# Appendix — Joseph E. Seagram & Sons, Inc. v. Hostetter > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386411_0250%3A01 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1966 - **Citation:** 384 U.S. 35 ## Text SUPREME COURT OF THE UNITED STATES OCTOBER TERM, 1965 No. 545 JOSEPH E. SEAGRAM & SONS, INC., ET AL, APPELLANTS, Vs. DONALD 8S. HOSTETTER, ETC., ET AL. APPEAL FROM THE COURT OF APPEALS OF THE STATE OF NEW YORK INDEX Record from the Supreme Court of the State of New York, County of Albany Original Print RR ie rae a ee 1 1 ESR aR ape oe ; 2 3 Order to show cause __. 27 25 Aittachment—Affidavit of Thomas F. Daly, read in support of motion ; 29 27 Exhibit A—Senate Introductory Ne. 273 ; 38 36 Exhibit B—j.etter from William W. Golub, Moreland Act Commission, to John J. Marciii, Chairman, Joint Legislative Com- mittee for the Study of the Alcoholic Beverage Control Law, dated March 9, ee 43 41 Exhibit C— Excerpt from t wanee rit ae min- utes of public hearing held February BE Scone ead iehitc ek tet iat eee 47 44 Recorp Press, Printers, NEw York, N. Y., DEcEMBER 10, 1965 ii INDEX Record from the Supreme Court of the State of New York, County of Albany—Continued Order to show cause—Continued Attachment—Affidavit of Thomas F. Daly, read in support of motion—Continued Exhibit D—Study Paper No. 5 entitled Re- sale Price Maintenance in the Liquor In- dustry, dated October 28, 1963, with Ap- pe OF Ts Reta Pte oenene mane Exhibit E—Report and Recommendations No. 3 entitled Mandatory Retail Price Maintenance, dated January 21, 1964, with Appendices A, B, C,D & EB... Exhibit F—Press releases of Governor’s Messages to the Legislature, dated Febru- ary 10, 1964, and April 16, 1964 Attachment—Affidavit of Frederick J. Lind ae ee eee Attachment—Affidavit of Joseph D. Cotler in I OE TI iiciveipcceticrteterrnntene Attachment—Affidavit of Raymond Revit in ON Ae ha cincnchcocttincestesoeticanoonenste Attachment—Affidavit of Walter J. Devlin in ett I 6 Attachment—Affidavit of D. L. Street in sup- I A a ai antec herkdpiieshinceereniicsedsind Attachment—Affidavit of R. R. Herrmann, Jr., in support of motion - Attachment—Affidavit of Ira R. Schattman, Jr., in support of motion Attachment— Affidavit of Frank T. Hyppes iz in support of motion Appendix A—Chart showing changes in con- sumer consumption, New York State Distilled Spirits, Percentage Change, 1954 vs. 1963 Original Print 55 126 183 194 201 207 213 219 227 236 239 251 53 124 181 249 INDEX lii Original Print Record from the Supreme Court of the State of New York, County of Albany—Continued Order to show cause—Continued Attachment—Affidavit of Frank T. Hypps in support of motion—Continued Appendix B—List showing comparison of leading whisky brands, 1954 vs. 1963 ____. 252 250 Appendix C—Report entitled Distilling Com- panies included in Studies of First Na- tional City Bank, New York, New York (Average Annual Percentage Rates of Net Income after Taxes to Net Assets of Leading Manufacturing Corporations, BOE pants acknteitnignadsccceannbea stein 254 252 Appendix D—Reports entitled Annual Sur- vey of Operations, 1963, prepared by the School of Commerce and Finance, St. Louis University, for Wine and Spirits Wholesalers of America, Ine. for the fol- lowing locations: EER Ce Se te Fo Bee 260 258 he Le Car eaen ae a 267 265 SINE apis aii Seihca sca gadoaincnperbicninsaetla clio 275 273 Dene 283 281 DU aS ee as 293 291 Attachment—Affidavit of do Goodman in support of motion 300 298 Attachment—Affidavit of mere Ww. ‘Mine | in support of motion, with two Revenue Rul- ings attached CW ERNE 8, NR aoe loool ae 302 300 Attachment—Affidavit of Ch.ster F. Me- Namara in support of motion — __- 306 303 Attachment—Affidavit of Charles W. Sand i in support of motion... 307 305 Attachment—Affidavit of William Steinberg ng” eal ionete ee 309 306 NIN gh a ee ee ek ve 310 307 INDEX Original Print Record from the Supreme Court of the State of New York, County of Albany—Continued Defendants’ notice of motion to dismiss motion for temporary injunction and for a temporary restraining order pending the hearing and { determination of the motion for a temporary d injunction .. saa 312 308 i Attachment—Affidavit of Ruth Eade ‘Toch in support of motion eats 313 309 Attachment—Affidavit of William E. Phillips in support of motion —. . __ 315 311 Affidavit of John F. O’Connell in : opposition to defendants’ motion to dismiss complaint —. 319 315 I Is 325 320 I Nailed ctctetpcitgudeniirtechcn Iacnipsiiehaeoscttesicrsoysiteeptaioceth 338 332 Judgment we 342 335 Notice of appeal - = 343 336 } Record from the Saareme ‘Court. of ‘the State of New York, Appellate Division, Third Judicial | BRE a ETRE a eT eT 344 337 GIN asc scneccsmcesniiincioinananne 344 337 Order of affirmance and granting leave to appeal to the Court of Appeals _- < 348 340 Certification pursuant to CPLR, Section 2105. 350 341 Proceedings in the Court of Appeals of the State : _< jaan an ; 351 342 I I, le nei ipticadices 351 342 RP AEN Pe eT 361 355 I i I sic ahapc en cssinnsnisnsiasninenhcininlsicndl 365 357 Notice of appeal to the Supreme Court of the United States ae 367 359 Order noting probable jurisdiction = 371 362 IN THE SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF ALBANY Index No. 6127-64 JosePH FE. Seacram & Sons, Inc., THe House or SeacraM, Inc., StrrzeL-WELLER Distituery, Inc., THe PappineTon Corporation, Hiram WaLKeER, INcoRPORATED, GOODERHAM & Worts, Lruitep, Jas. Barctay & Co., Limirep, W. A. TayLor & Company, Hiram Waker Distrisutors, INc., THe American Distitutinc Company, McCormick Dis- TILLING Company, THE FLEISCHMANN DistILLinG Corpo- RATION, Mr. Boston Distiuier, Inc., THe Vixine Dis- TILLERY, Inc., JAMES B. Beam Distitiinc Comrany, JAMES B. Beam Import Corporation, SCHENLEY INDUSTRIES, Inc., AFFILIATED DistiLLers Branps Corp., KNICKER- BOCKER Liquors Corp., Barton DisTiLLinc Company, Barton Distitters Import Corporation, JuLius WILE Sons & Company, Inc., Bacarpi Imports, Inc., Austin NicHots & Company, Inc., Canapa Dry Corporation, Hevsern, Inc., McKesson & Rospins, Inc., NatTionaL DiIsTILLERS AND CHEMICAL CorPoRATION, PusBLIcKER Dts- TILLERS Propucts, Ixc., WayNE Liquor Corp., Brown- Forman DistILuers Corporation, GLENMORE DISTILLERIES Company, A. Smita Bowan Distitiery, Inc., “21” Branps, Inc., Star Hitt Distittinc Company, ScuHier- FELIN & Company, ALPINE Wine & Liquor Corp., Ben PrerLow Liquor Corp., Bison Liquor Co., Inc., BLUE Crest WINE AnD Spirit Corp., Bonny Distrisutine Co., Inc., Capita, Distriputors Corp., CarpinaL Distrisu- tors, Ixc., Cotony Liquor Distrisurors, Inc., DisTiLLEp Branps, Inc., Eper Bros. Wine & Liquor Corp., ELMira Topacco Co., Inc., Emprre Liquor Corp., Graves & Roperrs, Inc., M. Licutman & Co., Inc., Mazor Liquor Distrisutors, Inc., Monarcn Liquor Corp., MuLLen & Gunny, Inc., Peertess Importers Corp., Ramapo WINE & Liquor Corporation, RocHesterR Liquor Corporation, Roncers Liquor Co., Ixc., S & K Wine & Liquor Corr., Stanparp Foop Propucts Corp., Stanparp Wine & Liquor Co., Inc., Star Lypustries, Inc., UNIversan Liquor Corp., Plaintiffs, against Donatp S. Hostetter, Chairman, Jonn C. Hart, WILLIAM H. Morcan, Bensamin H. Batcom, Rosert HK. Doyie, constituting the Stare Liquor AutuHority, and Lovuts J. LerkowitTz, Attorney Genera! of the State of New York, Defendants. Summons—October 29, 1964 To the above named Defendants: You are hereby Summoned to answer the complaint this action and to serve a copy of your answer on the Plaintiffs’ Attorneys within 20 days after the service of this summons, exclusive of the day of service; and in case [fol. 2] of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the complaint. Dated: New York, New York, October 29, 1964. Lord, Day & Lord, Attorneys for Plaintiffs, Office and Post Office Address: 25 Broadway, Borough of Manhattan, City of New York 10004. EINE PE LE CNN ISS In THE SupPpREME CouRT OF THE STaTE OF NEw York County or ALBANY salads CoMPLAINT Plaintiffs, complaining of defendants by Lord, Day & Lord, their attorneys, allege: For a Separate and Distinct First Cause of Action: 1. Joseph E. Seagram & Sons Ine. is a foreign corpo- ration organized and existing under the laws of the State of Indiana, duly qualified to do business in the State of New York. 2. The House of Seagram, Ine. is a foreign corporation organized and existing under the laws of the State of Delaware, duly qualified to do business in the State of New York. [fol.3] 3. Stitzel-Weller Distillery is a foreign corpora- tion organized and existing under the laws of the State of Kentucky. 4. The Paddington Corporation is a domestic corpora- tion organized and existing under the laws of the State of New York. 5. Hiram Walker Incorporated is a foreign corporation organized and existing under the laws of the State of Dela- ware, duly qualified to do business in the State of New York. 6. Gooderham & Worts Limited is a foreign corporation organized and existing under the laws of the State of Delaware, duly qualified to do business in the State of New York. 7. Jas. Barclay & Co., Limited is a foreign corporation organized and existing under the laws of the State of Delaware, duly qualified to do business in the State of New York. OES SARC OLS RATA 8. W. A. Taylor & Company is a domestic corporation organized and existing under the laws of the State of New York. 9. The American Distilling Company is a foreign corpo- ration organized and existing under the laws of the State of Maryland, duly qualified to do business in the State of New York. 10. McCormick Distilling Company is a foreign corpo- ration organized and existing under the laws of the State of Missouri. 11. The Fleischmann Distilling Corporation is a do- mestic corporation organized and existing under the laws of the State of New York. [fol.4] 12. Mr. Boston Distiller Inc. is a foreign corpo- ration organized and existing under the laws of the State of Massachusetts, duly qualified to do business in the State of New York. 13. The Viking Distillery, Inc. is a foreign corporation organized and existing under the laws of the State of » Georgia. 14. James B. Beam Distilling Company is a foreign corporation organized and existing under the laws of the State of Illinois. 15. James B. Beam Import Corporation is a domestic corporation organized and existing under the laws of the State of New York. 16. Schenley Industries Inc. is a foreign corporation organized and existing under the laws of the State of Delaware, duly qualified to do business in the State of New York. 17. Affiliated Distillers Brands Corp. is a domestic cor- poration organized and existing under the laws of the State of New York. pictiiaclaialiiaa 5 18. Knickerbocker Liquors Corp. is a domestic corpo- ration organized and existing under the laws of the State of New York. 19. Barton Distilling Company is a foreign corporation organized and existing under the laws of the State of Delaware. 20. Barton Distillers Import Corporation is a domestic corporation organized and existing under the laws of the State of New York. 21. Julius Wile Sons & Company, Ine. is a domestic cor- poration organized and existing under the laws of the State of New York. [fol.5] 22. Bacardi Imports, Ine. is a domestic corpo- ration organized and existing under the laws of the State of New York. 23. Austin Nichols & Company, Inc. is a foreign corpo- ration organized and existing under the laws of the State of Virginia, duly qualified to do business in the State of New York. 24. Canada Dry Corporation is a foreign corporation organized and existing under the laws of the State of Delaware, duly qualified to do business in the State of New York. 25. Heublein Inc. is a foreign corporation organized and existing under the laws of the State of Connecticut, duly qualified to do business in the State of New York. 26. McKesson & Robbins, Ine. is a foreign corporation organized and existing under the laws of the State of Maryland, duly qualified to do business in the State of New York. 27. National Distillers and Chemical Corporation is a foreign corporation organized and existing under the laws of the State of Virginia, duly qualified to do business in the State of New York. 28. Publicker Distillers Products, Inc. is a foreign cor- poration organized and existing under the laws of the State of Delaware, duly qualified to do business in the State of New York. 29. Brown-Forman Distillers Corporation is a foreign corporation organized and existing under the laws of the State of Delaware, duly qualified to do business in the State of New York. 30. Glenmore Distilleries Company is a foreign corpo- ration organized and existing under the laws of the State of Delaware, duly qualified to do business in the State of New York. {fol.6] 31. A. Smith Bowman Distillery Ine. is a foreign corporation organized and existing under the laws of the State of Virginia. 32. “21” Brands Inc. is a domestic corporation organized and existing under the laws of the State of New York. 33. Star Hill Distilling Company is a foreign corpora- tion organized and existing under the laws of the State of Kentucky, duly qualified to do business in the State of New York. 34. Schieffelin & Company is a domestic corporation organized and existing under the laws of the State of New York. 35. Defendants Donald S. Hostetter, John C. Hart, Wil- liam H. Morgan, Benjamin H. Balcom and Robert E. Doyle are commissioners of the State Liquor Authority duly appointed by the Governor of the State of New York charged with the responsibility of administering the Al- coholic Beverage ‘Control Law including the implementa- tion of said Alcoholic Beverage Control Law by the pro- mulgation of rules and regulations for the purpose of ef- fecting said law. 36. Defendant Louis J. Lefkowitz is the Attorney Gen- eral of the State of New York, the Chief Legal Officer of 7 the State of New York, and as such is charged with the enforcement of the provisions of the Alcoholic Beverage Control Law. 37. The above-listed plaintiffs are distillers, importers, or wholesalers designated as agents of distillers of liquor which is sold in New York. 38. In an extraordinary session, the Legislature of the State of New York enacted Chapter 531 of the Laws of 1964 by which it amended the Alcoholic Beverage Con- trol Law in several respects. (A copy of Chapter 531 here- [fol. 7] inafter called “The New Act” is attached hereto as Exhibit “A”. Section references herein are to sections of Chapter 531. Subdivision and paragraph references bear identifying labels accorded them as they will appear in Section 101-b of the Alcoholic Beverage Control Law as that law has been amended by Chapter 531, but are de- scribed herein as if subdivisions of the sections of Chapter 531 in order to facilitate reference to Exhibit “A”). 