may enact legislation for the protection of the health, morals, and welfare of its citizens subject to the restrictions imposed by the due process and equal protection clauses of the Fourteenth amendment to the Federal Constitution and to similar provisions in the several State constitutions, viz: (1) Any statute so enacted must be reasonably related and adapted to the attainment of a proper police end and (2) must not be unreasonable, arbitrary, or capricious in its terms.54 55 To date, 10 statutes prohibiting sales below cost have been challenged on this constitutional issue, 6 unsuccessfully and 4 successfully. It has generally been held that loss limitation statutes are within the police power of the State for the protection of the public welfare.56 Under the doctrine laid down in Fairmont Creamery Co. v. State of Minnesota 7 unlawful intent to injure competition is a necessary element in the statute to effect compliance with the first limitation of the due process clause stated above. At common law, price cutting in itself was not actionable 58 and was not deemed to be injurious to the public. The constitutional problem on this point is posed, in the words of Mr. Justice McReynolds: "May the State in order to prevent some strong buyers of cream from doing things which may tend to monopoly, inhibit plaintiff in error from carrying on its business in the usual way theretofore regarded as both moral and beneficial to the public and not shown now to be accompanied by evil results as ordinary incidents." 50 This question was answered in the negative, and in holding the statute in question unconstitutional, the Court said: "We think the 54 Nebbia v. New York, 291, U. S. 502, 54 Sup. Ct. 505, 78 L. Ed. 940 (1934). Statutes held UNCONSTITUTIONAL: Maryland: Loughran Co., Inc. v. Lord Baltimore Candy Co., Inc., 8 U. S. Law Week, 629 (April 4, 1940). Minnesota: Great Atlantic & Pacific Tea Co. v. Ervin, 23 Fed. Supp. 70 (1938). Nebraska: State v. Ruback, 135 Neb. 335, 281 N. W. 607 (1938). The Nebraska statute was repealed in 1939. New Jersey: State ex. rel. Lief v. Packard-Bamberger & Co., Inc., 123 N. J. L. 180, 8 Atl. (2d) 291 (1939). Pennsylvania: Commonwealth v. Zasloff, 137 Pa. Super. 96, 8 Atl. (2d) 801 (1939); Commonwealth v. Hodin, 34 D. & C. 270 (Quarter Sessions, 1938). Statutes held CONSTITUTIONAL: Arizona: Hammond v. Bayless Markets, Inc., (Super. Ct. 1937) P-H, 40489. This statute was repealed by the enactment in 1939 of an Unfair Sales Act. California: Wholesale Tobacco Dealers Bureau of So. Cal. v. National Candy and Tobacco Co., 11 Cal. (2d) 634, 82 Pac. (2d) 3 (1938). Colorado: Jonke v. Save-A-Nickel Stores, (Dist. Ct. 1937) P-H, 40376. Montana: Associated Merchants of Montana v. Ormesher, 107 Mont. 530, 86 Pac. (2d) 1031 (1939). Tennessee: Rust v. Griggs, 172 Tenn. 565, 113 S. W. (2d) 733 (1938). Wyoming: State v. Langley, 53 Wyo. 332, 84 Pac. (2d) 767 (1938). See Oler, Statutory Inhibition Against Sales Below Cost (1939, 43 Dick. L. Rev. 112; Note (1938) 32 Ill. L. Rev. 816; 118 A. L. R. 506. State v. Langley, supra; Great Atlantic & Pacific Tea Co. v. Ervin, supra; Rust v. Griggs, supra. 57 274 U. S. 1, 47 Sup. Ct. 506, 71 L. Ed. 893 (1927). The statute in that case prohibited locality discrimination regardless of intent or effect. Katz. v. Kapper 7 Cal. App. (2d) 1, 44 Pac. (2d) 1060 (1935). inhibition of the statute has no reasonable relation to the anticipated evil-high bidding by some with purpose to monopolize or destroy competition." 60 The omission of this requirement of unlawful intent has caused the Fair Sales Acts of New Jersey and Pennsylvania to be declared unconstitutional.61 While the opinion in the Fairmont Creamery case implies that the requisite element of effect of injuring competition would be sufficient to sustain such a statute, the Nebraska Unfair Practices Act containing such a provision was invalidated, the State supreme court holding that the statute did not sufficiently distinguish between lawful and unlawful conduct before the commission of any act. However, seven statutes prohibiting sales below cost with intent to injure competition have been sustained under this principle.63 As previously stated, the doctrine of the police power of the State is an expanding one. The Fairmont Creamery opinion refers to acts "not shown now to be accompanied by evil results as ordinary incident." It appears likely, therefore, that as various price-cutting practices are shown to be regarded as harmful per se to the general welfare, the first limitation of the due-process clause will not require this element of unlawful intent, the prohibition itself