(b) That such commodity may be resold without reference to such agreeinentIn closing out the owner's stock for the purpose of discontinuing dealing In such commodity or of disposing, toward the end of a season, of a surplus stock of goods specially adapted to that season;

(2) With notice to the public that such commodity is damaged or deteriorated in quality, if such is the case; or

(3) By a receiver, trustee, or other officer acting under the orders of any court, or any assignee for the benefit of creditors.

SEC. 3. Nothing contained in this act shall be construed as legalizing any contract or agreement between producers or between wholesalers or between retailers as to sale or resale prices.

SEC. 4. As used in this act

(1) The term "producer" means grower, packer, maker, manufacturer, or publisher.

(2) The term "commodity" means any subject of commerce.

When discussion of the legislation on this subject first began the bills presented were entirely different in form and effect from the bill now reported. Originally, violations of the agreements were made misdemeanors, and to them various penalties were attached. The means authorized under the bills might be used to harass violators of the agreements in many ways.

All such remedies and punishments have been eliminated, and the aggrieved party under the contract authorized by the bill has simply a civil remedy.

In brief the bill permits a contract between vendor and vendee, in special classes of commodities, that the vendee will not resell the commodity specified in the contract except at a stipulated price. It guards the rights of other retail dealers in the same town, and also permits the vendee to sell at his own price to close out his stock when ceasing to deal in the commodity specified, or in disposing of seasonal goods at the end of a season. He may also sell freely when goods are damaged.

The bill specially guards against agreements as to selling prices between producers, or wholesalers, or retailers.

It will thus be seen that, with proper safeguards, the bill restores the liberty of contract which has existed under the common law from the earliest times and until the enactment of the Sherman Antitrust Act in 1890.

There existed, and perhaps exists to a considerable extent to-day, the erroneous assumption that at common law all restraints upon the alienation of personal property were invalid. That this assumption is erroneous is shown with his accustomed learning and clarity by the Hon. James M. Beck in an oral argument delivered in the Supreme Court of the United States in 1918 in the case of the Boston Store, of Chicago, against the American Graphophone Co. and others. The following quotations from that argument are applicable to this case: It is not and never was the law that all restraints on alienation, whether complete or partial, were invalid at common law.

The erroneous assumption to the contrary arose out of a misconception of the following passage from Coke on Littleton, section 360:

"And so it is, if a man possessed of a lease for years, or of a horse, or of any other chattell reall or personall, and give or sell his whole interest or propertie therein upon condition that the donee or vendee shall not alien the same, the same is void, because his whole interest and propertie is out of him, so as he hath no possibilitie of a reverter, and it is against trade and traffique, and bargaining and contracting between man and man.'

Coke, in the context of this very passage, however, and Littleton, in the section of his Tenures, on which it is based, both stated that the rule referred only

to total restraints upon every mode of alienation, and did not include restraints that were not total, or that left free some right of alienation. As this widely current misconception, which has found wide expression in the textbooks and has had some reflection even in judicial decisions, requires correction, the exact language of these venerable and learned authorities deserves quotation.

Mr. Beck then quotes from the Third Book of Coke's Institutes an extract from Littleton's Tenures, which shows that if land is granted upon the condition that the grantee shall not alien the land to anyone, this condition is void; but further on Coke proceeds to quote:

But if the condition be such, that the feoffee shall not alien to such a one, naming his name, or to any of his heirs, or of the issues of such a one, &c., or the like, which conditions do not take away all power of alienation from the feoffee, &c., then such condition is good.

*

Further on in his argument Mr. Beck continues as follows:

As I have shown, the common law favored liberty of contract. One could search the yearbooks and the earlier common-law reports in vain for a single case that held a resale price contract illegal. If any such decision exists, it is yet to be cited.

The decision of Mitchell v. Reynolds (1 P. Wms., 181, decided in 1711), and all subsequent cases thereafter, simply recognized the common law, and the only change of doctrine was the growing recognition by the courts that all restraints upon alienation growing out of contract, should be recognized as within the fair rights of the contracting parties, unless such restraints were clearly prejudicial to the public welfare. As society emerged from the primitive conditions of Littleton's and Coke's times, and the great industrial era of the steamship, the railroad, and the telegraph came, the courts and legislatures of the leading nations recognized that the true welfare of society required the greatest possible liberty of contract not clearly inconsistent with the public welfare.