39. Section 101 b-3 of the Alcoholic Beverage Control Law, as amended by The New Act, requires that for all brands of liquor or wine sold to or purchased by a whole- saler in New York, there must be filed with the State Liquor Authority by: “(1) the owner of such brand, or (2) a wholesaler selling such brand and who is designated as agent for the purpose of filing such schedule if the owner of the brand is not licensed by the authority, or (3) with the approval of the authority, by a wholesaler, in the event that the owner of the brand is unable to file a schedule or designate an agent for such purpose.” schedules of prices to wholesalers for such brands. The Alcoholic Beverage Control Law fails to provide an exact definition of “the owner of such brand”. Section 101-b of the Aleoholic Beverage Control Law further requires that for all brands of liquor or wine sold to or purchased by re- 8 tailers in New York State, a schedule of prices for such brands must be filed with the State Liquor Authority by “each manufacturer selling such brand to retailers and by each wholesaler selling such brand to retailers”. Each schedule must be filed on or before the tenth day of each month (see paragraph 4 of Section 7 of The New Act). The prices and discounts set forth in such schedules be- come effective on the first day of the calendar month fol- lowing the filing thereof and shall be in effect for such cal- endar month. [fol.8] 40. The New Act in Section 9 (Exhibit “A”, pp. 8-10) significantly expands upon the former requirements of Section 101-b, subdivision 3, pertaining to the filing of price schedules, by adding eight entirely new paragraphs (paragraphs (d) through (k)) to that subdivision. 41. Paragraph (d) of Section 9 of The New Act (Ex- hibit “A”, p. 8) requires that a brand owner or wholesaler designated as agent must file an “affirmation” verified by the brand owner or wholesaler designated as agent, that the price listed on the schedule of prices to wholesalers (at which liquor is sold to New York wholesalers) is no higher than the lowest price at which the same item of liquor was sold by them or by any “related person” to any wholesaler, anywhere in any other state of the United States or in the District of Columbia during the preceding calendar month. 42. Paragraph (f) of Section 9 of The New Act (Ex- hibit “A”, p. 9) incorporates an affirmation requirement similar to that found in paragraph (d), in requiring from a brand owner or a wholesaler designated as agent, an affirmation verified by the brand owner or wholesaler des- ignated as agent that the price at which liquor is sold by a brand owner, wholesaler designated as agent, or a “re- lated person” to retailers in New York State is no higher than the price at which the same item of liquor was sold to retailers in any other state of the United States (other 9 than “monopoly stetes”, states which themselves or through state agenci's own and operate retail liquor stores) or in the District of Columbia during the pre- ceding calendar month. Paragraph (f) does not specify who is to file the affirmation. 43. “Related person” is defined in paragraphs (d) and (f£) of Section 9 of The New Act as: “any person (1) in the business of which such brand owner or wholesaler designated as agent has an inter- [fol.9] est, direct or indirect, by stock or other se- curity ownership, as lender or lienor, or by interlock- ing directors of officers, or (2) the exclusive, principal or substantial business of which is the sale of a brand or brands of liquor purchased from such brand owner or wholesaler designated as agent, or (3) which has an exclusive franchise or contract to sell such brand or brands.” 44. Paragraph (e) of Section 9 of The New Act (Ex- hibit “A”, p. 8) imposes an affirmation filing requirement similar to that found in paragraph (d) but applies it to the filing of “any other schedule” of prices to wholesalers. Here the affirmation must be made and verified by the per- son filing the schedule. Paragraph (e) requires that the person filing “any other schedule” has not sold at a lower price in any other state. It does not contain any provi- sions relative to sales by “related persons”. 45. Paragraph (g) of Section 9 of The New Act (Ex- hibit “A”, p. 9) follows the form of paragraph (e) in re- quiring that an affirmation must accompany “any other schedule” of prices.to retailers. The affirmation must be made and verified by the person filing the schedule. 46. As paragraphs (e) and (g) are interpreted by State Liquor Authority Rule 16, 465.7 as amended effective October 31, 1964, such paragraphs apply only to schedules of prices for sales to wholesalers and retailers where the sales are made by persons who are not “related persons” 10 as that term is defined by paragraphs (d) and (f) of Sec- tion 9 of The New Act. 47. Paragraph (i) of Section 9 of The New Act (Ex- hibit “A”, pp. 9-10) requires that in determining what is the lowest price at which an item of liquor was sold in an- other state, appropriate reductions must be made to in- clude all discounts, rebates, free goods, allowances and [fol. 10] other inducements of any kind whatsoever offered or given to wholesalers or retailers in such other state. However, in computing the lowest price, reductions need not be made where price differentials make only due al- lowance for differences in state gallonage taxes or dif- ferentials in the actual cost of delivery. 48. The New Act does not include vintners and whole- salers of wine as persons required to file affirmations and verifications in accordance with the provisions of para- graphs (d) through (g) of Section 9 of The New Act. 49. Paragraph 3(c) of Section 7 of The New Act (Ex- hibit “A”, p. 6) exempts from the filing and affirmation re- quirements described above a brand of liquor which is owned exclusively by one retailer and sold at retail within the state exclusively by such retailer. Such brands are hereinafter referred to as “private labels”. 50. Paragraph (j) of Section 9 of The New Act (Ex- hibit “A”, p. 10) makes it a misdemeanor for any person to make a false statement in any affirmation filed pursu- ant to the Act. Upon conviction a person may be fined up to $10,000 and imprisoned for up to a period of six months. 51. Paragraph 6 of Section 7 of The New Act grants to the State Liquor Authority the power to cancel, suspend or revoke a license for failure to comply in any manner with any of the provisions of Section 101-b as amended by The New Act. The Author.ty is also permitted by para- | graph (k) of Section 9 of The New Act to refuse to accept, for a period not exceeding three calendar months, any af- 11 firmation required to be filed by a person who has been convicted of making a false statement in any affirmation. 52. Paragraph (h) of Section 9 of The New Act (Ex- hibit “A”, p. 9) prohibits sales in New York of any brands for which an affirmation has not been filed. [fol.11] 53. Section 9 of The New Act violates the Arti- cles of the Constitution of the State of New York, and the Articles of the Constitution of the United States, by de- priving plaintiffs of liberty and property without due proc- ess of law in that: (a) Distillers and wholesalers will be severely injured by being compelled to sell in New York State at artificial prices, irrespective of marketing conditions, net profit mar- gins, cost of doing business in New York as compared to other states, and other factors which distinguish New York from other markets; (b) In attempting compliance with the requirements of Section 9 of The New Act, plaintiffs will be compelled to reorganize completely their sales methods and accounting procedures, and/or institute entirely new communication and price recording machinery ; (c) The affirmation and verification provisions of Sec- tion 9 of The New Act, enforced conjunctly with various price posting requirements in other states. may operate to permanently prevent distillers and wholesalers desig- nated as agents from at any time in the future increasing the price of brands sold by them to the New York whole- salers and in any event will unjustifiably accord New York purchasers the benefit of lower prices for two or more months after a price increase has become effective in other states. These unreasonable results will be effected even though, due to increased costs or other factors, there may be a perfectly justifiable reason to increase the price; (d) Persons who satisfy the definition of “related per- son” described in paragraphs (d) and (f) of Section 9 of The New Act would be disabled from competing with local — 12 wholesalers in states other than New York and disabled from competing with distillers and importers who sell brands not sold in New York State. Non-related local wholesalers in states other than New York could for any [fol. 12] competitive reason conduct special local discount sales campaigns and grant allowances and inducements without fear that such campaigns might drive down the price at which the same brand is sold to retailers in New York State. Distillers and importers selling brands not sold in New York could, as to those “non-New York brands”, compete with complete freedom in a non-New York market. A distiller or importer in that same market who sells competitive brands which are also sold in New York would have to consider the effect upon his New York price before responding to competitive pressures in the non- New York market. The effect of The New Act upon dis- tillers, importers and wholesalers outside New York who nevertheless qualify as “related persons” will be to destroy or severely hamper their competitive position in their own local markets even though they may be completely remote from New York State. 54. Section 9 of The New Act is an arbitrary, capricious and unreasonable exercise of the state’s police power for the following reasons: (a) The term “related person” found in paragraphs (d) and (f) of Section 9 of The New Act (Exhibit “A”, pp. 8, 9) is so vague that distillers, importers and wholesalers designated as agents are unable to determine what per- sons both within and without New York State satisfy this definition and therefore must be taken into account in fur- nishing the affirmations required by The New Act: (b) Even if distillers, importers and wholesalers desig- nated as agents could determine who is a “related person” they would have no power to compel such “related person” to furnish them with information as to the prices at which they sell their products in states other than New York; . a [fol.13] (ce) Paragraph (i) of Section 9 of The New Act (Exhibit “A”, pp. 9, 10) unreasonably limits price differen- tials to state “gallonage” taxes or fees. It does not in- clude differentials for taxes imposed on a “per case basis”. Nor does it permit differentials based upon a state sales or gross receipts tax; (d) It is impossible for many distillers, importers and wholesalers designated as agents to determine the prices in any given month at which brands sold by them in New York are sold to wholesalers throughout the United States and the District of Columbia; (e) It is impossible for distillers, importers, wholesalers designated as agents, or “related persons” to determine the prices at which brands sold by them in New York are sold to retailers throughout the United States and the District of Columbia; (f) It is impossible for distillers, wholesalers desig- nated as agents, or “related persons” to determine what is meant by “rebates, free goods, allowances and induce- ments of any kind whatsoever” so as to be able to make appropriate reductions in computing the lowest price for such items as required by paragraph (i) of Section 9 of The New Act. 55. Section 9 of The New Act is inconsistent with the declared policy of the Alcoholic Beverage Control Law as expressed in Sections 2 and 101 b-1 of that Law (repeated again in Section 7 of Chapter 531, Exhibit “A”, p. 5), which Sections declare it to be the policy of the State in enacting such Law to promote temperance in the consumption of alcoholic beverages. Section 2 of the Aleoholic Beverage Control Law further states that these provisions of the Law are enacted for the protection, health, welfare and safety of the people of the state. The setting of maximum prices bears no relationship to this purpose. [fol.14] 56. Section 9 of The New Act will not serve to cure the possibility of monopolistic and anti-competitive 14 practices (Exhibit “A”, Section 8, p. 8) at which The New Act is directed. 57. Section 9 of The New Act contravenes the terms and policy of the Sherman Act, 15 U.S. C. $1-7. 58. Section 9 of The New Act is in direct conflict with the Robinson-Patman Act, 15 U. S. C. §13a, $13b, §21a, in that: (a) Section 9 establishes price controls upon distillers, importers and wholesalers designated as agents whether or not their pricing policies tend to lessen competition, whereas the Robinson-Patman Act would permit such price controls only where, without such controls, competition among distillers, importers and wholesalers designated as agents would be lessened ; (b) Section 9 of The New Act fails to permit price dif- ferentials permitted by the Robinson-Patman Act, such as an adjustment of price to meet competition and an adjust- ment of price where there is sufficient cost justification for such a price; (c) Section 9 would force distillers, importers and wholesalers designated as agents, in violation of the Robinson-Patman Act, to give discounts to purchasers in New York State although there would be no cost justifica- tion for such discounts and although such discounts would not be necessary to meet competition. 59. For the reasons described in paragraphs 57 and 58 above, Section 9 of The New Act directly conflicts with Fed- eral Antitrust Laws and therefore must yield to the suprem- acy of such laws as required by Article VI of the Constitu- tion of the United States. [fol.15] 60. Section 9 of The New Act violates the Arti- cles of the Constitution of the United States by interfering with commerce among the states in that: (a) The only practical way by which distillers, import- ers and wholesalers designated as agents can gather and 15 insure the reliability of information necessary to make the affirmations, is to establish and to control the price at which their brands are sold in all other states. This the plaintiffs could not do for in many states they would be violating the laws of those states and in any event they would be violating federal antitrust laws; (b) Section 9 of The New Act is extraterritorial in its effect in regulating contracts which are made and are to be executed wholly beyond the boundaries of New York State; (c) Section 9 of The New Act attempts to bestow an economic advantage upon the citizens of the State of New York at the expense of out-of-state vendors of liquor; (d) As described in paragraph 53(c) of this complaint, distillers, importers and wholesalers designated as agents may be unable at any time to increase the price at which they sell their brands in New York State and in any event will be compelled to accord New York purchasers the pre- existing lower prices for a period of two or more months after a general price increase goes into effect. 