Miller-Tydings Act of 1937

The Miller-Tydings Act of 1937 exempted retail price maintenance agreements (fair trade provisions) in interstate commerce from federal antitrust laws. Under fair trade laws, manufacturers created resale price contracts with distributors that required their retailers [Page 1388]within a given state to sell “fair-traded” products at the same price. Specifically, the Miller-Tydings Act, in effect, amended Section 1 of the Sherman Act. Miller-Tydings made legal contracts or agreements prescribing minimum prices for the resale of commodity products sold and shipped in interstate commerce bearing a label, trademark, brand, or name of the producer or distributor when such products are in free competition under local state law.

During the 1930s, “mom-and-pop” druggists, hardware and appliance merchants, and grocery stores began to experience competition from large chain store operations throughout the United States. The chain stores benefited from economies of scale and were frequently able to sell at prices lower than that of their smaller rivals. In an effort to level the competitive playing field, a number of states passed fair trade laws that heavily taxed chain stores. At the federal level in 1936, Congress enacted the Robinson-Patman Act to prohibit price discrimination by suppliers to small businesses.

Before Miller-Tydings was enacted, various populists suggested that chain stores represented an assault on the economic backbone of American democracy, small businesses. They argued that small businesses needed protection from the predatory pricing practices of ruinous competition. Similarly, some economists and jurists opposed fair trade laws on the grounds that such laws significantly reduced or even eliminated competition (specifically small competitors) from the marketplace. President Franklin D. Roosevelt strongly objected to fair trade provisions on the grounds of potential resentment by consumers who would be faced with escalating prices.

Manufacturers and independent retailers were the main proponents of fair trade laws. Manufacturing firms supported the passage of fair trade laws because they worried that lower prices would negatively affect perceptions of quality by consumers, diminish the value of branded goods, and in turn, ultimately reduce sales. Small independent retailers supported retail price maintenance agreements because such agreements established floor prices that attenuated the bulk-purchasing advantage of large chains.

Congress passed the Miller-Tydings bill on August 17, 1937. The bill was designed to overrule the 1911 U.S. Supreme Court ruling in the Dr. Miles case (Dr. Miles v. John D. Park & Sons, 220 U.S. 373), in which the Court held that certain vertical resale price agreements substantially lessened competition as effectively as any horizontal agreement and were in violation of the Sherman Act. Subsequently, by June 30, 1938, resale price maintenance laws had been enacted in every state except Texas, Missouri, Vermont, Delaware, and Alabama.

A 1951 Supreme Court ruling (Schwegmann Bros. v. Calvert Distillers, 341 U.S. 384) invalidated nonsigner clauses to fair trade laws. Nonsigner clauses had allowed distributors to take action against parties with whom they had no contractual arrangements that limited fair trade laws. That Supreme Court ruling along with subsequent legislative lobbying efforts by various chain businesses led to the federal repeal of the Miller-Tydings Act of 1937 on January 1, 1976.

...