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Vornado Inc. v. Corning Glass Works

filed: January 19, 1968.


Biggs, Freedman and Seitz, Circuit Judges.

Author: Biggs

Opinion of the Court

BIGGS, Circuit Judge:

The plaintiff-appellant, Vornado, Inc., has appealed from a judgment dismissing a complaint which alleged in substance that a resale price maintenance agreement entered into by the defendant-appellee, Corning Glass Works, with the defendant-appellees, the Lehroffs and with H. Schultz & Sons to enforce Corning's fair trade program constitutes a violation of the antitrust laws of the United States. An appeal also has been taken by Vornado from a judgment entered upon Corning's counterclaim restraining Vornado from violating the fair trade agreement referred to, made, as we have said, by Corning with Vornado. Jurisdiction is based on 15 U.S.C. § 15.

The prime issues presented are whether Corning forfeited its right to enforce its fair trade program against Vornado because of exemptions Corning has given to trading stamp companies, and further if Corning's exemptions to trading stamp companies be permitted, whether Vornado's own trading stamp program, referred to more particularly hereinafter, must also be deemed to be exempt.

The facts were stipulated and are disclosed by Judge Wortendyke in his exhaustive opinion, 255 F. Supp. 216 (D.N.J. 1966). We state here only the facts which we deem necessary to decide the issues referred to. Corning is the manufacturer of a prestige line of ovenware and cookware. These items bear Corning's trademark and, as indicated, are subject to fair trade contracts that have been entered into by Corning in every State where such contracts are permitted by law. Corning has over 3,000 such contracts in New Jersey. Corning publishes its fair trade prices and employs personnel whose duty it is to enforce Corning's fair trade policies through shopping excursions and the warning of price cutters. During the period November 1957 to June 1965, Corning obtained 18 permanent injunctions in (New Jersey against violators of its fair trade prices.

Corning sells its products to wholesale-distributors such as Schultz and Lehroff who have agreed to resell those products at the fair trade prices established in wholesale fair trade contracts and to sell only to retailers who are franchised Corning dealers; i.e., to those retailers who have signed fair trade agreements with Corning. Such agreements are lawful in New Jersey. N.J.S.A. 56:4-5. Vornado signed such an agreement with Corning and proceeded to purchase Corning Ware from Schultz and Lehroff.

Corning Ware is also sold by Corning to trading stamp companies. Corning's total sales to New Jersey dealers in 1964 were $1,874,000. Of these the sales to trading stamp companies totalled $185,000. These trading stamp companies have redemption centers throughout New Jersey, some in the vicinity of Vornado's retail stores known as "Two Guys from Harrison". The trading stamp companies sell their stamps to retail merchants who customarily give one stamp for each 10 cents of the price of the article purchased. Between $120 and $150's worth of merchandise is required to fill one stamp book, the difference being dependent on which trading company's stamps are employed. At times the retail stores will offer bonus stamps with the purchase of a particular item. Merchandise at a redemption center may only be obtained by presenting completed books for the desired item. Aside from monies used for the collection of taxes, the redemption centers will not accept cash to supplement a deficiency in the number of books needed. A Corning Ware percolator for example requires 2 4/5 books of one stamp company or over $400 worth of purchases from the retail store issuing the stamps of that stamp company. Corning does not require the trading stamp companies to sign fair trade agreements, albeit Corning suggests values to be put on the stamps used to acquire Corning Ware but the trading stamp companies have not been required to, nor do they, abide by Corning's suggested valuations.

Vornado operates a program whereby its trading stamps are issued on food sales and also are redeemable in merchandise on sale at its retail stores. Unlike other trading stamp companies, Vornado advertises that a completed book containing its stamps is worth $2.25.*fn1

In respect to its own trading stamp books, in October of 1962, Vornado commenced a merchandising program for the sale of Corning products which resulted in sales at less than the fair trade prices of the merchandise. Vornado's advertisements stated, to employ an example, that "Your books [are] worth up to $14.50 on these Corning Ware One Book Specials." Below this legend there would be shown a "Corning Ware Homemaker Set", list price $29.95 available at "Two Guys" for $15.75 plus one book.*fn2 On such sales Vornado often made little or no profit and even took losses, the articles sold being used as "loss leaders". It is stipulated that trading stamp companies never assign such fluctuating values to their stamp books. As noted, the trading stamp companies never permit a combination cash-stamp book purchase.

Corning, upon learning of Vornado's merchandising campaign, sent a telegram to Vornado demanding that it stop such merchandising campaigns. There were some negotiations but no agreement was reached. Corning then terminated Vornado's franchise and so informed its wholesalers-distributors who in turn ceased deliveries to Vornado. Vornado brought the suit at bar alleging, as we have said, violations of the antitrust laws, claiming treble damages and seeking injunctive relief. Corning and the other named defendants answered denying any antitrust law violations. Corning pleaded its fair trade agreement with Vornado and sought damages for breach of contract and injunctive relief.

The trial judge stated: "The provisions of the Fair Trade Agreements, between Corning and Vornado on the one hand, and Corning and each of its distributors on the other, were in all respects in conformity with the provisions of N.J.S.A. 56:4-5(1) and, therefore, within the exemptive proviso set forth in 15 U.S.C. § 1." 255 F. Supp. at 224. This finding by the court below is clearly correct. Thus, as hereinbefore stated the only issues before us are, first, whether Corning Glass, by exempting trading stamp dealers from its fair trade program, forfeited its right to maintain that program and thereby abandoned its right to resort to judicial process to enforce its fair trade agreements; and, second, if that exemption be permitted, whether Corning must apply that exemption to Vornado's own stamp program.*fn3

Because we do not find the exemption of the trading stamp companies by Corning to be outside the policy of the exception to the antitrust laws granted for State Fair Trade Acts provided by the Miller-Tydings Amendment to the Sherman Anti-Trust Act, 15 U.S.C. § 1, we need address ourselves only to the scope of permissible exemption under New Jersey law.

The policy of the New Jersey Fair Trade Act, like that of other fair trade acts, is "to prevent a destruction of the producer's good will, which is often established at great cost. . .", it appearing that this good will and "integrity of the product is best preserved in the eyes of the public by regulating the price at which the public can buy the product." Menley & James Labs., Ltd. v. Vornado, Inc., 90 N.J. Super. 404, 411, 217 A. 2d 889, 893 (1966). "The act introduced into the law the concept that the owner of a trade-marked article retained an interest in his commodity after he parted with ownership and that he was therefore entitled to protect his ...

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