61. Section 9 of The New Act violates the Articles of the Constitution of the State of New York and the Articles of the Constitution of the United States by discrimina- torily imposing maximum price limitations upon sales made by distillers, importers and wholesalers dealing in national brands of liquor, while failing to impose such limitations upon: [fol.16] (a) sales made by persons dealing in liquor sold under “private labels”; (b) sales made by vintners and wholesalers of wine. 62. Paragraph 3.(a) of Section 7 of The New Act re- quires that no brand of liquor shall be sold to or pur- chased by a wholesaler irrespective of the place of sale or delivery unless a schedule as provided in that section is filed with the State Liquor Authority and is then in 16 effect. Such schedule must contain, among other things, “the net bottle and case price paid by the seller”. 63. Paragraph 3.(a) of Section 7 of The New Act (Ex- hibit “A”, p. 6) violates the Articles of the Constitution of the United States in that: (a) By requiring schedules for sales “irrespective of the place of sale or delivery”, paragraph 3.(a) interferes with commerce among the states and interferes with foreign commerce by requiring schedules to be filed in New York State by distillers, importers and wholesalers designated as agents as to the prices at which they sell brands in any other state whether or not such distiller also cells such brands in New York; (b) By requiring schedules to contain the “net bottle and case price paid by the seller”, paragraph labeled 3.(a) deprives plaintiffs of property without due process of law and is an arbitrary, capricious and unreasonable exercise of the state’s police power. This requirement of paragraph 3.(a) in no way serves to carry out the policy of the Al- coholie Beverage Control Law as expressed in Section 2 of that Law. For a Separate and Distinct Second Cause of Action: 64. Alpine Wine & Liquor Corp. is a domestic corpora- tion organized and existing under the laws of the State of New York. [fol.17] 65. Ben Perlow Liquor Corp. is a domestic cor- poration organized and existing under the laws of the State of New York. 66. Bison Liquor Co., Ine. is a domestic corporation or- ganized and existing under the laws of the State of New York. 67. Blue Crest Wine and Spirit Corp. is a domestic corporation organized and existing under the laws of the State of New York. 17 68. Bonny Distributing Co., Inc. is a domestic corpora- tion organized and existing under the laws of the State of New York. 69. Capital Distributors Corp. is a domestic corporation organized and existing under the laws of the State of New York. 70. Cardinal Distributors Ine. is a domestic corporation organized and existing under the laws of the State of New York. 71. Colony Liquor Distributors, Inc. is a domestic cor- poration organized and existing under the laws of the State of New York. 72. Distilled Brands Ine. is a domestie corporation or- ganized and existing under the laws of the State of New York. 73. Eber Bros. Wine & Liquor Corp. is a domestic cor- poration organized and existing under the laws of the State of New York. 74. Elmira Tobacco Co., Ine. is a domestic corporation organized and existing under the laws of the State of New York. 75. Empire Liquor Corp. is a domestic corporation or- ganized and existing under the laws of the State of New York. [fol.18] 76. Graves & Rodgers, Ine. is a domestic corpo- ration organized and existing under the laws of the State of New York. 77. M. Lichtman & Co., Ine. is a domestic corporation organized and existing under the laws of the State of New York. 78. Major Liquor Distributors Inc. is a domestie corpo- ration organized and existing under the laws of the State of New York. 18 79. Monarch Liquor Corp. is a domestic corporation or- ganized and existing under the laws of the State of New York. 80. Mullen & Gunn, Ine. is a domestic corporation or- ganized and existing under the laws of the State of New York. 81. Peerless Importers Corp. is a domestic corporation organized and existing under the laws of the State of New York. 82. Ramapo Wine & Liyuor Corporation is a domestic corporation organized and existing under the laws of the State of New York. : 83. Rodgers Liquor Co., Inc. is a domestic corporation organized and existing under the laws of the State of New York. 84. S & K Wine & Liquor Corp. is a domestic corpora- tion organized and existing under the laws of the State of New York. 85. Standard Food Products Corp. is a domestic corpo- ration organized and existing under tke laws of the State of New York. [fol.19] 86. Standard Wine & Liquor Co. Ine. is a domes- tic corporation organized and existing under the laws of the State of New York. 87. Star Industries Inc. is a domestic corporation or- ganized and existing under the laws of the State of New York. 88. Universal Liquor Corp. is a domestic corporation organized and existing under the laws of the State of New York. 89. The above plaintiffs listed in paragraphs 64 through 88 are wholesalers selling liquor to retailers within New York State and may be held to satisfy the definition of “related persons” in paragraph (f) of The New Act. 19 90. Plaintiff New York wholesalers reallege each and every allegation contained in paragraphs numbered 35, 36, 38 through 52, 53(a) (b), 54(a) (c), 55, 56, 57, 58(a) (b), 59 and 61 of this complaint with the same force and effect as if fully set forth herein. 91. Paragraph (f) of Section 9 of The New Act vio- lates the Articles of the Constitution of the State of New York and the Articles of the Constitution of the United States in depriving New York wholesalers of liberty and property without due process of law in that New York wholesalers who may be “related persons” will be severely injured by being compelled to sell to retailers at artificial prices, irrespective of marketing conditions, net profit margins, and other factors which distinguish New York from other markets. In this respect the statute would vest complete control of New York wholesalers’ prices in the hands of any one of thousands of wholesalers throughout the United States. 92. Section 65.7 of Rule 16 of the State Liquor Author- ity Rules and Regulaticns, as amended effective October 31, 1964, interprets paragraph (f) of Section 9 of The New [fol. 20] Act as requiring the filing of affirmations of the “wholesaler to retailer” price only as to sales by those New York wholesalers who satisfy the definition of “related per- sons” found in paragraph (f). _ 93. As Section 65.7 of State Liquor Authority Rule 16 interprets The New Act, New York wholesalers will not themselves be required to file affirmations, but if they qual- ify as “related persons” will be prohibited from selling brands in New York State until the brand owner or agent has filed an affirmation and furnished them with a copy of his affirmation. 94. Paragraph (f) of Section 9 of The New Act, for the following reasons, is an arbitrary, capricious and unrea- sonable exercise of the state’s police power: 20 (a) Paragraph (f) of Section 9 of The New Act, and particularly the regulations of the State Liquor Authority interpreting how that paragraph is to be applied, make a New York wholesaler’s right to sell at any price he chooses in New York State dependent upon whether or not he has satisfied the definition of “related person”. If he is a “re- lated person”, he will be prohibited from selling until an affirmation has been filed by the brand owner or wholesaler designated as agent. (b) The definition of “related person” in paragraph (f) of Section 9 of The New Act is so vague that New York wholesalers are unable to determine if they are “related persons” within the meaning of The New Act. (c) New York wholesalers have no power to compel brand owners or wholesalers designated as agents to file the required affirmations. If a New York wholesaler is a “related person” and affirmations pertaining to some brands are not filed, he will be prohibited from selling those brands during the period for which such affirmation would have been in effect. [fol.21] (d) With insufficient guidance from the defini- tion of “related person” found in paragraph (f) of Section 9 of The New Act, New York wholesaiers are nevertheless compelled to determine whether or not they are “related persons”. 95. A New York wholesaler who is considered to be a “related person”, as a practical matter, must insure that the price at which he sells an item of liquor to retailers is no higher than the price at which a person related to the brand owner or a wholesaler designated as agent is selling such item of liquor to retailers in other states. This will require consultation between the brand owner or whole- saler designated as agent on the one hand and the whole- saler who is a “related person” on the other to make the affirmation required by paragraph (f) of Section 9 of The New Act which is likely to cause unwitting violations of 21 the laws of New York and of other states and of the federal antitrust laws. 96. Paragraph (g) of Section 9 of The New Act violates the Articles of the Constitution of the State of New York and the Articles of the Constitution of the United States in that it is so vague and indefinite that plaintiff New York wholesalers cannot know whether or not they are required to file affirmations as required by that paragraph. 97. State Liquor Authority Rule 16, §65.7, as amended effective October 31, 1964, requires only persons who are not “related persons”, as that term is defined in paragraph (f) of Section 9 of The New Act, to file affirmations pur- suant to paragraph (g). Rule 16 also requires that a “representation” must be given by a person filing an affir- mation pursuant to paragraph (g) that he is not a “related person”. 98. If the State Liquor Authority’s interpretation of paragraph (g) of Section 9 of The New Act is correct, a [fol. 22] person signing an affirmation pursuant to para- graph (g) may be criminally prosecuted if he innocently misdefines his company as not being a “related person”. For a Separate and Distinct Third Cause of Action: 99. Hiram Walker Distributors Inc. is a domestic cor- poration organized and existing under the laws of the State of New York. 100. Julius Wile Sons & Company, Ine. is a domestic corporation organized and existing under the laws of the State of New York. 101. The Paddington Corporation is a domestic corpora- tion organized and existing under the laws of the State of New York. 102. National Distillers and Chemical Corporation is a foreign corporation organized and existing under the laws 22 of the State of Virginia, duly qualified to do business in the State of New York. 103. Knickerbocker Liquors Corp. is a domestic cor- poration organized and existing under the laws of the State of New York. 104. Wayne Liquor Corp. is a foreign corporation or- ganized and existing under the laws of the State of Dela- ware, duly qualified to do business in the State of New York. 105. Plaintiffs listed in paragraphs 99, 100, 101, 102, 103 and 104 are persons selling directly to retailers within New York State in whom a brand owner or wholesaler designated as agent has an interest, direct or indirect. These plaintiffs, therefore, are “related persons” within the definition supplied by paragraph (f) of Section 9 of The New Act. [fol. 23] 106. Plaintiff “related person” New York whole- salers reallege each and every allegation contained in para- graphs of this complaint numbered 35, 36, 38 through 52, 53(a) (b), 54(a) (ce), 55, 56, 57, 58(a)(b), 59, 61, 91, 92, 93 and 94(a), with the same force and effect as if fully set forth herein. 107. Paragraph (f) of Section 9 of The New Act violates the Articles of the Constitution of the State of New York and the Articles of the Constitution of the United States in that it deprives the above-described plaintiffs of equal protection of the laws by imposing maximum price limita- tion upon sales of certain brands by these “related person” New York wholesalers while failing to impose similar re- strictions upon sales of the same brands by “non-related person” New York wholesalers. For a Separate and Distinct Fourth Cause of Action: 108. The American Distilling Company, Austin Nichols & Company, Inc., Bacardi Imports, Inc., Barton Distilling _— 23 Company, Brown-Forman Distillers Corporation, Canada Dry Corporation, The Fleischmann Distilling Corporation, Glenmore Distilleries Company, James B. Beam Distilling Company, McCormick Distilling Company, Mr. Boston Distiller, Inc., National Distillers and Chemical Corpora- tion, Schenley Industries, Inc., Joseph E. Seagram & Sons, Inc., Star Hill Distilling Company, Stitzel-Weller Dis- tillery, Inc., W. A. Taylor & Company and “21” Brands, Inc., are persons who manufacture and bottle liquor, ree- tify and bottle liquor, or import liquor in bulk from foreign sources and bottle it domestically. 109. Plaintiffs listed in paragraph 108 above reallege each and every allegation contained in paragraphs num- bered 1, 2, 3, 4, 6, 7, 8, 13, 14, 16, 19, 21, 22, 23, 26, 28, 31 through 52 of this complaint with the same force and effect as if fully set forth herein. [fol.24] 110. Paragraph 3(a) of Section 7 of The New Act requires that no brand of liquor shall be sold to or purchased by a wholesaler unless a schedule as provided in that section is filed with the State Liquor Authority and is then in effect. Such schedule must contain among other things “the net bottle and case price paid by the seller”. 111. Paragraph 3(a) of Section 7 of The New Act vio- lates the Articles of the Constitution of the State of New York and the Articles of the Constitution of the United States in that it arbitrarily, capriciously and unreasonably requires manufacturers and bottlers of liquor as well as importers of liquor in bulk to file a bottle and case price at which they purchased such liquor, when in fact no such price exists and compliance is therefore impossible. 112. Rule 16, $65.69, of the State Liquor Authority Rules and Regulations, as amended effective October 31, 1964, attempts in part to cure the above defect by excluding manufacturers from those required to furnish the “net bottle and case price paid by the seller”. 24 113. The State Liquor Authority has no legislative au- thority to cure the defect of paragraph 3.(a) of Section 7 of The New Act. Manufacturers of liquor and importers of liquor in bulk may nevertheless be bound by the plain language of the requirement .of paragraph 3.(a) even though compliance by them will be impossible. 