Appeal by defendants from the Superior Court of Cook county;
the Hon. RUDOLPH DESORT, Judge, presiding. Heard in the third
division of this court for the first district at the February
term, 1953. General Number 46043: Decree reversed and cause
remanded. General Number 46044: Order reversed. Opinion filed
December 2, 1953. Rehearing allowed December 30, 1953. New
opinion filed May 19, 1954. Released for publication July 2,
MR. JUSTICE KILEY DELIVERED THE OPINION OF THE COURT.
Rehearing allowed December 30, 1953.
This is an action based on alleged violation of the Illinois Fair Trade Act (chap. 121 1/2, par. 188-191, Ill. Rev. Stat. (1953) [Jones Ill. Stats. Ann. 134.08-134.11]) to restrain the defendants from advertising and selling plaintiff's standard products below fair trade prices, and to recover damages for consequent harm. The chancellor awarded injunctive relief and referred to a master the issues with respect to damages. Defendants have filed separate appeals from two orders and the appeals have been consolidated.
Plaintiff is a Chicago manufacturer of electrical appliances which are sold nationwide. Since 1937 its products have been distributed by means of fair trade contracts in states where those contracts are permissible. Under this system, plaintiff contracts with distributors who agree that they will sell plaintiff's products only to retailers who in turn have contracted with plaintiff not to resell plaintiff's products at less than the fair trade price from time to time established by plaintiff.
Defendants conduct a retail business in Chicago. Among other commodities, they sell electrical appliances, including products of plaintiff. They have no fair trade contract with plaintiff. They operate what is designated a "discount store" and advertise and sell plaintiff's electrical appliances at less than the fair trade price.
Plaintiff's action is brought by virtue of section 2 of the Illinois Fair Trade Act, which provides that willful and knowing advertising, offering for sale or selling any commodity at less than the fair trade contract price "is actionable at the suit of any person damaged thereby" whether the person so advertising, etc. is a party to the contract or not. This section has been challenged as unconstitutional, but was sustained by the Illinois Supreme Court, Joseph Triner Corp. v. McNeil, 363 Ill. 559 (1936), and by the United States Supreme Court, Old Dearborn Co. v. Seagram Corp., 299 U.S. 183 (1936).
The United States Supreme Court in the Old Dearborn case referred to the history of the fair trade contract rule. It said that the Illinois Fair Trade Act recognized the common-law rule which had been accepted by many state courts, and that the common-law rule was based on the distinction between goods identified by trade-marks and goods not so identified. The rule was adopted by "some of the lower federal courts" but these decisions were upset by the Supreme Court in Dr. Miles Medical Co. v. Park and Sons Co., 220 U.S. 373 (1911). That case decided that the fair trade system of contracts violated the Sherman Anti-Trust Act (15 U.S.C. § 1) insofar as interstate commerce was affected.
The decision in the Dr. Miles case was overcome by the enactment of the Miller-Tydings Amendment in 1937 (15 U.S.C. § 1). The effect of this Amendment was to validate vertical fair trade contract systems (Schwegmann Bros. v. Calvert Corp., 341 U.S. 384 (1951)). A vertical fair trade system is an arrangement of agreements between a manufacturer and the wholesalers and retailers of its products. A majority of the United States Supreme Court in that case decided that the Miller-Tydings Act removed from the effect of the Sherman Act only voluntary fair trade arrangements, where the contracts or agreements were valid under state statutes or policy. It said that the Miller-Tydings Act was not intended to give distributors "a club" to force fair trade prices on retailers who had not signed contracts. A dissenting minority thought that Congress in enacting the Miller-Tydings Amendment to the Sherman Act intended to validate the "non-signer" provisions of the forty-two state Acts whose laws contained them. Schwegmann Bros. v. Calvert Corp., 341 U.S. 384 at 401.
In July 1952 Congress enacted an Amendment to the Commerce and Trade Act, 15 U.S.C. § 45. This Amendment, known as the McGuire Amendment, provided in subparagraph (a) (3) that nothing in section 45 nor in any Anti-Trust Acts should "render unlawful the exercise or the enforcement of any right or right of action created by any statute, law, or public policy" of any State whose Fair Trade Act contains a "non-signer" clause.
We shall consider the questions raised on appeal in the light of these developments.
Defendants contend the court erred in following the irregular procedure of awarding a permanent injunction on a motion for a temporary order, and in passing on the sufficiency of their answer in the absence of a motion.
The hearing was on plaintiff's motion for temporary injunction. It seems to us that, though references were made to a permanent injunction, both parties anticipated a ruling on the pending motion for temporary injunction. The order entered, however, granted a permanent injunction. The record shows no ruling upon the motion for a temporary injunction, and since plaintiff relies upon the order for a permanent injunction, we shall treat the motion for temporary injunction as out of the case.
At the hearing plaintiff insisted that the record would justify a permanent injunction because the answer neither raised issues on the complaint, nor stated the elements of an affirmative defense. This was virtually a motion for a decree upon the pleadings. Defendants, on the other hand, insisted that their answer raised issues on the merits, and presented an affirmative defense requiring a reply. The effect of these contrary positions was to present a question of law.
The question is therefor on the propriety of entering the order for the permanent injunction.
The chancellor found that defendants' answer raised no triable issues of fact requiring trial and did not properly plead any defense requiring reply. Implicit in these findings is the conclusion in the chancellor's opinion that the answer presupposes a pre-McGuire "fair trading system," while plaintiff's suit is based on a post-McGuire contract.
Plaintiff relies upon but one contract which was executed after the enactment of the McGuire Act. It stated its cause of action by alleging this contract for the sale or resale of plaintiff's trade-marked products in fair and open competition, the price list established thereunder, knowledge of the contract by defendants, willful price cutting thereafter by defendants and consequent damage to plaintiff's goodwill. It is our view that under the McGuire Act plaintiff's cause of action is maintainable. It follows that defendants' arguments which are based upon holdings of the federal courts before the McGuire Act was adopted are not helpful. We shall therefor disregard as immaterial those parts of defendants' answer which allege unlawful conduct on the part of the plaintiff, in the doing of which it violated the law as it stood before the McGuire Act, but which conduct since is not unlawful.
Defendants argue principally that their affirmative defenses of illegality (restraint of trade) and unclean hands (discriminatory practices), admitted by failure of plaintiff to reply, should have defeated plaintiff's motion.
Defendants' answer adopted a complaint filed by the United States Government against plaintiff on February 28, 1952, charging it with unfair trade practices in violation of the Sherman Act, 15 U.S.C. § 1. The chancellor was of the opinion that that complaint created no issue. He thought ...