of any provision, or provisions, of this act and, in addition thereto, for the recovery of damages. If it shall appear to the court upon any application for a temporary restraining order, or upon the hearing of any order to show cause why a preliminary