114. If the plaintiffs described above fail to furnish their non-existent “net bottle and case price paid by the seller” for brands which they manufacture or import in bulk, they will be prohibited by paragraph 3.(a) from sell- ing those brands in New York State. Wherefore, plaintiffs state that they have no adequate remedy at law, and demand judgment against the defend- ants: [fol. 25] (a) Decreeing and declaring that the pro- visions of Section 9 New York Session Laws, 1964, - Ch. 531, are unconstitutional and void. (b) Decreeing and declaring that that part of para- graph 3.(a) of Section 7 New York Session Laws, 1964, Ch. 531, requiring that the schedules of prices to whole- salers contain the “net bottle and case price paid by the seller”, is unconstitutional and void. (c) Decreeing and declaring that that part of para- graph 3 (a) of Section 7 New York Session. Laws, 1964, Ch. 531, requiring that “No brand of liquor or wine shall be sold to or purchased by a wholesaler, irrespective of the place of sale or delivery, unless a schedule is filed” is unconstitutional and void insofar as it may require schedules of prices of sales to whole- salers in other states than New York. (d) Enjoining and restraining the defendants and their successors from imposing any sanctions or penal- ties for failure to submit the affirmations and verifica- tions required by Section 9 of Chapter 531 of the Laws of 1964. 25 (e) Enjoining and restraining the defendaris and their successors from imposing any sanctions or penal- ties for failure to file the “net bottle and case price paid by the seller” and for failure to fle schedules of prices of sales to wholesalers in states other than New York as required by Section 7 New York Session Laws, 1964, Ch. 531. [fol. 26] (f) Granting such other and further relief as may be just and proper, together with the costs of this action. Lord, Day & Lord, Attorneys for Plaintiffs. (Verified by Frederick J. Lind, Charles Guttman and George Goldstein, October 27 and 28, 1964.) [fol. 27] In THE SuPREME CouRT OF THE STATE OF New YorkK County or ALBANY At Chambers At a Special Term of the Supreme Court of the State of New York, held in and for the County of Albany, at the Court House, Albany, New York, on the 29 day of October, 1964. Present: Hon. Justice. OrpeR To SHow CAUSE Upon reading and filing the annexed affidavit of Thomas F. Daly, duly sworn to on the 28th day of October, 1964 and the annexed affidavits of Frederick J. Lind, R. R. Herr- mann, Jr., Joseph D. Cotler, D. L. Street, Raymond Revit, Walter J. Devlin, Ira R. Schattman, Jr., Frank T. Hypps, Jack Goodman, Jack W. Marer, Chester F. McNamara, and Charles W. Sand all duly sworn to and copies of the summons and complaint hereto attached, let the defend- iaads 26 ants, Donald S. Hostetter, John C. Hart, William H. Mor- gan, Benjamin H. Baleom, Robert E. Doyle and Louis J. Lefkowitz, show cause before one of the justices of this Court, at a Special Term of this Court, held in and for the County of Albany, at the Court House, Albany, New York, on the 13th day of November, 1964, at the opening of court on that day or as soon thereafter as counsel can be heard, why an order should not be made and entered herein re- straining the defendants, Donald S. Hostetter, John C. Hart, William H. Morgan, Benjamin H. Balcom, Robert E. Doyle and Louis J. Lefkowitz, pending the determination of the issues in this action from: 1. Requiring plaintiffs to comply in any manner with any part of Section 9, New York Session Laws, 1964, Ch. 531; [fol. 28] 2. Requiring those plaintiffs who sell their brands of liquor to wholesalers located in other states as well as to wholesalers in the State of New York to file a schedule of prices at which such liquor is sold to whole- salers in states other than New York “irrespective of the place of sale or delivery” as required by Section 7, New York Session Laws, 1964, Ch. 531. 3. Requiring plaintiffs to include in their schedule of prices filed pursuant to Section 101-b of the Alcoholic Beverage Control Law the “net bottle and case price paid by the seller” as required by Section 7, New York Session Laws, 1964, Ch. 531; and it is further Ordered, that in the meantime and until the hearing and determination of this motion and the entry of an order thereon, the defendants, Donald S. Hostetter, John C. Hart, William H. Morgan, Benjamin H. Balcom, Robert E. Doyle and Louis J. Lefkowitz be and they are hereby stayed, enjoined and restrained from: 1. Requiring plaintiffs to comply in any manner with any part of Section 9, New York Session Laws, 1964, Ch. 531. 27 2. Requiring those plaintiffs who sell their brands of liquor to wholesalers located in other states as well as to wholesalers in the State of New York to file a schedule of prices at which such liquor is sold to wholesalers in states other than New York “irrespective of the place of sale or delivery” as required by Section 7, New York Session Laws, 1964, Ch. 531. 3. Requiring plaintiffs to include in their schedule of prices filed pursuant to Section 101-h of the Alcoholic Bev- erage Control Law the “net bottle and case price paid by the seller” as required by Section 7, New York Session Laws, 1964, Ch. 531. é [fol. 29] Sufficient reason appearing therefor, let service of a copy of this order and the papers upon which it is based upon the defendants on or before October 30, 1964, at 4 P.M. be deemed good and sufficient service thereof. Enter Russell G. Hunt, J. S. C. In THE SUPREME CouRT oF THE State or NEw York County or ALBANY ArFipavit or Tuomas F’, Daty, Reap 1x Support or Motion State of New York, County of New York, ss.: Thomas F. Daly, being duly sworn, deposes and says: 1. I am a member of the firm of Lord, Day & Lord, attorneys for the plaintiffs in the action and am fully familiar with all the facts and circumstances involved in this proceeding. 2. I make this affidavit in support of an application for a preliminary injunction and for a temporary restraining order pending the hearing and determination of the motion for a temporary injunction. 28 3. The action seeks to have certain parts of Section 7 and the entirety of Section 9 of Chapter 531 of the Laws of 1964 declared unconstitutional as being violative of the commerce and supremacy clauses of the Constitution of [fol. 30] the United States and violative of the due process and equal protection clauses of the Constitution of the State of New York and the United States. 4. Subdivisions 3(a) and (b) of Section 101-b of the Aleoholic Beverage Control Law as amended by Section 7 of Chapter 531 provide for the filing of price schedules with the State Liquor Authority of all brands sold in New York to wholesalers or retailers. ~ 5. Subdivisions (d) and (f) of Section 9 of Chapter 531 provide that for each brand of liquor sold in New York, the owner of such brand or the wholesaler designated as agent must, in addition to the aforesaid price schedules, also file a verified affirmation that the “bottle and case price of liquor to wholesalers” (or retailers) “is no higher than the lowest price at which such item of liquor was sold by such brand owner, such wholesaler designated as agent or any related person to any wholesaler” (or retailer) “any- where in any other state of the United States or the District of Columbia * * *.” 6. Subdivision (i) of Section 9 of Chapter 531 says that “in determining the lowest price * * * appropriate reduc- tions shall be made to reflect all discounts in excess of those to be in effect under such schedule, and all rebates, free goods, allowances and other inducements of any kind what- soever offered or given to any such wholesaler * * * or retailer * * *.” 7. Subdivision (d) of Section 9 of Chapter 531 defines “a related person” as “any person (1) in the business of which such brand owner or wholesaler designated as agent has an interest, direct or indirect, by stock or other security ownership, as lender or lienor, or by interlocking directors or officers, or (2) the exclusive, principal or substantial 29 business of which is the sale of a brand or brands of liquor purchased from such brand owner or wholesaler designated [fol. 31] as agent, or (3) which has an exclusive franchise or contract to sell such brand or brands.” 8. These provisions of Chapter 531 become effective on October 31, 1964, The State Liquor Authority in imple- menting the law has recently promulgated, among others, Rule 16 as amended, which likewise becomes effective on October 31, 1964, It requires a brand owner, or its desig- nated wholesale agent, to file the aforesaid duly verified affirmation by December 1, 1964, showing the lowest price at which a brand included in the schedule filed pursuant to subdivisions 3(a) and (b) of Section 101-b was sold in any other state or in the District of Columbia during November 1964. 9. As appears from the moving affidavits, if its opera- tion is not enjoined pending the testing of its constitu- tionality, the law as implemented by the regulations will require brand owners, importers and wholesalers who are designated as agents of brand owners, in many instances to reorganize entirely their sales and accounting staffs, to establish price reporting procedures which must be able to report accurately every price charged for each brand of liquor during a monthly period, and to install or attempt to install various other procedures in an effort to ascer- tain the lowest price at which their brands were sold at any time anywhere in the United States or the District of Columbia during the month of November. These proce- dures will not only be disruptive of the internal struc- tures of many plaintiffs during the month of November, which is the start of the high sales Christmas period, but it will also involve considerable monetary expense in its initiation. Because of the serious doubts as to the constitutionality of Section 9 of Chapter 531, plaintiffs should not be forced to bear this expense and organiza- tional disruption. [fol. 32] 10. In addition to being forced to enact severe internal changes in November 1964, those plaintiffs who 30 must file price affirmations on December 1, 1964 will be required to institute a completely new system of price reporting which will involve an unknown number of whole- salers throughout the United States. These “related per- son” wholesalers must be contacted and asked to report to the plaintiffs concerned the lowest price at which they sold each of the brands of a particular distiller during the month of November. The expense to plaintiffs in install- ing this totally new system will be considerable, but they also face injury in the form of loss of good will of inde- pendent wholesalers who, for their own business reasons, do not wish to divulge such information to plaintiffs. 11. As the moving affidavits submitted herein show, the term “related persons” as defined in Chapter 531 is exceed- ingly vague and none of the plaintiffs knows to whom it will apply. Because of this there is a complete lack of knowledge as to whether or not verified affirmations re- quired by the Act should be filed with respect to sales that are made throughout the country to a great number of wholesalers and retailers. 12. So too, as pointed out in the moving affidavits, a “related person” may and probably in most cases will be completely independent of the wholesaler or the brand owner, neither one of whom will be in a position to com- pel, short of applying sanctions which would be prohibited by Federal antitrust legislation, such “related persons” to disclose to them the lowest price at which he has sold their brands during a particular month. 13. It will also, in many instances be impossible to as- certain the lowest price at which a particular brand is sold in any month because of the vagueness that results from the language of the statute concerning how the lowest price for any given brand is to be determined. For instance, [fol. 33] the phrase “other inducements of any kind whatso- ever” is, as pointed out in the moving affidavits, completely meaningless in assisting a brand owner or a wholesaler designated as agent to arrive at a determination of the 31 price at which a particular brand is sold in any particu- lar month. There are many practices which are not con- sidered by the industry to be inducements but rather gen- eral advertising and promotional expense which the State Liquor Authority might say are inducements given and thus must be reflected in the price. As also pointed out in the moving affidavits, many of these promotions run for more than a month so that even if their cost was to be charged against a brand it would not be known until sometime after the affirmation had to be made what the actual charge against that brand should have been. For the many reasons set forth in the papers herein, it is ex- tremely doubtful whether anyone will be able to devise any system which could be relied upon by November 1, 1964 or later to tell the person required to verify the affirma- tion that the information contained upon which he is re- lying is accurate and that the price quoted is, in fact, the lowest price at which the brand referred to was sold during the previous month. 14. As can readily be appreciated, the changes, the work, the studies and the other moves that will be required in an attempt to establish the price at which liquor was sold throughout this country will be extensive, arduous and, in many instances, futile ones. Furthermore, the gathering of price information by plaintiffs in order to ascertain their New York prices calls for private conduct which the Sherman Act forbids. 