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UPJOHN CO. v. VINELAND DISCOUNT HEALTH & VITAMIN C

November 9, 1964

The UPJOHN COMPANY, a Delaware corporation, Plaintiff,
v.
VINELAND DISCOUNT HEALTH & VITAMIN CENTER, INC., a Pennsylvania corporation, Defendant



The opinion of the court was delivered by: COHEN

This is a civil action between corporate litigants of different states involving alleged unfair competition in violation of the New Jersey Fair Trade Act, R.S. 56:4-5, 6, N.J.S.A., and the related federal statutes, Miller-Tydings Amendment, 15 U.S.C. §§ 1-8; McGuire Fair Trade Act, 15 U.S.C. § 45. Jurisdiction is properly invoked. Ambassador East, Inc. v. Orsatti, Inc., 257 F.2d 79 (3 Cir. 1958).

 Following defendant's Answer, plaintiff filed evidentiary affidavits, exhibits of its nationwide advertising and the existence of a Fair Trade Contract within the State of New Jersey. The parties entered into a Stipulation of Facts, submitting the matter for the Court's determination upon the record and respective briefs.

 The material facts stipulated follow: Plaintiff has used 'Upjohn' as a trademark for its products since 1891, and among other products, the trade-marks of 'Unicap,' 'Lymacap,' and 'Zymadrops.' It sells its products directly to retail licensed pharmacies and drug wholesalers. It also sells to local hospitals of this area, among others, at 40% Below catalogue list price which, in many instances, is the same as the fair trade list prices. Similar arrangements exist with physicians and industry having doctors or registered pharmacists. A Fair Trade Agreement entered into between the State Drugstore of Orange, New Jersey, and plaintiff in effect since 1952, has been entered into evidence. From sometime in December, 1961 through February, 1962 plaintiff conducted a special sale for retail purchasers of 'Unicap Multivitamins.' The Fair Trade prices were 94 cents for a 24 tablet bottle and $ 3.11 for a 100 tablet bottle. The Special Sale combined these two bottles, for the period mentioned and advertised and sold on a national retail distribution basis, for the special price of $ 3.11, thereby effecting a consumer-savings of 94 cents. Similarly, but unconnected, plaintiff is presently conducting a special sale *fn1" of a combination package of 'Unicap Multivitamins' and 'Unicap Chewables,' during the period September 1 to November 1, 1964, providing a 'free offer' of 24 tablets with the purchase of 100 tablets. Defendant in the course of its business sells at retail plaintiff's trade-marked products, below fair trade prices established by plaintiff within the State of New Jersey, despite plaintiff's interdiction by letter to defendant in April, 1963.

 The defenses interposed bring into focus the issues requiring resolution. Defendant contends (a) the Fair Trade Act of New Jersey is unconstitutional; (b) plaintiff's fair trade contract does not comply with New Jersey law; (c) plaintiff is in open competition with defendant, there being no contract between them and (d) by its conduct has abandoned its Fair Trade program as to certain items. Plaintiff counters that the Fair Trade Legislation of New Jersey protects its fixed fair trade prices; and that isolated promotional combination sales do not render it a competitor, or result in an abandonment of its price program established through Fair Trade contract in New Jersey, and elsewhere.

 The constitutionality of Fair Trade legislation generally has received ample consideration, *fn2" while that of the New Jersey Fair Trade statute has received the specific sanction of the New Jersey Supreme Court. Lionel Corp. v. Grayson-Robinson Stores, 15 N.J. 191, 104 A.2d 304 (1954), appeal dismissed 348 U.S. 859, 75 S. Ct. 87, 99 L. Ed. 677; California Oil Co. v. Reingold, 5 N.J.Super. 525, 68 A.2d 572 (Chanc.Div.1949); Eli Lilly & Co. v. Sav-On Drugs, Inc., 57 N.J.Super. 291, 154 A.2d 650 (Chanc.Div.1959) aff'd 366 U.S. 276, 81 S. Ct. 1316, 6 L. Ed. 2d 288 (1960), reh. den. 366 U.S. 978, 81 S. Ct. 1913, 6 L. Ed. 2d 1268 (1961).

