Rast v. Von Deman & Lewis, ante, p.
240 U. S. 342,
followed to effect that the state may regulate the use of, and
impose license taxes on the privilege of using profit-sharing
coupons and trading stamps.
The statute of the Washington of 1907 imposing license taxes on
the privilege of using profit-sharing coupons and trading stamps is
in its essential particulars similar to the statute of Florida
sustained in
Rast v. Van Deman & Lewis, ante, p.
240 U. S. 342, and
held that such statute was properly enacted in the
exercise of the police power of the state in regard to matters
subject to regulation, and that it is not unconstitutional under
the federal Constitution as interfering with or burdening
interstate commerce, impairing the obligation of contracts, denying
equal protection of the law, or depriving merchants of their
property without due process of law.
208 F. 605.
This case was submitted with
Rast v. Van Deman & Lewis,
ante, p.
240 U. S. 342, and
attacks the validity of a statute of the State of Washington of the
same general import and purpose as the Florida statute passed on in
that case,
Rast v. Van Deman & Lewis, ante, p.
240 U. S. 342.
The statute requires that every person, etc., who shall use or
furnish to any other person, etc., to use in, with, or for the sale
of any goods, etc., any stamps, etc., which shall entitle the
purchaser receiving the same with such sale of goods, etc., to
procure from any person, etc., any goods, etc., free of charge, or
for less than the retail market price thereof, upon the production
of any number of such stamps, etc., shall, before so furnishing,
selling, or using
Page 240 U. S. 370
the same, obtain a license from the auditor of each county
wherein such furnishing or selling or using shall take place for
each and every store or place of business in that county, owned or
conducted by such person, etc., from which such furnishing or
selling, or in which such using, shall take place.
The statute fixes the license at $6,000, and there is a
prohibition of the use of the stamps, etc., in any town, city, or
county other than that in which they are furnished or sold.
Violation of the act is made a "gross misdemeanor."
The complainants are nineteen in number, counting partnerships
as single individuals, and engaged in the business of hardware,
cleaning and dyeing, grocery, soap, canned goods, meats, drugs, dry
goods, boots and shoes, fuel, photography, laundry, and wine.
Complainants sue for all similarly situated.
Their allegations, condensed and narratively stated, are as
follows: they carry on their respective businesses at Spokane,
State of Washington, and advertise in various ways, which are
enumerated, including the premium advertising system, so-called,
and have at various times, for the purpose of increasing their
general trade and volume of business, especially their cash trade,
adopted and used a premium advertising system conducted as follows:
with the sale of their goods and merchandise, they each give to
their cash customers stamps, tickets, or coupons at the rate of one
stamp for each cash purchase of a convenient unit amount, as one
stamp for each 5, 10, or 25-cent cash purchase, as the case may be,
which stamps or coupons entitled their customers to the choice of a
certain cash discount or, free of charge, to certain articles of
merchandise of their own selection, when presented in certain
prescribed numbers for redemption to complainants who redeem their
own stamps or certificates, or to a third party with whom other of
the complainants have contracts, many of which are still in force,
for the use of their premium
Page 240 U. S. 371
advertising system, including the use of their trading stamps or
coupons used in connection therewith, and the redemption thereof in
merchandise.
Many of the complainants accept the coupons at the cash value
thereon printed, in payment or part payment of the cash retail
price of the premium articles.
The stamps and coupons are redeemable in accordance with the
terms of printed catalogues or premium lists. Booklets are
distributed free among complainants' customers, and describe the
articles which may be secured by the stamps or coupons, and state
the number thereof required to obtain the same. The delivery of the
required number of stamps or coupons set forth in the list is in
full payment for the article specified, and no money or other
consideration is charged therefor.
There is no element of chance involved in the system. The value
of each article is fixed as to cash and merchandise redemption and
the right of every holder is secure. The articles are of sound
value and durable manufacture, and are open to inspection during
business hours. The premiums are not regularly dealt in by many of
the complainants, but are used exclusively in connection with
premium advertising.
A number of complainants have contracts based on the system,
running from one to five years for the use of their premium
advertising system, including their trading stamps in connection
therewith, which contracts are now in force and were in force at
the passage of the act, and a large number of stamps are now in the
hands of complainants, and if they are prevented from disposing of
them, complainants will suffer great and irreparable loss.
