Under the Oklahoma Unfair Sales Act, a State Court enjoined appellant from selling at retail any items of merchandise at prices less than statutory cost, even though some of appellant's competitors were selling below cost at prices appellant either knew or had reason to know were illegal. The Oklahoma Court also refused to enjoin certain of appellant's competitors from giving away trading stamps with goods sold at or near statutory cost, and enjoined appellant from reducing its prices below cost to meet that competition. Held: The Oklahoma Unfair Sales Act, as construed and applied in this case, does not transgress the Equal Protection or Due Process Clause of the Fourteenth Amendment. Pp. 334-342.
322 P.2d 178, affirmed.
Ramsey Clark argued the cause for appellant. With him on the brief were V. P. Crowe, Robert L. Clark and William L. Keller.
Samuel M. Lane argued the cause for appellees. With him on the brief were W. J. Holloway, Sr., M. A. Ned Looney and Robert P. Beshar.
Mac Q. Williamson, Attorney General of Oklahoma, filed a brief, as amicus curiae, urging affirmance.
Chester Inwald filed a brief for the National Association of Tobacco Distributors, Inc., as amicus curiae, urging affirmance.
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
This is a suit for an injunction, brought in a state court in Oklahoma by appellee, Oklahoma Retail Grocers Association, against appellant, Safeway Stores, for selling several [360 U.S. 334, 335] specified items of retail grocery merchandise below "cost" in violation of the Oklahoma Unfair Sales Act. Okla. Stat. tit. 15, 598.1-598.11 (1951). Section 598.3 of the Act provides:
Safeway makes two main claims.
1. Safeway justified cutting prices below cost in some cities by claiming it was to meet the prices of some of its competitors who were also selling below cost. The statute allows a reduction below cost only when it is a good faith meeting of the competition of a seller who is selling at his own cost. The trial court found that Safeway's reductions violated the Act, and that Safeway could not avail itself of the statutory defense of meeting competition since its reductions were not in good faith but were made to meet prices Safeway "either knew or had reason to know were illegal . . . ." The court enjoined Safeway from
Appellant also claims that there are situations in which a competitor might reduce his prices below cost without violating the Act, and hence, under the injunction, Safeway would have no remedy whatsoever since it could not retaliate in kind and judicial relief would not be available. The conclusive answer to this claim is that it is not before us for adjudication. The court below found that Safeway was meeting prices it "knew or had reason to know" were illegal. It then phrased its injunction in the terms of a statute which has yet to be construed in the abstract circumstances presented by appellant. The Oklahoma Supreme Court carefully noted that it was interpreting the Unfair Sales Act as applied to the particular facts of this case, pointing out that "until a proper factual case is presented which requires a clear determination and offers a practical situation in which all the conflicting problems and considerations of the area involved are apparent, this court will refrain from theorizing." 322 P.2d, at 181. If this is a rule of wise restraint for the courts of Oklahoma in this situation, it clearly bars constitutional adjudication here. 1 [360 U.S. 334, 338]
2. Appellant's second contention involves its competitors' use of trading stamps. Trading stamps, it hardly needs to be stated, are, generally speaking, coupons given by dealers to retail purchasers on the basis of the dollar value of the items purchased, e. g., one stamp for each ten cents' worth of goods, and are collected by the purchaser until he has enough to redeem for various items of merchandise. Trading stamps have had a checkered career in the United States, but since World War II their popularity has grown until now it is a reasonable estimate that these multi-colored scraps of paper may be found in almost half of America's homes. 2
When this suit was brought Safeway did not use trading stamps. In the Oklahoma City-Midwest City area several of its competitors did. These stamps were deemed to be worth approximately 2.5 percent of the price of the goods with which they were given. Safeway contended in the Oklahoma courts that giving a trading stamp with goods sold at or near the statutory minimum resulted in an unlawful reduction below "cost" to the extent of the value of the trading stamp. To be specific, if an item sold for $1, and that price was statutory cost, the trading stamps given with it would be worth approximately 2.5 [360 U.S. 334, 339] cents and the net price was therefore $.975, or 2.5 cents below cost. Safeway sought to restrain its competitors from selling below cost in this manner and also claimed that it was justified, in order to meet competition, in reducing its prices to the net of its competitors' prices, taking into account the value of trading stamps. The Oklahoma court found that the giving of trading stamps with items sold at or near statutory cost was not a violation of the statute and denied Safeway's request for an injunction. The court also decided that Safeway could not reduce its prices to meet the trading stamp competition. It did, however, provide that Safeway could do what appellees did, it might issue "trading stamps, cash register receipts, or other evidence of credit issued as a discount for prompt payment of cash . . .," as long as the value of the discount did not exceed three percent. 3
Safeway contends that such a construction of the Unfair Sales Act violates the Fourteenth Amendment. Appellant claims that even though the State may prohibit sales below "cost," it is barred from allowing a merchant to give trading stamps with goods sold at or near "cost," unless it allows competing merchants to make an equivalent price reduction. For the State to differentiate between the use of trading stamps and price-cutting is, so the argument runs, a constitutionally inadmissible discrimination. 4
Trading stamps are given to cash customers "across the board," namely, the number of stamps varies directly with the total cost of goods purchased. Safeway's price-cutting, however, was selective. This difference is vital in the context of this Act. One of the chief aims of state laws prohibiting sales below cost was to put an end to "loss-leader" selling. The selling of selected goods at a loss in order to lure customers into the store is deemed not only a destructive means of competition; it also plays on the gullibility of customers by leading them to expect what generally is not true, namely, that a store which offers such an amazing bargain is full of other such bargains. 5 Clearly there is a reasonable basis for a conclusion that selective price cuts tend to perpetuate this abuse whereas the use of trading stamps does not. [360 U.S. 334, 341]
This difference alone would be enough to require affirmance. It is reinforced by other tenable grounds for distinction. There was a basis in evidence for the view that the use of trading stamps has an entirely different impact on the consuming market than do price cuts. When prices are the same customers tend to go to the store offering trading stamps. But when prices are cut to the extent of the value of the trading stamp the stamps lose their lure and lower prices prove a more potent attraction. On the basis of this not unreasonable belief as to the economics of the highly competitive, low-profit-margin retail-grocery business, Oklahoma could well have concluded that its choice was to provide that all use a cash discount system or none could do so. 6 Such a view of the economic aspects of the problem affords an ample basis for the legislative judgment enforced by the court below.
Certainly this Court will not interpose its own economic views or guesses when the State has made its choice.
[ Footnote 2 ] The latest chapter in trading stamp history was recounted in The [London] Economist for May 30, 1959, at p. 850:
[ Footnote 3 ] Safeway, in fact, did offer its own cash discount coupons during the course of this litigation.
[ Footnote 4 ] This Court in other contexts has upheld, against a challenge based on the Fourteenth Amendment, state tax laws which discriminated against the use of trading stamps. Rast v. Van Deman & Lewis Co., 240 U.S. 342 ; Tanner v. Little, 240 U.S. 369 ; Pitney v. Washington, 240 U.S. 387 .
[ Footnote 5 ] See the article by Mr. Brandeis, as he then was, in the November 15, 1913 issue of Harper's Weekly, at p. 10.
[ Footnote 6 ] This would come about if the dealer using trading stamps were allowed to meet the lowered price, or if, by being required to drop trading stamps, the other dealer were forced to raise prices. It is conceivable that a mathematical formula might be developed to equalize the use of trading stamps and price cuts. But certainly the Constitution does not place such a complex and, at best, uncertain and speculative burden on the States.