 The New Jersey Fair Trade statute, supra provides that commodities which are sold to consumers bearing the trademarks, brand or the name of the producer or owner of such commodities, and which are in fair and open competition with those of the same general class produced by others, may be sold or resold at prices established by the vendor. That the products here in question are of the type and general class in fair and open competition has been stipulated by the parties. The such a price establishment has been made by plaintiff within the State of New Jersey is evidenced by the contract of State Drugstore effected in 1952, and which is part of the record. The fact that such a resale price maintenance program has been established by the owner of the trademark commodity is all that is required by the statute. The 'contract' which is involved need not be with the defecting retailer, for it is a mere price-fixing device made available to the owner by the statute for the protection of his trademark product and the established retail price system within the area in question. Houbigant Sales Corp. v. Woods Cut Rate Store, 123 N.J.Eq. 40, 43, 196 A. 683 (Chanc.1937). Such a contract is but one of the means of communicating to the trade knowledge of established prices and a resale price maintenance program. The foundation of a suit for violation of a Fair Trade Act, while often involving breach of contract, is more properly one for unfair competition for violation of the statutory protection bestowed upon the commodity for the benefit of the trade-mark owner, or producer, against price-cutting dealers who have knowledge of an established minimum resale price maintenance system and program. R.S. 56:4-6, N.J.S.A.; 1 Callmann, Unfair Competition and Trade-marks (2d ed. 1950) sec. 22.4 pp. 447-454.

 The preservation of the legislative design for Fair Trade resale price maintenance by adherence to basic equitable principles in its enforcement is the pivotal concern of the judiciary. Texas Co. v. DiGaetano, 39 N.J. 120, 129, 187 A.2d 721 (1963); Gillette Co. v. Two Guys from Harrison, Inc., 36 N.J. 342, 349, 177 A.2d 555 (1962).

 In United States Time Corp. v. Grand Union Co., 64 N.J.Super. 39, at page 47, 165 A.2d 310, at page 314 (Chanc.Div.1960), the Court stated:

 'The Fair Trade Act carries with it the fundamental equitable concept that he who seeks equity must do equity; thus, when the manufacturer or producer seeks the benefit of the act, he should be given relief in equity only in case he has acted fairly toward all others affected by the contract. He must refrain from causing any unjust discrimination among the retail dealers, and in addition must exercise reasonable diligence to see that his products are not sold to a retailer who cuts prices after the producer has notice of such violation and he may be required to resort to legal action if necessary.' (citations omitted.)

 This language is cited with approval in Texas Co. and adopted in the statement of Justice Haneman in Gillette, and here most appropriate (36 N.J. at p. 349, 177 A.2d at p. 559):

 'A producer may not market, in combination, fair traded articles or even articles fair traded with articles not fair traded if the marketing is done in such fashion as to subvert the principles of fair trade legislation. In utilizing such marketing techniques the interests of the public and retailers must be recognized; otherwise, they would be at the mercy of a producer who could with impunity devise combination price schemes which (could) seriously hamper the retailers' sale of the single item already on sale at an established fair trade price.'

 Such then is the pattern of the New Jersey Fair Trade resale price maintenance law against which the marketing conduct of plaintiff, as well as the sufficiency of defenses interposed to this action, may be viewed.

 Neither the attack by defendant upon the constitutionality of the Act, nor its claim that it cannot be bound by a Fair Trade program to which it is not a contracting party can prevail. Lionel Corp. v. Grayson, etc., supra. However, its contentions that plaintiff has assumed the role of a competitor by selling to hospitals, physicians and industrial clinics at prices below its own established fair trade prices possess considerable merit. With equal force, defendant urges that by using combination sales of the type here challenged, plaintiff's conduct constitutes as to such items an abandonment of its own fair trade program. Thus, defendant argues that plaintiff by its own conduct has precluded itself from injunctive relief. Plaintiff counters with the proposition that it may engage in institutional selling and physician ...


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