being directly related to the protection of the general welfare of the people. The second limitation imposed on any statute enacted under the police power of the State is that its terms shall not be unreasonable, arbitrary, or capricious. Because of the difficulty of defining cost, it is not surprising that this should prove the major obstacle to loss limitation statutes. The statutes following the California act define cost as invoice or replacement cost plus the cost of doing business. Several courts have stated that the legislature meant, by cost, what "business men generally mean-the approximate cost arrived at by a reasonable rule" and that this interpretation renders the statute sufficiently definite to be sustained. The cost of doing business is defined as all costs of doing business to include without limitation certain items specifically mentioned 65 and it has been held that this means that the cost of each article shall include not only the initial cost but also its proportionate share of the burden of carrying on the business through which it is sold.66 The statutes based on the model law of the National Food and Grocery Conference Committee define cost as invoice or replacement 'Ibid. (footnote 59). See cases cited, footnote 55, supra. State v. Ruback, supra. See cases cited, footnote 55, supra. The Minnesota statute was also upheld on this ground. State v. Langley, supra; Associated Merchants of Montana v. Ormesher, supra. es See p. xxvi, supra. "People v. Kahn, 19 Cal. App. (2d) 758, 60 Pac. (2d) 596 (1936); State v. Langley, supra. Contra, Balzer v. Caler, 74 Pac. (2d) 839 (Dist. Ct. App. 1937). 68 cost plus the minimum cost of distribution by the most efficient retailer which, in the absence of contrary proof is presumed to amount to a mark-up of 6 percent." This definition has been held valid, the court stating that the minimum cost of distribution can be ascertained from trade journals and trade surveys and that the presumption of a 6 percent mark-up is merely a rule of evidence, clearly within the power of the legislature to prescribe. The first Unfair Trade Practices Act of Minnesota was held unconstitutional as contrary to the second limitation imposed by the Fourteenth amendment. The statute, since amended to meet the objections. raised, defined cost as the manufacturer's list price less discounts. plus the cost of doing business, or if no list price has been published, invoice or replacement cost plus the cost of doing business. It was held that the first definition was invalid as the list price may not be the actual cost and, when made conclusive of cost, was arbitrary. The statute then defined cost of doing business as the average of all costs of doing business during the preceding calendar year. This was also held invalid, the court stating that no effect was given to current selling cost which might be lower and since the definition was conclusive, it was unreasonable. 70 The Unfair Practices Act provides that trade cost surveys shall be admissible as evidence to prove cost. This provision has been upheld but the provision in the Minnesota statute making such surveys presumptive proof of cost was declared invalid, the court stating that the provision was indefinite and vague." Several statutes include other evidentiary presumptions. The original Minnesota act provided that any sale at less than 10 percent above list price or invoice or replacement cost is a prima facie violation of the statute. This was held unconstitutional, the court stating that while there was a reasonable inference that such a sale was below cost, it furnished no basis for a presumption of the necessary unlawful intent. Another presumption found in many Unfair Practices Acts is one which infers the unlawful intent of an agent from proof of the unlawful intent of his principal in a prosecution of the agent for violation of the statute. This provision has been held violative of the due process clause, it not being within the province of a legislature to declare an individual guilty or presumptively guilty of a crime.7 Rust v. Griggs, 172 Tenn. 565, 113 S. W. (2d) 733 (1938). Great Atlantic & Pacific Tea Co. v. Ervin, supra. 70 A reading of the present statute, infra at p. 149, shows that the amendments cover each objection and suggestion made by the court, frequently in identical language. Associated Merchants of Montana v. Ormesher, supra. 