A great many manufacturers of various lines of merchandise, for
the purpose of advertising their businesses and increasing the
volume of their sales, enclose in the packages of their merchandise
coupons and other premium tokens which entitle the purchaser of
such merchandise to
Page 240 U. S. 372
other articles of merchandise free of charge. The number of the
manufacturers is given, their names, and the articles which they
manufacture.
Complainants have upon their shelves large quantities of
merchandise in which premium tokens are packed, which, upon their
sale, entitle purchasers to other articles in the manner described,
and in such packages are tobacco and tobacco products, and the use
of the coupons and tickets as described is authorized and rendered
lawful by § 3394 of the Revised Statutes of the United States and
the amendments of that section in 1897, July 24, c. 11, 30 Stat.
206, and 1902, c. 1371, 32 Stat. 714, 715.
The adoption of the premium advertising system enables
complainants to give a discount upon purchases of small as well as
large amounts, one coupon or stamp being given with each 5, 10, or
25-cent cash purchase, or multiple thereof, as the case may be. And
a larger discount in merchandise can be given than otherwise there
could be because, as a result of large purchases of the merchandise
given in exchange for the tokens, the articles are secured at much
less than the regular retail price. By reason of the system
complainants have been enabled at a moderate cost to greatly
increase their businesses and profits, and are benefited because
their articles in the homes of their customers are a continual
advertisement. And the businesses are lawful ones, and not
prejudicial to the public health, safety, morals, or welfare.
The statute of Washington violates the provisions of the
Fourteenth Amendment to the Constitution of the United States in
that it deprives complainants of their property without due process
of law and of the equal protection of the laws (a) because it is
not equal and uniform in operation, each of the complainants paying
their taxes as do other merchants engaged in similar lines of
business, and who use other and various methods of advertising,
and
Page 240 U. S. 373
who are not required to pay a license tax of $6,000. The statute
is therefore arbitrary and discriminatory. (b) The tax is not upon
the businesses of complainants, but upon their incidents, and is an
unwarrantable interference with the method and manner of conducting
the same, is arbitrary, oppressive, discriminatory, is in excess of
profits and prohibitive, and, while in the guise of revenue, will
produce none. (c) It deprives complainants of their liberty and
property without due process of law inasmuch as they cannot bestow
a gift or give an order upon another merchant for a gift to a
customer, which is the exercise of a natural right, without paying
an onerous and excessive tax. (d) The penalties and fines are so
drastic and excessive that they deter complainants from violating
the act and testing its validity in a court of law. (e) The statute
is in contravention of § 10, Article I, of the Constitution of the
United States, in that it impairs the obligations of contracts with
and the right of complainants to contract with their customers to
give trading stamps and coupons with the purchase of merchandise
redeemable in merchandise heretofore given by them. It also impairs
the obligations of contracts entered into by complainants with
third parties for the use of the advertising system, including the
use of the stamps and coupons and the redemption thereof in
merchandise. (f) The statute is partial, unreasonable, oppressive,
unequal, in restraint of trade, and prohibitive of lawful business.
(g) The statute conflicts with § 3394 of the Revised Statutes of
the United States and the amendments thereof. (h) It is criminal,
making a crime of acts the test of which is incapable of
ascertainment -- that is, it makes a crime of furnishing stamps or
similar devices which are redeemable "for less than the retail
market price thereof," the premium article having no definite or
fixed retail market price. The statute is therefore void for
indefiniteness and uncertainty, and such provision is besides
prohibitive of the business,
Page 240 U. S. 374
as the articles are not dealt in by complainants except in
connection with the premium system. And further, that the statute
is void because it attempts to fix the price at which complainants
shall sell their merchandise.
The prosecuting attorney of the county threatens to enforce the
provisions of the statute, to bring numerous criminal prosecutions
as well as civil suits to enforce the payment of the license, and
if complainants are forced to discontinue their business as
described, they will suffer great and irreparable damage because
they have expended large sums of money in advertising the premium
system, which expenditures would be a total loss, they having large
stocks of merchandise on hand in which are packed the premium
tokens, and which cannot be removed without practically destroying
the packages and the value of the merchandise contained therein,
and that therefore, if not permitted to dispose of them,
complainants will lose a large amount of money.
