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July 19, 1954

TOWNS & JAMES, Inc., Defendant

The opinion of the court was delivered by: GALSTON

The action by plaintiff, a manufacturer of pharmaceutical drugs, is to enjoin the defendant, a wholesale drug company, from advertising and selling the plaintiff's drug products at prices below those established in accordance with the plaintiff's wholesale fair trade contracts entered into pursuant to the Feld-Crawford Fair Trade Act of New York, § 369-a et seq., General Business Law, McK.Unconsol.Laws, c. 20.

The defendant has moved to dismiss the action and for summary judgment. The plaintiff in turn has moved for summary judgment, and in the alternative for a temporary injunction. Both sides have submitted affidavits in support of their respective contentions. Defendant has also submitted the deposition of Vincent A. Burgher, vice-president of the plaintiff, in support of its motion. Both motions will be disposed of in this opinion.

 The action was instituted in the Supreme Court of the State of New York, Kings County. On the petition of defendant it was removed to this court on the ground of diversity of citizenship, the plaintiff being a New Jersey corporation, and defendant being a New York corporation having its principal place of business in Brooklyn. Plaintiff's motion for a preliminary injunction was pending at the time.

 In February, 1950, plaintiff negotiated contracts with most of the drug wholesalers in the country, including the defendant, establishing minimum wholesale prices on all of plaintiff's products except hormones. At the time the wholesalers were also asked to sign a 'Wholesale Distributors' Agreement'. A schedule of prices was forwarded to each wholesaler setting forth minimum prices for each of plaintiff's products. In addition, this schedule carried the notice that it was not applicable to sales in excess of $ 50. The wholesale distributors' agreement referred to provided, among other things, that the wholesale distributor would be allowed a 20% discount from the trade list price established by the plaintiff manufacturer as set forth in this schedule of minimum prices.

 During this period plaintiff also sold its products directly to a selected group of retailers for the list price less a discount of 20%. Thus plaintiff sold its products to the wholesalers and directly to those retailers at the same price. However, since plaintiff's wholesale fair trade contracts did not apply to sales by its wholesale distributors in excess of $ 50 list price, the wholesalers could grant on such sales any discount they desired in selling to retailers. The affidavit of W. Rutherford James, president of defendant corporation, states:

 'Of course, Towns & James did not sell Ciba products for the same price we paid for them. But where a customer wanted to purchase Ciba products in quantities of fifty dollars or more, we were able to sell him at a discount of from ten to fifteen per cent. Because of the service and credit we extend to our customers, they were willing to buy from us at the discounts we offered rather than order from Ciba at their full discount of 20% off list price.'

 On June 29, 1953 plaintiff announced a change in its sales policy. In a letter to its wholesale distributors, a copy of which is attached to defendant's motion papers, it announced that on July 1, 1953 it was establishing minimum prices for all of its products. At the same time it solicited new manufacturer-wholesaler fair trade contracts, since the 1950 contracts terminated on June 30, 1953. The June 29th letter was accompanied by a copy of the new fair trade contract, and a revised and complete schedule of minimum wholesaler fair trade prices. It is significant that this new schedule omitted the following statement which appeared in the earlier 1950 schedule:

 'Products as set forth in this schedule shall be sold in dozens or fractions thereof, or by the unit in any quantity up to fifty ($ 50) dollars 'trade list price', at a price which shall be not less than the indicated list price thereof.'

 The defendant executed the new fair trade contract, effective July 1, 1953, with the plaintiff.

 On July 28, 1953 the plaintiff issued a letter to its wholesale distributors which, among other things, stated as follows:

 '3. The minimum wholesale selling price, irrespective of quantity, for your shipments of Ciba specialties to druggists, is the 'price to retailer' as set forth in the wholesale price catalogue sheet issued by Ciba, less a discount of not more than 2%.

 '4. For years we have extended to drug retail distributors a service allowance of 20%. On July 1, 1953, this special service compensation to drug retail accounts, including Chains, was reduced to 15% instead of the former 20%.'

 The critical effect of the plaintiff's new sales policy with respect to its wholesale distributors, and to its direct retail accounts, was that the wholesale distributors, although obtaining a 20% discount in purchasing from the plaintiff, were required to sell plaintiff's products to retailers at the list prices established by the plaintiff, whereas the plaintiff was able to sell its products directly to its retail accounts at the list price less 15%.

 Following plaintiff's institution of its new sales policy, the defendant's sales of the plaintiff's products declined. Defendant attributed its difficulties in selling plaintiff's line of products to the new policy and endeavored to obtain relief policy and endeavored to obtain relief the plaintiff's officers being unsuccessful, defendant notified plaintiff that it was cancelling its fair trade contract. After the cancellation became effective on February 19, 1954, defendant reverted to its sales policy with respect to plaintiff's products that had been in effect prior to July 1, 1953. On orders for less than $ 50 defendant continued to ...

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