Recently the trade groups sponsoring this legislation received a serious set-back when the Governors of Nebraska and New York vetoed Unfair Sales Acts.

The efficacy of this legislation is still a matter of debate and its place in our national economy is not unchallenged. The various statutes have been attacked on constitutional grounds and several have fallen by the wayside. Much criticism has been levelled at these laws on economic grounds, especially upon the contention that they require the introduction of cost accounting with all its complexities into the smallest business. No well-founded appraisal of the benefits or detriments of these laws is yet available.

WHILE the Unfair Sales Act drafted by the National Food and Grocery Conference Committee is a comparatively short statute, the laws prohibiting sales below cost patterned after the California act are usually found with antidiscrimination provisions in an Unfair Practices Act.15 The major dissimilarities between the two models are reflected in the different methods of establishing a cost base.

The California model includes a provision for a minimum production as well as distributing cost and the statute is therefore made applicable to anyone doing business in the State.16 The Unfair Sales Act, on the other hand, covers only wholesalers and retailers.17 While the statute of Minnesota is applicable to wholesalers and retailers, the act provides that creameries, canneries, and other processors of agricultural products are defined to be manufacturers or producers and are not to be included within the meaning of the term "wholesaler." 18 All sales-below-cost statutes except that of Michigan are applicable to all commodities 19 and the statutes based on the California model specifically include "service or output of service trades." 20

15

See Oppenheim, Recent Price Control Laws (1939). The 24 sales-below-cost statutes can roughly be divided into 4 classes. In the following analysis of statutory provisions the statutes of Arkansas, Colorado, Kentucky, Michigan, Montana, Oregon, Washington, and Wyoming are termed California-model statutes. The Unfair Sales Acts include the laws of Arizona, Connecticut, Idaho, Maine, Maryland, Massachusetts, Rhode Island, Tennessee, Virginia, and Wisconsin. New Jersey and Pennsylvania have Fair Sales Acts, whereas the statutes of Minnesota, Utah, and West Virginia combine features of the twe major model acts.

16 The Utah statute is similarly broad in scope.

"The laws of Minnesota, New Jersey, Pennsylvania, and West Virginia contain a similar limitation.

18 The Virginia act is not applicable to fertilizer companies. The statutes of Colorado, Montana, Oregon, and Utah provide that the payment of patronage refunds by cooperatives is not a violation of the act.

18 The Michigan statute is applicable only to bakery and petroleum products. "Wyoming does not follow the California statute in this respect.

Mindful of the decision of the Supreme Court in Fairmont Creamery Co. v. State of Minnesota,21 most of the statutes require as an element of violation the intent or effect of injuring competition. Thirteen statutes require the intent to injure competitors or destroy competition 22 and seven acts make necessary the intent or effect of unfairly diverting trade from or otherwise injuring a competitor.23 The statute of Oregon makes unlawful a sale below cost where the effect is to prevent, hinder, or injure competition or competitors. The Fair Sales Acts of New Jersey and Pennsylvania have an absolute prohibition of sales below cost, regardless of intent or effect. While based on the model Unfair Sales Act, the statute of Idaho omits the clause which requires intent or effect of diverting trade or otherwise injuring a competitor and, as enacted, contains an absolute prohibition against selling below cost.

In defining cost the California statute includes in detail many of the items which enter into its composition and, on its face, seems to require the introduction of a cost accounting system in all types of business. Production cost is defined as the cost of raw materials, labor, and all overhead expenses.24 Distribution cost is defined as invoice or replacement cost, whichever is lower, plus the cost of doing business,25 and the last item is so stated to be all costs of doing business, including without limitation: Labor, rent, interest on borrowed capital, depreciation, selling cost, maintenance of equipment, delivery costs, credit losses, all types of licenses, taxes, insurance, and advertising.20

The Unfair Sales Act attempts to meet the problem of cost accounting by establishing a percentage mark-up as presumptively equal to the cost of doing business. Cost to the retailer is defined as invoice or replacement cost, within 30 days of the date of sale, whichever is lower, minus trade discounts except customary discounts for cash, plus freight charges, cartage (which is presumed to amount to 34 percent), and the cost of doing business which in the absence of proof

21

274 U. S 1, 47 Sup. Ct. 506, 71 L. Ed. 893 (1927).

22 Arkansas, California, Colorado, Connecticut, Kentucky, Maine, Massachusetts, Michigan, Montana, Rhode Island, Washington, West Virginia, and Wyoming.