After the enactment of the Sherman Antitrust Act the courts endeavored still to preserve the spirit of the common law as above set forth, except as that law was distinctly modified by the Sherman Act. Without attempting to quote specific cases, it is sufficient to state here that decisions under the Sherman Act are conflicting. In a memorandum of the Federal Trade Commission, dated December 12, 1927 with regard to investigations made by it, it is stated as follows:

The question of resale price maintenance is one of the most troublesome with which the commission has to deal in the present state of the decisions. The early Federal cases trace the principle to a passage in Coke on Littleton dealing with restraints on alienation. Courts in attempting to apply these ancient principles have fallen into hopeless confusion. Orders of the commission, issued under its organic act, have been upheld in some circuits and set aside in others on almost undistinguishable states of fact.

And in a recent opinion in a case before the sixth circuit court of appeals, namely, the Toledo Pipe Threading Machine Co., against the Federal Trade Commission, decided in March, 1926, Judge Denison said that, in his opinion, "The state of the law as to price maintenance may rightly be said to be in confusion."

In view of the above statements and by reference to the proposed bill it will be seen that substantially what is accomplished by the bill is to restate the principle of the common law and to restore liberty of contract so far as the Sherman Act interferes with that liberty in the special class of cases covered by the bill.

It must always be kept in view that this bill does not refer to necessities of life, so that it in no way affects the necessary cost of living.

The bill is confined to commodities sold under a trade-mark or brand or trade name of the producer. Under the conditions of business to-day, makers of special articles in any line are accustomed to spend enormous sums of money in nation-wide advertising and other similar means to bring the goods and the virtues thereof to the notice of the public. In their own interest they are obliged to produce an article which is of general use and high quality, so that when purchased it will commend itself to consumers, and they are obliged also in their own interest to maintain the quality of the product, so that purchasers more and more will be inclined to ask for the particular kind of article they want by the manufacturer's name. This good name, therefore, which is procured at enormous expense, is a valuable asset to the producer. And it is clear that, even after the goods have been sold to a dealer, the producer does not lose his interest either in the name or in the article sold, because he continues his efforts, by advertising and otherwise, to help the resale of that article when it is in the hands of the dealer. The testimony which has been taken over a number of years on this bill and other similar bills shows many instances where dealers have used the good name of nationally known producers for their own benefit, and to the detriment of the interests of the producer and to the detriment of his property in the name.. They have done this by advertising cut prices on nationally known specialties in order to attract customers into their stores, and then by selling them staple articles, of which the fair price could not be known to the customer, at higher than a fair price. It is perfectly obvious that if any dealer sells part of his stock at or below cost he must, in order to keep in business, sell other portions of his stock at a profit higher than a fair profit.

Another evil effect of cut-throat competition is the tendency for producers to manufacture to meet a price rather than to maintain quality.

It is hoped that the effect of this bill, if enacted into law, will be to prevent to a great extent the unfair and destructive method of competition above mentioned, and at the same time, if it thus succeeds, it will not add to the cost of such goods to the consumer. At the present time, when a manufacturer knows that his goods may be subject to this cutthroat competition, he is obliged, in order to keep the trade of small dealers, to fix his range of prices so high that, if necessary, he can make a discount which will enable the small dealer to meet the cutthroat prices. If, on the other hand, with the help of this legislation, he can control his price range, he would be enabled to, and would, in the end, make his scale of prices lower so that dealers of all magnitudes could make fair profits on their turnover and yet the consumer could buy the goods at as low prices as at present. One of the principles of modern trade which is now widely recognized, not only in the sale of articles like automobiles but generally, is that the foundation of any trade or manufacture is more secure where there are large sales at small profits than smaller sales at larger profits. This bili only applies in cases where the article being sold is in free and open competition, and it is perfectly clear that if the ultimate prices to consumers are unfair or are too high, competition from other sources will soon bring them down to a reasonable basis.

And finally, and perhaps most important for the public welfare, the effect of this bill would be to put the small local dealers more nearly on a competitive basis with the great chain store and other

conbinations. It is generally and properly recognized that the gradual extinction of small independent dealers will be a loss to countless communities throughout the Nation, and so to the Nation itself. A small independent dealer who is identified with the community where his store exists, and who is active in its life as a citizen and taxpayer, is surely more advantageous to that community than a mere selling agency of a foreign concern, which agency has no interest in the community except to make what profit it can from the community.

For the reasons set forth, therefore, the committee believe that the legislation proposed in the bill will be to the public interest, and recommend its passage.