15. Accordingly, no matter how extensive or expensive the efforts of the people concerned may be, it is prob- lematical whether the information thus obtained will be reliable. As a result, they will be faced with the choice [fol. 34] of not selling their brands ix New York or of asking one of their officials to make a verified affirmation knowing that he may be asked to verify unreliable or un- trustworthy facts, thus individually incurring criminal sanctions while his company may suffer the other penalties imposed by law (see: Alcoholic Beverage Control Law, Section 101-b-6; subdivisions [h] and [j] of Section 9 of Chapter 531). w — 32 16. Prior to the enactment of Chapter 531, the liquor industry in the State of New York was the subject of a Moreland Act Commission study. The aforesaid provi- sions of Section 9 of Chapter 531 of the Laws of 1964, to the -onstitutionality of which objections are being made in this action, were contained in Senate Introductory No. 273 (annexed hereto as Exhibit “A”) introduced by Sena- tor Zaretzki. At a public hearing held in Albany on February 26, 1964, before the Joint Legislative Commit- tee to Study the Alcoholic Beverage Control Law and the Senate and Assembly Excise Committees, Senator Zaretzki requested © Honorable Lawrence E. Walsh, Chairman of the Moy .and Aci Commission, to furnish the Commit- tees with certain additional information with respect to the proposals contained in his bill, including the questioned proposals which were eventually enacted into law. The Moreland Act Commission, through its special counsel, Wil- liam W. Golub, gave such information in a letter addressed to Senator John J. Marchi, a copy of which is annexed hereto as Exhibit “B.” In that letter Mr. Golub in remark- ing on what are refer~ed to herein as the constitutionally objectionable parts of the bill, said: “There is substantial doubt as to the constitutionality of the bill amended as indicated above. The distillers have brought an-action to review the constitutionality of a similar statute in Kansas. They contend that, [fol. 35] in the light of the complicated economic is- sues sought to be dealt with, the statute is too vague and indefinite to satisfy due process requirements. In addition, they contend that the statute violates the commerce clause of the United States constitution be- cause it is an attempt by one state to control national pricing. A preliminary injunction restraining the en- forcement of the statute was granted by a Kansas court in June 1961 and is still in force.” The Kansas case referred to is an unreported decision of the Third Judicial District of Kansas, Topeka, Kansas, —_ 33 rendered May 7, 1964, which held a Kansas maximum liquor pricing act similar to Section 9 of Chapter 531 unconstitutional because of violations of the commerce, due process and equal protection clauses of the Constitution of the United States and the due process and equal pro- tection clauses of the Constitution of the State of Kansas. 17. The minutes of the aforesaid meeting of February 26th indicate that in response to questioning from Senator Zaretzki, Judge Walsh indicated his doubts as to the con- stitutionality of those provisions. He stated: “Tf the provision were constitutional, if it were en- forceable, you could save perhaps the distiller’s share of that. But you couldn’t save the wholesaler’s and retailer’s share and the consumer still wouldn’t get his dollar back” (p. 37, Transcript of Minutes of Pub- lic Hearing). 18. In response to further questioning from Senator Zaretzki, Judge Walsh made the following additional state- ment: “This would be really a hopelessly unenforceable job. It would mean that the New Yorker is supposed to run around checking prices in 50 states, and the Anti- [fol. 36] Trust Division of the Department of Justice can’t do that, even with the F.B.I. to help them. I think it would be really a vain effort. I mean the State Liquor Authority has enough hopeless jobs to do with- out giving it another one” (p. 38, Transcript of Min- utes of Public Hearing). 19. Annexed hereto as Exhibit “C” are excerpts of the pertinent parts of the transcript which Judge Walsh made in the Stenographer’s Transcript of the Hearing. 20. In connection with this action for a temporary in- junction, there are also annexed hereto as exhibits the following: ——_ Exhibit “D’—Study Paper No. 5 entitled Resale Price Maintenance in the Liquor Industry, dated Octeber 28, 1963; Exhibit “E”—Copy of Report and Recommendation No. 3 entitled Mandatory Resale Price Mainte- nance, dated January 21, 1964, containing the con- clusions and recommendations of the Moreland Act Commission relative to this proceeding ; Exhibit “F”—Copies of the Governor’s Messages to to the Legislature dated February 10, 1964, and April 16, 1964. 21. Former Section 101-c of the Alcoholic Beverage Control Law, as amended by Chapter 689 of the Laws of 1950, provided for mandatory resale price maintenance of liquor at the retail level. The mandatory resale price was enforced by the State Liquor Authority. In short, under the prior law, retailers could only sell to the pub- lie at a price fixed by the distiller, and sales at such fixed prices were enforced by the New York State Liquor Au- thority. 22. The Moreland Act Commission arrived at the con- clusion that this so-called mandatory price maintenance [fol. 37] resulted in the New York consumer paying ap- proximately $1.00 more a fifth than generally was paid elsewhere in the country (see Exhibit “E,” p. 30) and recommended repeal of the mandatory price fixing provi- sions. Section 11 of the present law did so. In so doing, the Legislature said (Section 8 of the present law): “En- actment of Section 11 of this Act [i.e., the section repeal- ing the mandatory price maintenance provisions of the former law] will provide a basis for eliminating such dis- er mination against and disadvantage of consumers in this ste te.’ But the Legislature went on to say in Section 8 that the maximum price provisions of Section 9 of Chapter 531 are necessary “In order to forestall possible monopo- listic and anti-competitive practices designed to frustrate - 35 the elimination of such rmsd and disadvan- tage * * * ” 23. In other words, the objectionable features of Chap- ter 531 of the Laws of 1964 are not designed to correct a situation which may lead to intemperance or a presently existing social evil or to presently give the public the bene- fits of open competition, but rather to forestall possible monopolistic and anti-competitive practices not presently in being, but which may occur in the future. 24. It is difficult, therefore, to see how any great in- jury can be done to the State or to the people thereof by suspending the operation of those sections of the law objected to here pending the disposition of this action. 25. For all of the reasons stated in the moving affi- davits, it is apparent that irreparable injury will be suf- fered by the plaintiffs if a temporary injunction is not granted pending the testing of the constitutionality of those parts of the law which are objected to in this action. 26. For the reasons set forth above, it is respectfully requested that pending the outcome and determination of the motion for a temporary injunction, a stay of the enforcement of the aforesaid provisions also be granted. [fol. 38] 27. No previous application for the relief sought herein has been made. (Sworn to by Thomas F, Daly, October 28, 1964.) 36 Exuisir A, ANNEXED TO Arripavit or THomas F’. Daty STATE OF NEW YORK Print. 273 Intro. 273 IN SENATE (Prefiled) January 8, 1964 Introduced by Mr. ZaretzKi—read twice and ordered printed, and when printed to be committed to the Com- mittee on Excise AN ACT To amend the alcoholic beverage control law, in relation to information to be contained in schedules of prices for liquor and wine filed with the liquor authority.- The People of the State of New York, represented m Senate and Assembly, do enact as follows: Section 1. Subdivision three of section one hundred one-b of the alcoholic beverage control law is hereb~ amended by adding thereto a new paragraph, to be para- graph (f), to read as follows: [fol.39] (f) No manufacturer or wholesaler may file a schedule pursuant to this section offering for sale any item or brand which is offered for sale by such manufacturer or wholesaler, or subsidiary thereof, in any jurisdiction m any state of the United States at a price, excluswe of state taxes, lower than offered in this state for the same period, except that differentials may be made to allow for differ- ences in actual costs of shipment f.o.b. place of origmal warehouse. 37 Manufacturers and wholesalers shall at all times keep upon their licensed premises a schedule of prices at which the item or brand is being offered for sale throughout each of the other states. §2. This act shall take effect June first, nineteen hundred sixty-four. ExPLANATION—Matter in italics is new; matter in brackets [ ] is old law to be omitted. STATE OF NEW YORK Print. 273, 4518 Intro. 273 IN SENATE (Prefiled) January 8, 1964 Introduced by Mr. ZarerzKi—read twice and ordered printed, and when printed to be committed to the Com- mittee on Excise—committee discharged, bill amended, ordered reprinted, as amended and recommitted to said committee [fol. 40] AN ACT To amend the alcoholic beverage control law, in relation to information to be contained in schedules of prices for liquor and wine filed with the liquor authority. The People of the State of New York, represented in Senate and Assembly, do enact as follows: Section 1. Subdivision three of section one hundred one-b of the alcoholic beverage control law is hereby amended by adding thereto a new paragraph, to be paragraph (f), to read as follows: 38 (f) No manufacturer or wholesaler may file a schedule pursuant to this section offering for sale any item or brand which is offered for sale by such manufacturer or whole- saler, or subsidiary thereof, in any jurisdiction in any state of the United States at a price, exclusive of state taxes, lower than offered in this state for the same period, except that differentials may be made to allow for differ- ences in actual costs of shipment f.o.b. place of original warehouse. Manufacturers and wholesalers shall at all times keep upon their licensed premises a schedule of prices at which the item or brand is being offered for sale throughout each of the other states and shall, from time to time as may be necessary, file with the liquor authority, under oath, a state- ment that the price at which each such brand or item is being offered for sale in this state is as low as the lowest price at which the same is being offered for sale in any other state. The liquor authority shall establish and from time to time as may be necessary amend schedules establishing maximum prices at which any item or brand may be sold or offered for sale in this state at retail, which shall be sufficient to provide the retailer a reasonable return and at the same time protect the purchaser against excessive and unreasonable retail prices. [fol.41] §2. This act shall take effect June first, nineteen hundred sixty-four. ExpLanatTion—Matter in italics is new; matter in brackets [ ] is old law to be omitted. 39 STATE OF NEW YORK Print. 273, 4518, 4604 Intro. 273 IN SENATE (Prefiled) January 8, 1964 Introduced by Mr. ZarerzKi—read twice and ordered printed, and when printed to be committed to the Com- mittee on Excise—committee discharged, bill amended, ordered reprinted, as amended and recommitted to said committee—committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee ‘AN ACT To amend the alcoholic beverage control law, in relation to information to be contained in schedules of prices for liquor and wine filed with the liquor authority. The People of the State of New York, represented in Senate and Assembly, do enact as follows: Section 1. Subdivision three of section one hundred one-b of the alcoholic beverage control law is hereby amended by adding thereto a new paragraph, to be paragraph (f), to read as follows: [fol.42] (f) No manufacturer or wholesaler may file a schedule pursuant to this section offering for sale any item or brand which is offered for sale by such manufacturer or wholesaler, or subsidiary thereof, in any jurisdiction in any state of the United States at a price, exclusive of state taxes, lower than offered in this state for the same period, except that differentials may be made to allow for differ- ences in actual costs of shipment f.o.b. place of original warehouse. In computing prices for any of the purposes of this subsection, no allowance shall be made for advertising. 40 depletion and promotional allowances or rebates of any kind whatsoever made to purchasers by the vendor. Manufacturers and wholesalers shall at all times keep upon their licensed premises a schedule of prices at which the item or brand is being offered for sale throughout each of the other states and shall, from time to time as may be necessary, file with the liquor authority, under oath, a statement that the price at which each such brand or items is being offered for sale in this state is as low as the lowest price at which the same is being offered for sale im any other state. The liquor authority shall establish and from time to time as may be necessary amend schedules establishing maximum prices at which any item or brand may be sold or offered for sale in this state at retail, which shall be sufficient to provide the retailer a reasonable return and at the same time protect the purchaser against excessive and unreasonable retail prices. §2. This act shall take effect June first, nineteen hundred sixty-four. ExpLanation—Matter in italics is new; matter in,brackets [ ] is old law to be omitted. 41 [fol. 43] Exuisit B, ANNEXED TO AFFIDAVIT oF THOMAS F. Daty NEW YORK STATE MORELAND COMMISSION ON THE ALCOHOLIC BEVERAGE CONTROL LAW 230 Park AVENUE New York 17, New York MU 9-4822 March 9, 1964 Hon. John J. Marchi Chairman, Joint Legislative Committee for the Study of the Alcoholic Bever- age Control Law State Capitol Albany, New York Re: S. Int. 273 Dear Senator Marchi: At the request of the Moreland Commission, I take the liberty of submitting to you in this letter an analysis of S. Int. 273. At the hearing before the Joint Committee and the two Excise Committees on February 26, Senator Zaret- ski, the introducer of S. Int. 273, raised certain questions about that bill. Those questions will be considered in this letter. S. Int. 273 would require a distiller to sell any brand of whiskey to his New York wholesalers at the lowest “price” at which he sells that brand in any other state during the month in which the sale occurs. The bill is designed to prevent distillers from discriminating against New York wholesalers by selling at lower “prices” in other states. 1. The fatal defect of S. Int. 273 is that it leaves the distillers in complete control of consumer prices. It would not in any way obligate the distillers to reduce the retail [fol.44] prices fixed by them. Even if the prices they 42 charge wholesalers were reduced, high retail prices could continue to be imposed by the distillers. Unless mandatory resale price maintenance is repealed, lower distiller prices could merely mean higher profits for wholesalers and re- tailers with no benefit to consumers. 2. A vital shortcoming of this bill in accomplishing even its limited objective is its use of the word “price.” It is established industry practice to interpret the word “price” to mean invoice price (f.o.b. distillery). “Price” thus means something altogether different from the distiller’s actual realization or the wholesaler’s actual cost after giving effect to the various allowances and other forms of assistance granted by the distiller to the wholesaler. “Price” or invoice price is, as the distillers claim, essentially uniform through- out the country except for a minor reduction to the monop- oly states. As a result, the bill in its present form would merely bring distillers’ prices in New York into parity with their prices in the monopoly states. 