Hon. W. C. Graves, Chairman           Opinion No. o-3180
Senate Committee on
Commerce and Manufactures             Re: Constitutionality      of
Austin, Texas                         Senate Bill 9, (Fair     Trade
                                      Act).
Dear Sir:
       Your letter   of February 17, 1941, submits to us a copy
of Senate Bill Eo. 9, and requests our opinion upon the con-
stitutionality     thereof.
      Senate Bill   No. 9, the so-called      "Fair   Trade Act"    reads
as follows:
            "Senate Bill   Ho.9              "By SPEARS
                                  " ABII&
                            "TO BE ENTITLED
                   wAE ACT to protect trade-mark owners,
            distributors    and the general public against
            Injurious    and uneconomic practices       in the
            distribution    of articles     of standard quality
            under a distinguished       trade-mark     brand or
            name, and to facilitate        fair tra a e; defjning
            certain terms; providing a savings clause;
            amending all laws and parts of laws incon-
            sistent herewith; and declaring         an emergency.
      "BE IT ENACTED
                   BY TBE LEGISLATUREOF TBE ST,ATEOF TEXAS:
            "Section 1. That no contract relating     to the sale
      or resale of a commodity which bears, or the label or
      content of which bears, the trade-mark, brandAao;hn-$
      of the producer or owner of such comodity
      is in fair and open competition with commo&ties of
      the same general class produced by others      shall be
      deemed in violation  of any law of the State of Texas,
      by reason of any of the following  provisions,    which may
      be contained in such contract;
            "1. That the buyer will         not resell such commodity,
      except at the price stipulated         by the Vendor.
Hon. W. C. Graves,      page 2


           “2 . That wilfully  and knowingly offering    for sale
     or selling   any commodity at less than the price stipu-
     lated In any contract entered into pursuant to the
     provisions   of this Act, whether the person so offer-
     ing for sale or selling   is or is not a party to such
     contract,  is unfair competition   and is actionable   at the
     suit of any person damaged thereby.
          “3.  That the Vendee or producer require any dealer
     to whom he may resell  such commodity to agree that he
     will not, in turn resell,  except at i he price stipulated
     by such Vendor or by such Vendee.
            Y3uch provisions in any contract shall be deemed
     to contain or imply conditions   that such commodity may
     be resold without reference   to such agreement in the
     following   cases:
           “1.  In closing out the owner’s stock for the pur-
     pose of discontinuing  any such commodity, and notice
     thereof is given to the public;
          “2 . When goods are damaged or deteriorated                 in quality
     and notice thereof Is given to the public;
              “3.   By any officer   acting    under the orders       of any
     court.
          “Section 2.    This Act shall not apply to any contract
     or agreement between the producers or between wholesalers
     or between retailers,   as to sale or resale prices.
          “Section 3. The following            terms,     as used in the Act,
     are hereby defined as follows:
          “‘Producer        means grower,     baker,    maker, manufacturer,
     or publisher.
              “‘Commodity’ means any subject           of commerce.

           “Section 4. If any provision  of this Act is declared
     unconstitutional,  it is the intent of the Legislature  that
     the remaining portions thereof shall not be affected,   but
     that such remaining portions remain in full force and ef-
     feet.
           “Section 5.  All laws or parts of laws inconsistent
     herewith are hereby amended to the extent of such incon-
     sistency.
Hon. W. CI Graves,   page 3


          "Section 6. This .Act may be known and cited        as
     the 'Fair Trade Act.'
            "Section 7. The fact that the State has no law
     to regulate unfair trade practices    creates an emer-
     gency and an imper~ative public necessity    that the Con-
     stitutional    Rule requiring bills to be read on three
     several days in each House be suspended, and said Rule
     is~ hereby suspended, and that this Act shall take ef-
     fect and be in force from and after its passage, and
     it is so enacted."
              In Conference Opinion No. 3066, we held that H.B. No.
231, the "Fair Trade Act" passed by the 46th Legislature,          con-
flicted    with our anti-trust     laws and that, since Section 7 of
that Act provided that the Act should be null and void if it
conflicted     with the anti-trust    laws of the State, H. B. No. 231
was, by its own terms, of no force and effect.          Because of this
holding,    it was not necessary that we should, and we therefore
did not, express in that opinion our views respecting          the con-
stitutionality     of that Act.
            Senate Bill No. 9, pending before the 47th Legislature,
is very similar to H. B. No. 231, 46th Legislature,        but contains
no provision    that S.B. No. 9 shall be null and void if in con-
flict   with our anti-trust   laws.   On the contrary,   Section 5' of
S.B. No. 9 expresses clearly     the legislative   intent that the pro-
visions   of the "Fair Trade Act" shall operate to amend and super-
sede the anti-trust     laws to the extent that the "Fair Trade Act"
conflicts   with the anti-trust    laws.
            Under the anti-trust    laws of this State, the agreements
which are mentioned in Senate Bill No* 9 are illegal          and void.
(See our Conference Opinion No. 3066 copy of which is hereto at-
tached).    The pur:Jose and effect   of 4 enate Bill No. 9 is to le-
galize in this State the type of contra& fixing resale prices-
"vertical18 price fixing - described     in the bill.     If the bill be-
comes a law, the anti-trust      laws of this State will,     by virtue
thereof,   be repealed to the extent that such laws condemn the
"vertical"   price fixing  agreements described in Senate Bill No.
9. Thus, only questions respecting       the const;tutionality      of S.
B. No. 9 are presented for our consideration.
             Our anti-trust  laws constitute    a legislative  determina-
tion that agreements and combinations having for their purpose
or affecting    by their acts the fixing     of prices upon the subjects
of commerce, though manifestly     beneficial    to that portion of the
public engaged in the selling     of such commodities who, are parties
Hon. W. C. Graves.    Page 4