23 Arizona, Maryland, Minnesota, Tennessee, Utah, Virginia, and Wisconsin. 24 Utah includes this definition.

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Oregon omits the alternative of invoice cost and limits replacement cost to that within 10 days prior to the date of sale. Michigan defines distribution cost as "cost to the distributor or vendor plus necessary overhead," necessary overhead not being defined.

26 Washington omits "interest on borrowed capital" from this list. Oregon adds "building and fixtures, light, heat, water, and power" to the other items. In food commerce the Oregon statute provides that cost to a wholesaler shall be the price paid, while cost to a retailer shall be replacement cost plus either a mark-up of 6 percent or the average monthly cost of doing business during the past year to include without limitation the items listed above.

to the contrary, is presumed to be 6 percent of the total cost.27 The statutes of Arizona and West Virginia vary in requiring a mark-up of 12 percent and 7 percent respectively.28 Cost to the wholesaler is similar to the above definition but does not include the cost of doing business.29 However, eight statutes include a two percent mark-up to cover the cost of doing business.30

The statute of Minnesota follows the Retail Drug Code in basing cost on the manufacturer's list price. Cost is defined as invoice or replacement cost plus cost of doing business, but the act provides that the manufacturer's list price plus the cost of doing business shall be prima facie evidence of cost. Cost of doing business is defined as all current costs of doing business which must include the items listed in the California statute, omitting interest on borrowed capital and credit losses.31 Additional provisions of the statute make a retail sale at less than 10 percent above list price or invoice or replacement cost a prima facie sale below cost 32 and a retail sale at 15 percent or more above list price or invoice or replacement cost a sale in full compliance with the act. Any sale by a wholesaler at less than two percent above list price or invoice or replacement cost is prima facie evidence of a sale below. cost.

The Fair Sales Acts of New Jersey and Pennsylvania differ radically from all other statutes in their computation of cost. New Jersey defines cost to retailers as replacement cost within 30 days prior to the date of sale minus customary trade discounts exclusive of discounts for cash. Cost to wholesalers is similar but provides for

"The statute of Idaho allows a time limit of 60 days while that of Maryland has no time limitation. Utah follows this definition of cost to the retailer. The Tennessee definition is invoice cost within 60 days or replacement cost plus the minimum cost of distribution to the most efficient retailer which, in the absence of proof to the contrary, is presumed to amount to a mark-up of 6 percent.

West Virginia does not expressly include the item of cartage in defining cost to the retailer.

29 The statutes of Arizona, Maryland, and Utah follow the National Food and Grocery Conference Committee model act in this respect. Maryland, however, does not include the time limitation on invoice or replacement cost. Tennessee includes only invoice cost within 60 days or replacement cost.

"Connecticut, Idaho, Maine, Massachusetts, Rhode Island, Virginia, West Virginia, and Wisconsin. The statute of West Virginia is similar but does not expressly include the item of cartage.

The 1939 amendment to the Minnesota statute includes the following provision: "The 'cost of doing business' including without limitation the aforesaid items of expense, incurred in the conduct of such business during the calendar year or the 12 months immediately preceding any alleged violation of this act, or in the event that any retailer or wholesaler shall have been engaged in business within the State for a shorter period of time, then such cost for such period of time immediately preceding any alleged violation of this act shall be prima facie evidence of 'cost' as herein defined." Because of the obvious inconsistency between this provision and the definition of cost, it would appear that the term "cost" was intended to be "cost of doing business."

"Proof of injurious intent or effect is still necessary to constitute a violation of the statute.

replacement cost within 60 days and a mark-up of two percent for delivery charges is added. Pennsylvania similarly defines cost to retailers, but includes as an alternative the total consideration of the merchandise. Cost to wholesalers is similar to the New Jersey definition but does not include a mark-up.