3. The experience of the monopoly states, which have provisions in their contracts with distillers analogous to S. Int. 273, demonstrates the ineffectiveness of this type of requirement. The prices charged to monopoly states are only about 4¢ to 12¢ a fifth below the New York invoice prices. They do not reflect the lower actual realizations of the distillers in markets where allowances are granted to wholesalers. 4. §. Int. 273 might be amended so as to reflect in the distillers’ “prices” the various types of allowances and assistance they give wholesalers. In that event, the useful- ness of the bill would be undermined by the extremely ex- pensive and complicated enforcement problems it would . present. The State would be required to engage a large corps of accountants and lawyers for full-time employment [fol. 45] in reviewing the books, records, accounts, and nation-wide transactions of each distiller. This task would have to be conducted on a regular and continuous basis, 43 and would involve even more complex problems than the State’s present supervision of utility companies. Effective enforcement would require a determination of the amount that each distiller actually realizes from his sales each month in each of the 49 other states. This would mean, in the first instance, an analysis of the myriad trans- actions between each distiller and each of his wholesale customers. In addition, it would undoubtedly necessitate the exploration of transactions with other persons, such as the wholesalers’ salesmen. Many of these others, since they would be outside of New York, might not be subject to subpoena. In addition, to determine whether the distillers were making more money on their New York sales than on their sales elsewhere, it would be necessary to make detailed determinations as to their costs and the allocation of those costs. It is apparent, therefore, that the enforcement of the law would lead to a series of involved and expensive adminis- trative proceedings, not unlike utility rate cases, in which a morass of data would be presented and extremely complex issues would have to be resolved. The expense of enforce- ment would be mammoth and enforcement might well bog down under its own weight. In addition, because of the types of issues involved, there would be a tremendous in- ducement to attempt to corrupt the persons with the deci- sion-making powers. 5. There is substantial doubt as to the constitutionality of the bill amended as indicated above. The distillers have brought an action to review the constitutionality of a simi- lar statute in Kansas. They contend that, in the light of the complicated economic issues sought to be dealt with, the [fol. 46] statute is too vague and indefinite to satisfy due process requirements. In addition, they contend that the statute violates the commerce clause of the United States constitution because it is an attempt by one state to control national pricing. A preliminary injunction restraining the enforcement of the statute was granted by a Kansas court in June 1961 and is still in force. 44 6. If the purpose of this bill is to bring to New Yorkers the benefits of lower consumer prices, the simplest, most direct, and the only completely effective way of achieving this objective is to return to free competition. The ex- perience in Washington, Chicago, St. Louis, Miami, and Houston demonstrates that the level of consumer prices can be brought to more than $1 a fifth below New York prices where a free market is permitted to reign. None of these cities has any law resembling S. Int. 273. With free competition, no such legislation is necessary. A free market is a built-in regulator of prices. Consumer prices and dis- tiller prices will both be reduced to their proper economic levels by the natural regulations of the free market. Respectfully yours, WILLIAM W. GOLUB Copies to: All Members of the Joint Legislative Committee for the Study of the Alcoholic Beverage Control Law and of the Senate and Assembly Excise Committees [fol. 47] Exuieir C, Annexep To Arripavit or THomas F. Daty * * * * * * * hearings in the ’30’s. In 1948, as I said, Chairman O’Con- nell and the State Liquor Authority decided to declare an- other moratorium rather than put up with the charges and counter-charges that they were being subjected to. In 1952 the Crime Commission found misconduct and then Irwin Shapiro at the beginning of the Harriman Ad- ministration made an investigation. There were fifteen resignations, many of them after people had claimed the Fifth Amendment. And now we have District Attorney Rogan’s investigation. This led to our appointment as a Commission. And we, having been introduced into this responsibility because of pt Cae 45 these charges of corruption, have looked to see whether, in the law, there was any basis for them. And we have found the basis, we think, in these subjective standards, these unworkable and unrealistic provisions which an agency is directed to enforce when it knows it can’t enforce them. And then we have also disclosed, I think, a broader, a more subtle form of corruption where an agency of essen- tially honest men are really brainwashed by an industry and led from the objectives for which they were appointed and which the law was directed to into new objectives which are not in the law any more. Now this is a very subtle thing and the damages that have occurred to this State as a result of it are significant. The objective of this law as it is now written is temper- ance. That’s the only justification for the law. Well it’s been an utter failure in that because consumption rates in New York have gone up along with those of the Nation. They have paralleled them; indeed of stores, I think, ever since repeal—about 400 in my recollection. Q. So perhaps in that one respect the conditions are not identical. A. Well, we have the same here, of course, now. [fol.48] Q. But not identical in the sense that we would not be duplicating the same situation that exists in Wash- ington if we had on the one hand a doing away with price maintenance and then unlimited issuance of licenses. A. Then we would have made both changes, whereas Wash- ington has only one. On the other hand, in St. Louis, Missouri you have exactly that situation. Missouri does have an unlimited number of stores and the freedom from price restriction. Q. Now I notice in some of these prices (referring to the chart)—I just go to Dallas and New York because they’re next to each other—in some cases if you add the tax New York comes out cheaper, in other cases there’s a marked difference and Dallas is considerably cheaper. A. The interesting thing is between Dallas and Houston. There is a completely different result. 46 Q. Well we have J & B comes out about even, doesn’t it? Fleischman is cheaper. We’re not accomplishing anything here, really. But I think Dallas is much higher than Houston, for some reason. A. There may be other factors. Q. There may be other factors there, that’s right. But we put both of them in. A. Do you find that in the range of alcoholic beverages there is a substantial difference on the price charged by the distillers going into the various states? And again I am referring to the very probative point raised by Senator Zaretzki. Q. I’m sure we have not attempted to find out how the excess is divided among the distiller, wholesaler and re- tailer. All we say is that you cannot assume that the dis- tiller has a uniform price because he has a uniform price scale. A. This is not to depreciate the work done by Dr. Wattel, but on the discussion of price and consumption— and of course you brought out in your report there may be other answers to this—if his point was valid that price does affect consumption, there may be other remedies to meet that situation. [fol.49] Q. I think Dr. Wattel speaks of consumption in the matter of sales. But that doesn’t mean there's an in- crease in consumption. If customers start buying in New York instead of New Jersey, they aren’t drinking any more, just buying in New York instead of New Jersey. And I’m sure that happens in Washington, that people in the surrounding areas who work in Washington buy in the Washington stores to save money. A. You don’t think that the public likes to get a bigger bang for the buck? Q. The bang seems to be limited by things other than the buck. You can only take so much of it. A. The Toronto School of Research has been conducting surveys that would indicate some relationship between the income and the incidence of cirrhosis of the liver. Now just what value this has I don’t know, but in this connection I was wondering whether Professor Wattel =— ese ewe Oe ee ea ee ee ee Teen ee 47 did have a control committee to establish the validity of the system of survey. Now his report states that Q. The retail price will still be as high as they want to make it. But wait a minute—I didn’t get that far. My bill doesn’t—now, you put your finger on what I think is the nub of the thing. You permit the distiller not only to charge what he wants to, but you give him the right to teli the retailer, “You must charge so much.” If you take that power away from him, and he can’t do that, now can’t you pass on the saving to the consumer by requiring the State Liquor Authority to set the mark-up price, a fair mark-up price to the retailer and to the consumer? Not the retailer, but the consumer. A. Then what you’d have to have is an agency like the Public Service Commission with conduct of rate studies and service studies, and you’d have a complicated agency to do that which a free market would do for us for nothing. See, in the case of a public utility where only one power company can serve an area efficiently, you need the regulation of a monopoly, but [fol. 50] when anybody can sell liquor what we can’t un- derstand is why you need that type of regulation. Let any- body come in and sell it and sell as cheaply as they can, the way they do in St. Louis. Q. I admit there are two ways of doing it: your’s is one way and I’m trying to find out whether mine is another way. A. I think that your’s is at most a supplement to my way, but it would not be a substitute for it. Q. Well if we compelled the distiller to charge as low a price as anywhere, and then the State Liquor Authority fixes a fair mark-up, giving the retailer a living wage, and still saving the consumer the dollar or two. And I can go to Bennington, Vermont and save two dollars a bottle. A. You can get some pretty good bargains if you shop around the country. Q. Well I regret to tell my constituents who are here in large numbers that I buy a lot of liquor in Benning- ton, Vermont. A. Only in the summertime, Senator. Q. But the point is that we could save the consumer the $150,000,000 by making the distiller charge us no more 48 than he does in any other state, and then having the State Liquor Authority fix a fair mark-up, fair for the con- sumer, and fair for the retailer. A. If the provision were constitutional, if it were enforceable, you could save per- haps the distiller’s share of that. But you couldn’t save the wholesaler’s and retailer’s share and the consumer still wouldn’t get his dollar back. Q. Wait a minute, I’m coming to that. I’ve been talk- ing about a sale from the distiller to the retailer and then to the consumer. And now we have an intermediate group known as wholesalers or distributors. Did your study show that most of these distributors are owned by the distillers? A. No. We have not checked into that. Q. Well, will you make a note of that too? A. You’ve given us quite a bit of work. May I borrow a pencil, Mr. Chairman? I don’t think you're going to find in New [fol.51] York any interlocking ownership. You may find in other areas that there is that, but as I say we have not studied it. I wouldn’t want to speculate. Q. Don’t let’s speculate. I want you to continue for an- other couple of years, and let’s get to the bottom of this. We are now agreed that if we fixed a minimum price for the distiller that they must not charge us more than any- body else, and if a fair mark-up was made by the State Liquor Authority on that price to the retailer and the con- sumer, that we could save the consumer the same $150,- 000,000. A. I don’t think it would ever work as well. You might save him something, but there’s nothing like a free market to get prices down to rock bottom. Q. I don’t know how much freer a market you need than the entire 50 states of the Union, and the distiller swears that he’s selling to us at as low a price as he’s selling any- where else. A. This would be really a hopelessly unen- forceable job. It would mean that the New Yorker is supposed to run around checking prices in 50 states, and the Anti-Trust Division of the Department of Justice can’t do that, even with the F. B. I. to help them. I think it would be really a vain effort. I mean the State Liquor eee 49 Authority has enough hopeless jobs to do without giving it another one. Q. Don’t let’s go into that at the moment because there must be something to this since the distillers are fighting the Kansas law so hard. If there wasn’t any teeth in it, they wouldn’t mind. The thing that I want you to study further, your Commission—I mean, I ask you, please, to do it—and that is how many intermediate steps are there in this State between the distiller and the retailer, and how many mark-ups are there? And do you need it all— the method of marketing? Who owns the distributors and the wholesalers? (fol. 52] By Mr. Ambrose: Q. Mr. Coyne, before I start, may I compliment you on a very delightful statement. It was a great piece of litera- ture. A. Thank you very much. Q. I would like to ask a couple of questions. Judge Walsh made reference today to a letter from Mr. Lynn, General Counsel of Seagram’s in which he made reference to depletion allowances which are, I gather, allowances made by distillers to wholesales subsequent to the sale of the merchandise by the distiller to the wholesaler. In other words, if he’s got a large—could you explain this, please, and what effect this may have on the net price paid over the course of a year? A. Well, I can’t explain it with any precision. I will give you my impression of what is meant. Now the prices from distillers to whole- salers is constant. Now that does not mean that it does not admit of sales rhythm and imagination in marketing liquor. Now, as I understand it, within certain confines— and they’re very small—a supplier will endeavor to estab- lish a bit of excitement in a certain market. And for that purpose he may join in a joint promotion with the whole- saler in that market, and with the result that some deple- tion allowance, or some credit memorandum will vary the price for an instant to providing the exciting sales rhythm that I mentioned. And that may be seen in different mar- : "7 50 kets, not at the same time. But the whole sum total of that relationship