to such agreements and combinations,     are obnoxious and harmful
to the interest   of the public generally.     This legislative  de-
termination upon which the anti-trust      laws are predicated,  how-
ever, is subject to review by the Legislature.       There is no
provision  of our Constitution  which prevents the Legislature
from modifying or revoking the policy embodied in the anti-
trust laws.    Hence, whether these laws shall be repealed in
whole or in part presents purely a question for the Legislature,
to be solved by the Legislature    in such manner as appears to it
to be in the interest   of the general public.
          The character of this problem as purely legislative
is emphasized by the following  quotation from our Conference
Opinion No. 3066:
            “It is contended by advocates of such legisla-
     tion that the manufacturer of trade-marked or branded
     articles    of commerce has a vital interest       in the good
     will engendered by the sale of such goods with his
     brand or trade-mark upon them; that price-cutting             in
     such goods by retailers        to whom the manufacturer or
     distributor     ~has sold them results    in damage to the
     manufacturerfis good Will;        that the damage thus SUS-
     tained increases the manufacturer’s          costs and impairs
     hls ability     to market his goods and results        in in-
     creased prices for such goods to the buying public.
     (7 A.L.R. 453-456).         It is argued that ‘vertical’
     price-fixing--that       is, price-fixing   on a branded com-
     modity in competition with other branded commodities
     of a similar class,       by agreement between the manufac-
     turer or the distributor         and the dealers in such com-
     modity, as to the prices for which his commodity alone
     may be sold, is beneficial         to the public generally;
     whereas, it is admitted that ‘horizontal’          price-fixing
     agreements--that      is, price-fixing    between manufactur-
     ers or dealers in similar commodities normally in com-
     petition    each with the other, is decidedly       inimical     to
     the public, interest.
           “On the contrary, the arguments against such price-
     fixing are phrased as follows by the Federal Trade Com-
     mission report for the fiscal  year ending June 30, 1918:
           “‘1. The power to fix prices will usually            be
     abused by the allowance of too large profits;
           “‘2.  Resale price maintenance protects   and en-
     courages inefficient   jobbers and prevents elimination
     in the over-crowded field of middlemen;
Hon. W.      C. Graves,     page 5



             3.u8
                  It tends to secure             cooperation of dealers
      and’to prejudice  them against             brands whose prices
      are not fixed;
               n’4.       It forces   other   dealers   to attempt the eon-
      trol     of prices;

            “‘5.   It encourages general standardization   of
      prices and elimination    of normal competition  among
      dealers;   and,
            ttI 6 . It forces         the ultimate consumer to pay high-
      er prices and leaves            him no bargaining power with re-
      spect to the article            concerned.’   (7 A.L.R. 458)
           “It is, of course, t’he prerogative        of the Legislature,
     in the exercise     of its constitutional     authority to origi-
     nate such legislation       as this, and of the Governor, in the
     exercise    of his constitutional     authority to veto or ap-
     prove, to balance these arguments and constierations           the
     one against the other, determine their validity,           and to
     take such action as, to them, appears to be in the interest
     of the public generally.        In the absence of any constitu-
     tional inhibitions      neither this Department nor the courts
     would have shy rightful       concern with the question of public
     policy involved,     since the determination      of that question
     of public policy is governed by findings          of fact,  and the
     power to make such findings        of fact is by our Constitution
     exclusively    vested in the Legislature       and In the Chief Exe-
     cutive of the State.”
           Under our system of government, the people have vested
a large discretion     in the Legislature    and in the Governor to de-
termine the policies     of the State.     Except as this discretion       may
be limited by plain constitutional        provisions,    the Legislature’s
action,  unless vetoed by the Governor         is final.    Upon these ques-
tions of policy,     the Constitution   vests no authority     in the Judi-
ciary to nullify     a law simply because, in the opinion of the Ju-
diciary,  the Legislature     has wrongly determined the question of
policy involved and passed a law which is obnoxious to, rather
than in the furtherance      of the interest      of the public generally.
In such cases, the protect 1on of the people is not vouchsafed by
the Constitution      but lies “in the character of those entrusted
with the power o h legislation      and in the integrity     and firmness
of the chief executive      of the State.”     (DeHaven, J, in Daggett v.
Colgan (California),     14 L.R.~A. 474)
               Acts identical to Senate Bill No. 9 have been upheld in
many other      states and by the Supreme Court of the United States,
Hon. W. C. Graves,   page 6


as within the broad policy making po-der of the Legislature.        In
these cases, every question of constitutionality,     under State
and Federal Constitutions,   which occurs to us, has been resolved
in favor of the validity   of the Act.   (See cases collected    in
knotations* . 103 A.L.R. 1342; 125 A.L.R. 1336) No useful pur-
pose can be served by extensive quotations from these cases.
It suffices  to say that, under these authorities     'Je are of the
opinion that no provision   of the State or Federa 1; Constitutions
renders Senate Bill No. 9 invalid.
                                    Yours very truly
                                    ATTORNEY
                                           GENER& OF TEXhS
                                    By /s/ R. W. Fairchild
                                    Richard W. Fairchild
                                    Assistant
@PROVED: MAR 6, 1941
/s/ Gerald C. Mann
ATTORNEY  GENERAL
                OF TEXAS
RWF:EP:wb
ENCLOSURE
This opinion   considered   and approved   in limited   conference.