All statutes provide that exceptional sales not justified by existing market conditions or outside the usual channels of trade cannot be used as a basis for computing cost. New Jersey and Pennsylvania are the only statutes which do not prohibit the giving away of any article or provide that in combination sales, the selling price shall include the cost of each item as set forth in the statute.

To ascertain cost in a practicable manner, the California-model statute provides that cost surveys conducted by an industry of which the defendant is a member, shall be admissible as evidence in proving cost.33 Some statutes go further in providing that proof of the average overall cost of doing business plus invoice or replacement cost shall be prima facie evidence of cost. The Utah statute makes such cost surveys prima facie proof of cost.

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34

To combat the difficulty of proving unlawful intent, many statutes provide that proof of a sale below cost shall be prima facie evidence of violation. Three States provide that proof of a sale below cost shall be prima facie evidence of intent to injure competition 3 while others require proof of sale below cost plus proof of injurious effect before such presumption shall arise.37

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Closing out or liquidation sales, sales of damaged or deteriorated goods, and judicial sales are exempted from the operation of all the statutes. Most States also except sales of perishable goods 38 while the California-model statutes do not apply to sales of seasonal goods.39 All Unfair Sales Acts exempt sales to government departments or agencies, sales to charitable or relief institutions, and clearance sales," while several also except isolated transactions not in the usual course of business.2 The Virginia statute is not applicable to sales by a wholesaler to a wholesaler or a retailer to a retailer for accom

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Arizona, Idaho, Maryland, Tennessee, Virginia, West Virginia, and Wisconsin. Connecticut, Massachusetts, and Rhode Island.

California and Washington. These two States further provide that in an action for violation of the statute, proof that the person complained against is including labor at less than the prevailing wage scale shall be admissible to prove unlawful intent.

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Michigan, New Jersey, and Pennsylvania do not include this provision. Michigan does not follow the California statute in this respect.

West Virginia includes these exceptions.

"Connecticut excepts closing out sales for the purpose of discontinuing dealing

in any commodity and is therefore included in this list.

42

Connecticut, Maine, Massachusetts, Tennessee, and Rhode Island. Maryland provides that the statute shall not apply to sales outside the usual channels of trade.

modation purposes and to sales by a fiduciary or trustee in a deed of trust or deed of assignment for benefit of creditors.

43

Most statutes permit the lowering of prices in order to meet competition. The California-model statutes permit the meeting of legal prices but several of the Unfair Sales Acts permit the fixing of prices to meet all competition.45 Some statutes allow the meeting of legal or lawful competition and Minnesota permits the meeting of local prices.

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The procedural and remedial provisions of the California-model statutes are more extensive than those of the Unfair Sales Acts. The former provide that contracts in violation of the statute are void *8 and that a corporation contravening the provisions of the law shall suffer revocation of its charter.49 Trade associations are permitted to sue for injunctive relief under these statutes.50

Most of the statutes provide for fine or imprisonment 51 and injunctive relief for violation 52 and nine States permit the recovery of treble damages.53

While some of the laws include additional minor provisions, the substance of the various sales-below-cost statutes has been given above. Many of the statutes are still being amended. It is not improbable that after the various individual provisions have been tested both by the courts and by enforcing agencies, the dissimilarities among these laws will be minimized.

ATTENTION has been so concentrated upon issues concerning the constitutionality of statutes prohibiting sales below cost that there has been little, if any, actual enforcement. This condition will presumably exist for some time since this issue is far from solution.

The ever-growing scope of the police power of the State is invoked in support of these laws. Under its police power a State

Connecticut, Idaho, and Rhode Island do not include such a provision. "Michigan omits the word "legal." Tennessee, New Jersey, Pennsylvania, Utah, and West Virginia are similar to the California statute in this respect. Arizona, Maryland, Massachusetts, and Wisconsin. Michigan has a similar provision.

46 Maine.

Virginia.

Michigan does not include this provision. The statutes of Utah and West Virginia do.

"California, Oregon, and Washington do not so provide. A similar clause in the California statute was repealed in 1937. West Virginia includes this penal provision.

02

The New Jersey statute provides that nothing in the act shall prevent the granting of injunctive relief.

Arkansas, Colorado, Kentucky, Maine, Michigan, Montana, Oregon, Utah, and West Virginia.