averages out to a price that is average across the country. And you are aware, of course, that why we resist any legal fixing of distiller’s prices, either by reference to another state or to any other measurement. That does not mean that distiller’s prices are not con- stant. Now they are constant for a very good reason. We have, for example, the State of Pennsylvania which is the 3 largest purchaser of liquor in the world. I think they pur- chase almost $400,000,000 worth of liquor a year—one customer. They swing a very big bit of leverage, and you [fol. 53] cannot be convinced that that Pennsylvania cus- tomer does not insist on the lowest price that the distiller offers anywhere in the country. And it’s significant, I think, the price in Pennsylvania is the same f. o. b. price, or virtually the same price, as is offered in New York. So any exercise of imagination by these sales geniuses— and they are sales geniuses—is in sach a narrow area that it would even itself off over a period. From the distiller’s point of view probably by a temporary response, and from the wholesaler’s point of view by concentrating on “my” brand this month, and someone else’s brand the next month. But I have examined with great cynicism this idea of my own clients when they tell me that they sell with a constant f. 0. b. price, and I’ve been at it five years. And about midway at that time I became convinced, and I reached the conclusion that I was being the cynic, and strange as it might appear to some segments of the pub- lic I found the suppliers on the level. I have dealt with many different business groups in my time, and not only are they more intractable—and if I seemed to be a little bit spirited earlier when I said it was not a rash assump- tion at some point in our professional existence to as- sume that another group is on the level—gentlemen, I meant that. And I wish you would take the posture that I took when I took my job, and I examined the bona fides of these people one by one. Now, I’m not going to say that there are not fakers amongst them. But I give you —_ 51 my word, and I say it’s an informed opinion because I’ve been in law enforcement too, for 23 years, and I think I can spot crooks and fakers as quick as the next one, and I’ll tell you—and you have my word for it—that this group subscribe to ethical standards thai cannot be matched in any other merchandising group. And I’d be very happy to elucidate on that some time if you have the time. [fol. 54] Q. In effect, your coniention, if I understand you correctly, is that this depleti. ellowance is used in the same fashion as the post-cti or file-off arrangement is used. A. That’s as I understand it. I wish I knew more about that. But let me give you what I think is proof. I mentioned the State of Pennsylvania. Now the State of Pennsylvania has a contract which permits them to send accountants into any supplier’s office—and they do. They send corps of accountants into supplier’s offices to deter- mine whether or not they’re getting the best price. And in fact, if they were not they would have a violation of contract which would make each supplier restore to the State of Pennsylvania the difference between that and the constant price that is serviced elsewhere. Q. Is it possible, or is it probably, or does it come about in any way that you’re aware of that the arrangements whereby retailers in the District of Columbia constantly sell liquor at loss-leader levels insofar as it may come about as the result of some malpractices or illegal prac- tices between the wholesaler and the retailer? A. No, I think the wholesaler probably doesn’t take the mark-up such as 52 [fol. 55] Exurpsit D, ANNEXED To Arripavit oF THomas F. Day (See opposite) &F NEW YORK STATE MORELAND COMMISSION ON THE - ALCOHOLIC BEVERAGE CONTROL LAY7 Study Paper Number 5 Resale Price Maintenance in the Liquor Industry October 28, 1963 230 Park Avenue New York 17, N. Y. 54 (fol. 563 RESALE PRICE MAINTENANCE AND THE LIQUOR INDUSTRY __ : Table of Contents ee cui adudkovetins re dkswenenanas sseneseneeesensense mini LS No cond dntesedicmedsadbeopesensdeedee idheod Te. Ces ee eo notecsdensakasendsecevoors PR PAE Se A. Concentration in Alcoholic Beverage ae paseveks, B. The Economic Effects of Concentration ........++++: chanee 3 Entry eeeeeeeneeereeeeeeeeeeeeeeeeeeeeee TU PTELITTTTT T © case gbvatdasetecrdésesrnenss daneadseeus indus . Costs and Capacity PPTTTTTTTTETI Titi T ieee 4. Brand Choice ......... EE ee Re Ae vn wibvbires ak ITI. Resare Price MAINTENANCE .....ecccecceccccccscccveece eos 15 Arguments for Fair-Trade .....-+++se+eeeeeeeeeee ‘eevenee 17 . The Case Against Resale Price Maintenance .........++++ a C. Conclusions About General Resale Price Maintenance ...... 24 IV. Free Versus Farr-Trave 1n Disticrep Spirits ....... te eee tees 25 A. The Changing Business Population ......+.-++eseeeeeeeess a B. Competition, Trade Practices, and Branded Distilled Spirits 30 V. Tre DEMAND ror DISTILLED SPIRITS ......eeeeeeeeeeeees re dare pe 40 A. Introduction eeeeeeeeeeeeeeeeeeeereeee eeeeeve eeeeveaene eee 40 B. The Market Studies ......cccccccccccccccccccccccsccces 41 C. The Published Data .........ccceceeee eaaae asl oeite « 44 D. Correlation Studies .....ccccccccvcccccccceeccescvcsvess 52 VI. CONCLUSION 2... ccccccccccccccccccccccccccccecesccccsccvces ae Aprenpix A.—Pennsylvania County Analysis 1959 ......... EA 61 Appznprx B.—Pennsylvania Analysis 1947-1962 ......+eesereeeeeeee Apramvex C—Control State Analysis, 1960 ........csecccccccccvees 67 ‘fol. 57] Index to Tables TABLE a ee Pe Ine _— - 2S _— a Percent of Value of Shipments and Tati poem for by the ory * acti in Alcoholic nr Production, 1958, ose SRE EO >i 6enbddseusedvacecénsesinetes 00006049606 0Nb0049 n0n 4% Acquisition of Companies by the Four Largest Distillers, 19331948 Facilities Operated to Produce Alcohol from Grain and. Fruit, Selected Fiscal Years, 1934—1962 ..... boda Vu Chets caus Federal and Average State Tax Rates ......ssscesecceesessesesees oe Measures of Price Changes, Distilled Spirits Industry, 1947— TRE cave tivedscctadeesevska kiana dust cckenudssncdndeisdeuse COSHH HEHEHE SHEE HTH ESE HEHEHE HEHEHE HEHEHE HEE HEHE EE 1962 PTTTT ITIL TTELITTTETT TTT ee Tee Te eee Number of Brands of Whiskey Types, and Price on Pennsyl- vania, 1947 and 1962 ...... sadevacddendgenadsbecnssnacdacedeese . Fees Collected, Price Schedule Posting and Minimum Consumer . Resale Price Posting and Penalties Imposed for Violations of Mini- mum Resale Price Regulations, New York State, 1950—1961 ...... . Liquor Price Control Arrangements, License States, October, 1963 Wholesale and Retail Liquor Establishments, United States, New York State and the District of Columbia, 1948 and 1958 ..........++--.- Gross Margins, Total Expense, and Net Profit of Liquor Stores, 1950 Retail Prices of Selected Distilled Spirits Brands, Washington, D. C., Compared with ee Prices of the Same Brands, New York State, September, 1 ec evccvcccsevccoccs evewesvercvccsasevoee: SOSH HSH EES HEHEHE SHEET HEEH EHH EEE HEH HEHEHE ERE EEE Pe Classes for Neutral Blend Whiskey, New York State, 1963 . Purchased Beverages (whiskey, rum, gin, ote cordials) Percent- age of Households Using and Expense per Household ............. . U.S. Non-Farm Households Drinking or Serving Distilled Spirits Was Fetes Greens, TOGO onc cc ccccccscedsscgesence Kasevveess U. S. Households Drinking or Serving Distilled Spirits Within Occu- SURE GHEE, FOOD ce ccccccccvevcvcesteseéecececsstecetsebneees . U.S. Households Drinking or Serving Distilled Spirits Within Age NF boven ccaveucsrcseretscncedée $UdSEKCE Rens eesencye Apparent Consumption of Distilled Spirits, United States, 1950—1953 Whiskey Purchases by Price Class (fifths) Pennsylvania, 1950—1953 . Prices and Market Shares of Selected Distilled Spirits Types, Penn- Ch: OPEN. cccxnckanehhacsanoeks vehadienantedeess cute Expenditures for Alcoholic Beverages and Real Disposable Personal - Suceins, Velted Seaton, 196% 1906 oc ccccvcccccccccuseeseccccese Expenditures for Wine and Distilled Spirits and Real Personal In- come, Pennsylvania, 1947—1962 .......ccccccccsccccccsccccceces Measures of Price Elasticity of Demand for Distilled Spirits ........ agg Sales/Profit Analysis sae 10 per cent Decline in Price, Different Price Elasticities of Demand; New York, circa 1962 55 56 (fol. 58] oe PREFACE a} ‘ The New York’ State Moreland Commission on the Alcoholic | Beverage Control Law commissioned this study in July of this year as one part of a broad examination of the efficacy and desirability of maintaining stringent government supervision and protection of New York’s alcoholic beverage industry and the consumers of its products. This segment of the investigation is concerned almost exclusively with the effect of income and price on the demand for distilled spirits. Insofar as the focus here is economic and hence Mmited, the reader is referred to the Commission papers which treat other facets of alcoholic beverage consumption. Although this paper carries the name of a single author the counsel of my friends and colleagues is reflected in its pages. I gratefully acknowledge the help received at various stages of this project. Thanks go to Dr. Donald J. Dewey (Columbia University) for his views and comments on the entire manuscript, to Dr. Harvey J. Levin (Hofstra University) for his suggestions on the paper's organization and content, to Mrs. Hyman Lichtenstein for aid with the statistical analysis, to Dr. Richard P. Brief (New York Univer. sity), and Dr. John E. Ullmann and Dr. Frederic Stuart (both of Hofstra University) for their comments on the correlations, and to Dr. Nathan Goldfarb and Mr. Lowry McKee of Hofstra’s Computer Center for their cooperative efforts which made possible the proces- sing of the data by computers. Dr. Mark B. Schupack (Brown University) made constructive suggestions for the strengthening of _ the analysis. os, Mrs. Miriam G. Cedarbaum of the Commission’s staff proved to be a friendly critic; her helpful suggestions contributed much to the final stages of the work. The Commission’s clerical and professional staff were most efficient and cooperative at all stages of this under- taking. ere My wife’s editorial advice was particularly welcome as was her patience.. | In the Jest analysis, however, the shortcomings of this work remain the sole respons‘bility of the author. - Harorp L. Warren Chairman, Division of Business. . Hoffstra.University [fol. 59} I. INTRODUCTION How much control should New York State exercise over the sale of alcoholic beverages within its borders? The question, should New | York State retain mandatory resale price maintenance for the mar- keting of branded alcoholic beverages is just one aspect of the larger question. This background paper approaches this latter question by examining the structure of the alcoholic beverage industry and one aspect of its marketing arrangements—resale price maintenance. The distilling industry is the main focus here. Malt beverages are now sold through grocery stores and are not subject to the more stringent regulations applicable to distilled and fermented alcoholic beverages. Their low alcoholic content places them apart. Wines are subject to - the same regulations that affect the sale of distilled spirits, but since they are lower in alcoholic content and price they need not be treated separately here either. The price controls now in effect on distilled spirits in New York State can be traced to demands for such controls from industry mem- . bers in the heat of liquor price wars which developed before World War II. The State Liquor Authority described the New York City market in these terms: “During the last four months of 1940, enitehie market con- ditions prevailed in the Metropolitan New York area. In their _ eagerness to ‘corner’ the New York City market, which is reputed to be the largest local market in the country, some dis- tillers reduced prices to the point which, according to reports, was less than‘the cost to the manufacturer. Secret rebates and ‘kick-backs’ were granted. Differentials in prices among buyers in the same license class were rampant, and the consumer could purchase liquor from the package store at a price lower than that which the restaurant or tavern keeper was required to pay to the wholesaler.” The Authority blamed the distillers for the unsettled con- ditions.” The mandatory resale price mnleinensiait solution in New York - State seems strange in view of this contention. It handed to the 1940 Report A the New York State Liquor Authority, p. 13. z Ibid., pp. 14-15. 3. Distillers must file minimum prices for their branded merchandise and the State Liquor Authority assumes ~ by. responsibility for the policing of those prices. Under general resale price maintenance, producer sti mini- = mum prices for his branded merchandise and assumes the burden cons 58 (fol. 60] distillers, those alleged to have instigated the price wars, the right to fix prices vertically. The main beneficiaries appear to have been the New York State retailers, the main victims, the New. York State consumers, Distiller prices which were originally set high under the cover of the mandatory resale price maintenance statute in New York State have: been altered infrequently.‘ Nor have the major distillers seen fit to compete actively’ with each other by overt price cutting at the retail level.’ In the face of such price behavior distiller unit profit margins probably have declined. Wholesale and retail distributors meanwhile applied their markup percentages to their invoice costs which included higher taxes, and in this way protected themselves somewhat from the pressures exerted by increasing costs.” The use of the police power of the State to enforce private decisions of manufacturers seems unnecessarily severe medicine for a relatively minor ailment. If New York prices must remain high, the State has ample power to keep them high without delegating price fixing power to private individuals and without committing itself to police their decisions. But must prices remain high? This paper attempts to review the evidence relevant to this ques- tion. We begin with a review of the structure of the distilled spirits industry and the relationships between the trade levels. . Harold L. Wattel, The Whiskey Industry, unpublished doctoral dissertation available from The New School library, pp. 425-426. . Competing brands remain within pennies of each other in the major markets. For example, Seagram’s 7 Crown retails for $4.99, Schenley Reserve for $4.99, Kinsey Gold for $5.00, G & W 7 Star for $4.99, and Bellow’s Partners Choice for $4.99 in New York. . The First National City Bank reports that in —_—t the profit margin on sales has fallen from a high of 7.2 per cert in 1948 to 3.9 per cent in 1962. . Wholesaler and retailer margins have also risen. The retailer paid $3.20 per fifth for Seagram’s 7 Crown in 1950 and sold it for $4.05, a markup of 26.6 per cent. In 1963 he paid $3.82 for the fifth and resold it for $4.99, a markup of 30.6 per cent. In 1950 the markup amounted to $0.85 and the same markup in 1963 would have given him an absolute amount of $0.99. However, with the increased percentage markup his absolute amount is increased to $1.17. In 1950 the wholesaler operated on a markup of less than 15 per cent for this brand; today his markup is more than 20 per cent. ‘ (fol. 61] Il. INDUSTRY STRUCTURE A. Concentration in Alcoholic Beverage Manufacturing The manufacture of alcoholic beverages is one of the more highly . concentrated industries in the nation. TABLE 1 Percent of Value of Shipments and Employment Accounted for ve the Largest Companies in Alcoholic Beverage Production, 1958, 1954, and 1947. 