Letter Opposing Resale Price Maintenance Legislation.

Sir:

My attention was called to H.R. 1611, which would render legal certain contracts for the maintenance of resale prices now illegal under Federal law. I requested the Chairman of the Federal Trade Commission to give me a recommendation on this Bill, and I attach his reply on behalf of the Commission.

The present hazard of undue advances in prices, with a resultant rise in the cost of living, makes it most untimely to legalize any competitive or marketing practice calculated to facilitate increases in the cost of numerous and important articles which American householders, and consumers generally, buy. You will note that the Federal Trade Commission has made no study of the effect of resale price maintenance on consumers since 1929, but the Commission does mention a reputable body of informed opinion to the effect that such control of resale prices would be harmful to the consuming public. Indeed, the Commission says: "there is great probability that manufacturers and dealers may abuse the power to arbitrarily fix resale prices by unduly increasing prices, resulting in bitter resentment on the part of the consuming public, especially in this period of rising prices."

Since we seem to be in a period of rising retail prices, this Bill should not, in my judgment, receive the consideration of the Congress until the whole matter can be more fully explored. Conceivably, the Congress might approve having the Commission bring down to date the study which it made eight years ago by examining the economic effects of resale price maintenance under the novel and rapidly changing conditions now attending business in this country.

Faithfully yours,

The Speaker,

House of Representatives

The letter of the Federal Trade Commission of April 14, 1937, follows.

The President, The White House, Washington, D.C.

Dear Mr. President:

Receipt is hereby acknowledged of your memorandum of April 7, 1937, transmitting Secretary Morgenthau's letter of April 6, 1937, and requesting a recommendation on the Tydings-Miller Bill. The Commission has not heretofore expressed an opinion as to the merits of this bill for the reason that it deemed it to be a matter of legislative policy for determination by yourself and the Congress.

The. Tydings-Miller Bill would amend the anti-trust laws so as to legalize contracts and agreements fixing minimum resale prices for goods sold in interstate commerce and resold within the jurisdiction of any state where such contracts or agreements as to intrastate commerce have been legalized. A number of states now have such statutes.

Many of these state laws and the Tydings-Miller Bill are directly and irreconcilably in conflict with the present Federal law on resale price maintenance. Public policy since the passage of the Sherman Anti-Trust Act in 1890 has been opposed to resale price maintenance. Numerous court decrees have been entered under the Sherman Act and numerous orders to cease and desist have been issued by this Commission and affirmed by the courts in conformity with the public policy expressed in the Sherman Act and in the Federal Trade Commission Act. Enactment of the Tydings-Miller Bill would in its practical effect void such decrees and orders and constitute a reversal of what has been public policy for many years.

Since state laws, legalizing resale price maintenance, differ in the various states, and since, under the proposed Federal legislation, Federal exemption from the anti-trust laws would be conditioned upon the legality of similar contracts in intrastate transactions, the Tydings-Miller Bill would modify the anti-trust laws in differing degrees in different states. Thus, not only would it leave the Federal anti-trust laws in full force and effect as to those states which do not legalize resale price maintenance, but there would be divergent policies as to those states which legalize resale price maintenance, because of the differing terms of the different statutes in the respective states. Thus, the Federal Government would be under the necessity of attempting to enforce divergent regulatory policies toward shipments made by the same manufacturer to dealers located in different states, because of the differences in the respective state statutes.

A peculiar feature of many of the state laws which would, under a recent decision of the Supreme Court, speaking through Mr. Justice Sutherland (57 S. Ct. 147), thus be made binding upon interstate commerce is that they require wholesalers and retailers to conform to the provisions of private resale price maintenance contracts to which they are not parties. Thus, a private contract, the provisions of which are determined without public hearing and apart from any public supervision as to reasonableness, is made binding upon all dealers and the consuming public.

With respect to the economic phase of this matter, the Commission has not made a recent study of resale price maintenance. However, in 1929, the Commission did undertake such a study, reporting to the Congress thereon in 1931 (H.R. 546, 70th Congress, 2nd Session). In that report the Commission said:

The position taken by both proponents and opponents of resale price maintenance is based on the belief that such maintenance of prices will limit retail competition . · · The real crux of the question, therefore, is whether injury done to the consumers' interests through the elimination of dealer competition with respect to price-maintained articles would be greater than the damage now alleged to be done to the interests of manufacturers and distributors of trade-marked, nationally advertised brands when they are used as leaders. Neither injury is capable of exact measurement, but, in the opinion of the Commission, the potential damage to consumers through price fixing would be much greater than any existing damage to producers through this form of price cutting.

The general opposition of economists and consumers to this type of legislation is noteworthy. A questionnaire sent to members of the American Economic Association some years ago, by Carroll W. Doten, Professor at the Massachusetts Institute of Technology, resulted in a vote of 401 to 87 that the manufacturer should not have the legal right to control the retail prices of his products.

There is great probability that manufacturers and dealers may abuse the power to arbitrarily fix resale prices by unduly increasing prices, resulting in bitter resentment on the part of the consuming public, especially in this period of rising prices.

Replying to your inquiry as to the five complaints issued against certain distillers by this Commission, referred to by Secretary Morgenthau, there are enclosed herewith, for your information, copies of those complaints. In substance, these dealers are charged with maintaining uniform minimum resale prices in interstate commerce and with enforcing agreements with respect thereto by unlawful methods, such as the use of blacklists, boycott, threats of boycott, and other coercive methods incidental to the enforcement of their resale price policies.

With great respect,

I am Very truly yours,

W. A. Ayres, Chairman.