72 Great Atlantic & Pacific Tea Co. v. Ervin, supra. "Ibid. These rulings constitute the bulk of the judicial construction of statutes prohibiting sales below cost. While several opinions by attorneys general have been rendered there has been little, if any, application of the statutes to actual facts. Whether the several provisions of the acts are susceptible of practical enforcement has been questioned. Recently the Governor of New York in vetoing a recent Unfair Sales Act rested his action upon this doubt. RECENT STATUTES PROHIBITING SALES BELOW COST * State ARIZONA- CALIFORNIA.... COLORADO- IDAHO KENTUCKY- MAINE (For text of statutes, see infra) Citation Laws 1939, c. 39. Dig. Stat. (Pope, 1937) sec. 14313. Gen. Laws (Deering, 1937) Act 8781, Laws 1939, c. 175. CONNECTICUT---- Gen. Stat. (Supp. 1939) sec. 922e. MARYLAND---- Laws 1939, c. 209. Stat. Ann. (Carroll, 1936) sec. 4748 h (1). Laws 1939, c. 248. MASSACHUSETTS. Ann. Laws (Supp. 1938) c. 93, sec. 14E. Laws 1939, c. 189. MICHIGAN. Stat. (Mason's Supp. 1938) sec. 3976-40, Laws 1939, c. 403. Rev. Stat. (Supp. 1938) sec. 56:4-7. PENNSYLVANIA__. Stat. Ann. (Purdon's Supp. 1938) tit. 73, sec. 201. TENNESSEE_ UTAH___. VIRGINIA- WASHINGTON Code Ann. (Michie, 1938) sec. 6770 (6). Rev. Stat. (Supp. 1939) tit. 94A, c. 2, Laws 1939, c. 28, 29. WEST VIRGINIA. Laws 1939, c. 151. WISCONSIN---- Laws 1939, c. 56. *This table does not include statutory prohibitions against selling below cost which are contained in the antitrust laws, nor similar prohibitions contained in the liquor laws of California and New Mexico nor the Retail Drug Control Acts of Connecticut and Louisiana. III. ANTIDISCRIMINATION LEGISLATION Antidiscrimination legislation had its inception in several local price-cutting laws enacted in the last part of the nineteenth century. These laws were directed against the practices of railroads and grain warehouses in granting discriminatory prices or rebates to favored customers. In 1913, California enacted its Unfair Competition 1 1 Oppenheim, S. C., Recent Price Control Laws (1939), p. 105. Act. 3 This law resulted from public antagonism toward the monopolistic and discriminatory practices of large oil companies and public utilities. Other antilocality discrimination laws appeared for similar reasons and, prior to 1916, 23 States prohibited local price cutting in some form. In 1931, California strengthened its legislation by adopting the Antidiscrimination Act. This legislation was largely a reenactment of the Unfair Competition Act with increased penalties. It is interesting to note that it was regarded as an antichain measure sponsored by associations of independent dealers as a blow to chain stores. The California law was amended in 1933 and again in 1935 when it became the Unfair Practices Act, incorporating the prohibition of locality discrimination from the 1913 Unfair Competition Act. Amendments were made again in 1937 but the local price discrimination provision remained, although it permitted variations in prices to customers in different functional classifications and variations in cost arising from differences in grade, quality or quantity as related to cost of manufacture, sale, and delivery. 9 With the advent of the California Unfair Practices Act in 1935, antidiscrimination legislation spread rapidly. Today 37 States have antidiscrimination legislation in some form, either general or special, or both. Statutes general in nature are applicable to commodities in general use, while special antidiscrimination statutes are applicable to the sale and purchase of specific commodities exclusive of public utility services. Some of these laws are separate and distinct antidiscrimination acts. Some are included in Unfair Practice Acts and others are parts of antitrust legislation. Antidiscrimination statutes of a general nature prohibit the selling of commodities at a lower price or the buying of commodities at a higher price in one section, community or city of the state than is charged or paid for the same commodities in another section, community or city within the State. The conception of unfair discrimination in prices is embodied by such prohibitions in all statutes purporting to eliminate price differentials which are not commensurate with fair competitive prices. There are slight variations in the prohibition in one or two States. Idaho condemns discrimination between Calif. L. 1913, p. 508. Grether, E. T., Price Control Under Fair Trade Legislation (1939), p. 67. 'Davies, I. E., Trust Laws and Unfair Competition (1916), p. 187ff. California L. 1931, c. 617. Grether, E. T., Price Control Under Fair Trade Legislation (1939), p. 68 Cf. Robinson-Patman Antidiscrimination Act, Public No. 692, 74th Cong., 15 U. S. C. A., secs. 13 to 13b. 7 California L. 1933, pp. 793, 1280. California L. 1935, p. 1546. 'California Gen. Laws (Deering, 1937) Act. 8781. |