1958 1954 1947° First First First SIC Nomber Industry 4 8 4 8 4 8 Companies Companies — Companies (percentages) 2082 Beer and Ale Value of Shipments 28% 44% 27% 41% 21% 30% 19 30 Employment ..... 24 39 22 35 2084 Wines and Brandy - Value of Shipments 35 50 38. 4 26 42 Employment ..... 27 37 23 36 N.A. NA. 2085 Distilled Liquor Value of Shipments 60 77 64 79 75 «8 Employment ..... rn Co. ee ae © 1950 for employment. ‘Sources: Concentration Ratios in Manufacturing Industry 1958, Report Prepared by the Bureau of the Census for the Subcommittee on Antitrust and Poy oad of the Committee on the Judiciary, United States Senate, ngress, 2nd Session, Washington 1962, pp. 12 and 78. From Table 1 one can see that the beer, ale, wine and brandy industries became increasingly concentrated after 1947 when measured by the value of shipments and employment. In fact, when measured by employment, concentration in these two industries continued after 1954. Concentration in distilling, however, decreased in the two census years since 1947. There are many ‘reasons for this latter development. At the end of World War II the major firms had excellent grain allocations, a good hold on cooperage, and supplies of aged whiskey. With the easing of shortages of these 8. Harold L. Wattel, op. cit., Chapter 3. 60 (fol. 62] raw materials for bottled liquor production and with brand-taste shifts, the hold of the “big four” distillers (Distillers Corporation- Seagrams, National Distillers, Schenley Industries, and Hiram Walker) on the market was reduced. Distilling, however, remains more concentrated than the other two segments of the alcoholic beverage industry. The three segments of the alcoholic beverage industry accounted for less than six per cent (5.7 per cent) of the employment in the Food and Kindred Products Industry and less than ten per cent (9.5 per cent) of the value added of the Food and Kindred Products Industry (SIC 20) in 1958.9 Nevertheless, eight of the companies in alcoholic beverages were among the nation’s 500 leading industrial corporations in that year.’® Three of the four maior distillers, National Distillers & Chemical Corp., Jos. E. Seagram & Sons, Inc. and Schenley Industries, Inc., are among the nation’s 500 largest industrial companies, ranking 173, 174, and 268 respectively." The size of the four major firms, however, may be traced to acquisitions before 1951, as Table 2 illustrates : a TABLE 2 Acquisitions of Companies by the Four Largest Distillers, 1933-1948 3 Nature ot Facility Distiller Distillery = © Winery Cooperags Other 3 (Number) National Distillers ............. 20 1 3 8 Jos. E. Seagram & Sons ......... 15 2 1 6 EE, SxG anda erscocataceces 16 3 2 11 BE WHEE -cexbcccvescscuncs 7 6 2 3 Source: Federal Trade Commission, The Merger Movement, A Summary Report, 1948. 9. Concentration Ratios in Manufacturing Industry 1958, Report prepared by the Bureau of the Census for the Subcommittee on Antitrust and Monopoly of the Committee on the Judiciary, U. S. Senate, 87th Congress, 2nd Session, Part II, p. 388; and Statistical Abstract of the United States, 1962, pp. 774-5. 10. Mergers and Superconcentration, Acquisitions of 500 Largest Industrial and 50 gest Merchandising Firms, Staff Report of the Select Committee on: Small Business, House of Representatives, 87th Congress, November 8, 1962. pp. 46-53. 11. Ibid. 61 (fol. 63] While many of the pre-World War II and immediate post-World’ War II acquisitions involved facilities intimately related to distillery operations, at least the more recent acquisitions of one company reflect efforts by management to diversify. National Distillers acquired the following firms in the decade 1951-1961: U. S. Indust.ial Chemicals, Inc., Algonquin Chemical Co., Hegeler Zine Co., Metriectro Corp., Panhandle Eastern Pipe Line Co., Kordite Corp., “'extron, Inc., Mallory-Sharon Metal Corp., Federal Chemical Co., Inc., Minne- — sota Liquid Fertilizer Co., Wisconsin Farmnco Service Co-operative, Inc. and Bridgeport Brass Co. In fact, the company is now known as National Distillers and Chemical Corporation, a change from the earlier National Distillers Products Corporation.” While there is considerable criticism of concentration ratios based on corporate or industry data rather than product data, such - criticism is less valid for the alcoholic beverage industries and for the distilled spirits industry, in particular. Competition in these industries is limited to their own products. While distilled spirits _ do compete with the lower alcoholic content and lower cost products, — eg., beers and wines, and to a very minor degree, non-alcoholic beverages,’* the industry agrees that interbrand competition within distilled spirits types and inter-type competition, e.g., gin ~ersus . vodka, is the type of competition which concerns ‘the individ: a: com- pany." B. The Economic Effects of Concentration When a significant proportion of an industry’s employment or shipments is in the hands of a few firms (the four largest firms in distilled spirits were responsible for 60 per cent of the shipments and 57 per cent of the employment in 1958), economists expect that it will have certain characteristics. For example, an economist . expects to find the following: 1. It is difficult for new firms to enter that industry either because of natural or manmade barriers. 2. Prices in that industry are likely to be relatively high and stable, especially in comparison to commodities traded on organized exchanges, because a community of interest tends to be recognized. 3. Competition may be intense between the industry leaders but will 12. Mergers and Superconcentration, op. cit., p. 126. . 13. Harold L. Wattel, op. cit., Chapter 4. 14. Ibid. an 62 (fol. 64] probably be in the form of sales promotion rather than price promo- tion. 4. Costs may be high in the industry and it may be afflicted with much excess capacity. 5. There will be a great variety of product types in the industry. This is not an inaccurate picture of the distilled spirits industry, although some of the elements must be qualified. 1. Entry In the matter of entry, there are many barriers in the form of brand names which have consumer acceptance, capital expenditures, working capital for the large promotional expenditures required, and the like. Fifteen years ago, warborn shortages of grain and cooperage would have created difficulties for the new firm; they cre- ated problems for the old. Today, these are all in good supply. Aged whiskey is also in good supply, so these can no longer be con- sidered as keeping new firms from the industry. Nevertheless, there has been a steady attrition of plants and firms from the industry, although some of this occurred through mergers. Census data show a decline in the number of companies from 144 in 1947 to 98 in 1954 to 88 in 1958.5 According to the Alcohol and Tobacco Tax Division, production facilities increased in the pre-war period and declined in the post-war period. TABLE 3 Facilities Operated to Produce Beverage Alcohol from Grain and Fruit,* Selected Fiscal Years, 1934-1962 _ ; BN ease crccnsst 170 ea scevsiavi 311 since ahracees 282 EAR IRI 333 er ep eee anor 239 aoe vconki ces 188 ees canara: 170 * Does not include facilities for rectifying distilled spirits. Source: U.S. Treasury Department, Alcohol and Tobacco Summary Statistics, Fiscal Year 1962, Publication 67 (1961), p. 23. 15. 1958 Census of Manufacturers, MC58(2)-20G, Beverages, pp. 4-5. 63 (fol. 65] There has been no major new firm in the industry since World War II and no major firm has disappeared except through mergers." As noted above, the industry is heavily concentrated, with four firms accounting for 60 per cent of ee in 1958, a the first 20 firms, 94 per cent. , 2. Prices Prices have remained relatively stable except for tax changes in the post-war period. These are summarized next in terms of rates (State: per wine gallon and Federal: per proof gallon). . sade TABLE 4 Federal and Average State Tax Rates Average State Tax Federal Tax Per Tax Per Fifth of Fifth of 86° Combined - Index Year Distilled Spirits” Distilled Spirits Amount 1947100 OS oe en cna $0.30 $1.55 $1.85 100 BG i aa indo svcd a Le 1.86 101 | RR Rae 32 1.55 1.87 oe a ESR ala ease 32 1.55 1.87 101 ge SNPS apa 31 ay 2.12 ° 115 — Ta ea ere 31 - 181 " 212 115 NS akc dnis cienin’ ses a 1.81 . :; 115 OO os dates oe 2 aan 1.81 1h, a | Ea Ee 33 1.81 26° oe | SS a 33 1.81 2.14 (116 at og ae SS 1.81 ; 116 Be cnc sae 33 1.81: ies: 116 | ea | 1.81 2.16 ae acd vien deck 35 1.81 2.16 oo? cere ctxesnes ; 1.81 2.18 118 i crs wii 37 1.81 28 118 * New York State tax ‘te remained at $1.50 per wine gallon since May 1939. Source: 1962, sg Institute, Detitied Spirits Annual . Statistical Review, P. To place this data in context, it may be pointed out that ne 1947 and 1962 the Consumers Price Index rose 35.5 per cent for all | items. For food there was a 27.4 per cent increase. According to : the data in Table 5, the retail price of whiskey rose some 9.8 per cent _ since the introduction of the index in 1953. 6. U. S. Treasury, Alcohol and Tobacco Tax Division. 64 [{fol. 66] TABLE 5 Selected | Measures of Price Changes, Distilled Spirits — 1947-1962 1 2 3 spe 5 6 1 8 5 Index of Index Prices Whole- Price of of 10 Price Sale of Price Best of Whole- Hd Sea- Offerings Sell Sea- Whole- Sale , 7 Retall in ers, oat sale Price Botid. rown Price Penn- Penn- rown Price Index in Index syl- syl- Penn- Index ome Bond Penn- ber | vania vania syl- Strts. ends 1957-9 1957; 1957-9 1957-9 vanla 1957-9 1957-9 1958 ... 100.0 32.95 99.6 1000 99.5 1959 ... 100.0 3295 1009 1004 1002 1960 ... 100.0 32.95 1024 103.8 1042 1961 ... 100.0 32.95 103.0 1038 1042 1962 ... 100.0 32.95 103.3 105.1 103.8 4.74 99.7 1002 Sources: ‘Columns 2, 4, 8 and 9: U.S. Bureau of Labor Statistics 7: Annual Statistical Reports of Pennsylvania’ Liquor Control Board 5 and 6: Calculated by Author from Annual Statistical © Reports of Pennsylvania Liquor Control Board. 3(1947-1956): Estimated by author. 3(1957-1962): Information supplied to Moreland Commission. Averages, unfortunately, hide many things. After World War U, consumers generally purchased the most readily available whisky, the neutral blend. Distillers had bottled and marketed this product as a way of overcoming the shortage of aged whiskies which had resulted from the production hiatus during World War IL. Before that war, neutral blends accounted for less than 40 per cent of the. whisky market” By 1946, this figure had increased to 87.9 per 17. ~— Spirits Institute, Disiitled S, pits Annual Statistical Report, 1962, p. 27. 7 a (fol. 67] cent."* As aged whiskies became available, consumers shifted slowly but steadily away from neutral blends,’® as the next table shows: TABLE 6 Spirit Blends Bottled as Per Cent of Total Whisky Bottled, 1947-1962 Year Bottled Bottled of Total pr (million Wine gallons) a ee 157.3 135.9 86.4% DE - diunkb ode kes be coween 136.4 - 92.1 67.5 DT Ciesncve wanweenenan 134.6 69.6 51.7 ES aGhbwCecas Casus vack 150.5 73.2 48.6 Source: Distilled Spirits Institute, Distilled Spirits Annual Statistical Review, 1962, p. 27. The shrinking market for neutral blends and relatively stable market for American whisky in general should have lowered the prices of neutral blends. Yet, viewing the leading neutral blend brands of the major distillers for the years 1947 to 1962, it would seem that prices at retail or at the distillery have not reflected aa a pressure. . TABLE 7 Fifth Prices, Leading Distillers’ Spirit Blends, Pennsylvania, 1947-1962 Seagram's Sheniey Bellows Pt. — 7 Crown Reserve : Chsice GW 7 Star eta 4.01 4.01 4.27 poi eri use a 4.03 4.01 4.00 i ta ERE: 4.03 4.02 4.00 ea oa 4.03 4.02 4.00 4.04 | negro: 4.46 4.45 4.43 4.49 Oe 4.46 4.45 443 4.48 ss oe a: 4.46 4.45 4.43 4.48 | ES eee 4.46 4.45 4.43 4.48 ee a ce 4.46 4.45 4.43 4.48 SEGRE SR a a OE 4.46 4.45 4.43 4.48 Beng ER eae 4.57 4.56 4.57 4.59 ME stuebsecece wees 4.57 4.56 4.57 4.59 gee 4.58 4.56 4.57 4.59 eh Rare 4.77 4.75 4.75 4.77 ANG aan 4.74 4.74 475 - 497 Ee oc icc wen « 4.74 4.74 475 477 Source: Annual Reports of the Pennsylvania Liquor Control Board. 18. Ibid. 19, Since the distilled spirits market is in a sense a custom market, data for bottled spirits reflect closely consumer purchases. 66 (fol. 68] Wholesalers and retailers are willing for the most part to limit | price competition to the distillers. They have been in the forefront of the drive in this nation for the enactment of resale price mainte. nance laws. The Federal Trade Commission granis them a place second only to druggists in this endeavor. Retailers through their associations have threatened boycotts and have engaged in boycotts in an effort to have distillers fair-trade their liquors wherever pos- sible. Once brands are fair-traded, distributors urge distillers to allow larger and larger margins for them.” Some distillers are lukewarm to fair-trade, others support it by word and deed.* Seagram, for example, has tended to be one of the staunchest supporters of resale price maintenance. It has issued such pro-fair-trade pamphlets as Seagram Puts it in Writing and Your Stake in Fair Trade aimed at convincing wholesalers and retailers of the community of interest in resale price maintenance, In each, the company is pledged to a cians enforcement program on behalf of its brands. Before leaving the price issue, it should be noted that the stability that distillers desire and attempt to maintain results also in price matching. The major distillers market a full line of distilled spirits in price “lines.” Consumers seldom find any price advantage” in choosing one distiller’s product over another within the price line.” Those outside of the Big Four do maintain a differential in many cases,* but they do so to overcome the brand consciousness of the average consumer. Because of the use of holding companies by dis- stillers, consumers se [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386411_0250%3A01. Public record. Not legal advice.