Complainants have outstanding in the hands of customers a large
amount of tokens, the result of transactions before the passage of
the statute, and it will be necessary, in order to keep faith with
their customers, for complainants to redeem such tokens in
merchandise in the future from time to time as the necessary and
requisite number of the same are presented for redemption. It they
fail to do so, they will lose many customers and a large amount of
trade and suffer thereby great loss and injury.
Having no remedy at law, complainants pray an injunction, first
temporary and then perpetual.
A temporary restraining order was issued, which the attorney
general and the prosecuting attorney general and the separately
made motions to quash, each appearing only for that purpose. The
motions asserted exemption from suit of those officers in a federal
court because the suit was against them as officers of the state to
prevent the enforcement of the criminal laws of the state, and
was
Page 240 U. S. 375
therefore a suit against the state in violation of the Eleventh
Amendment to the Constitution of the United States.
Subsequently motions to dismiss were filed by them and also by
the defendant Evenson, County Treasurer of Spokane County. The
grounds of the motions alleged were misjoinder of parties
complainants and of defendants, improper union of causes of suit,
insufficiency of the facts alleged to justify the relief prayed,
the adequacy of a remedy at law, and the absence of jurisdiction
over the persons of the defendants or of the subject matter of the
action.
The motion for an interlocutory injunction came before three
judges. Rudkin, District Judge, delivered the opinion and judgment
ordering an injunction was prayed. 208 F. 605. This appeal was then
taken.
Page 240 U. S. 380
MR. JUSTICE McKENNA, after stating the case as above, delivered
the opinion of the Court.
The court ruled against the motions to dismiss, and, concurring
with the ruling as far as it retained jurisdiction of the suits and
the persons of the defendants, we pass to the consideration of the
validity of the statute of the state. Of that it was said:
"The court is fully satisfied from a bare inspection of the act,
without more, and without considering the affidavits on file, that
it is and was intended to be prohibitive of the business methods
against which it is directed. It is plainly manifest that no
merchant could afford to pay the sum of $6,000 annually for the
mere privilege of giving away trading stamps or allowing discounts
on his cash sales. But if this were the only objection to the act,
it may be that the courts would be powerless to enjoin its
execution. The power of taxation rests upon necessity, and is
inherent in every independent state. It is as extensive as the
range of subjects over which the government extends; it is absolute
and unlimited, in the absence of constitutional limitations and
restraints, and carries with it the power to embarrass and destroy.
Post. Tel. Co. v. Charleston, 153 U. S.
699;
McCray v. United States, 195 U. S.
27;
Kehrer v. Stewart, 197 U. S.
60."
The charge of discrimination against the statute was decided to
be a factor as to its validity. The use of trading stamps and other
similar devices was regarded as a legitimate system of advertising,
and that to distinguish it from other systems of advertising was a
violation of the equality clause of the federal Constitution. And
it was said:
"As well might the legislature classify separately those who
advertise in the columns of the daily papers, by bill boards, or by
electrical signs, and impose a tax upon them to the exclusion of
others engaged in the same business or calling who do not so
advertise. "
Page 240 U. S. 381
In this conclusion we think, for the reasons expressed in
Rast v. Van Deman & Lewis, ante, p.
240 U. S. 342,
that the court erred. We have been at pains to summarize the bill
in this case to show its similitude to that.
The coupons in this case, in compliance with the law of the
State of Washington (Laws of 1907, p. 742), must be redeemed in
cash if demanded by the purchaser; otherwise in articles of
merchandise selected by him. The redemption of the coupons in some
instances is directly by the merchant issuing them; in others, it
is alleged, by
"a third party, with whom said complainants have a contract for
the use of their trading stamps or coupons used in connection
therewith and the redemption thereof in merchandise."
These differences, however, do not affect the principle
announced in No. 41. Whether the coupons are prepared by the
issuing merchant or prepared by another, whether they be redeemed
by him or by another, is but a phase of the system, not affecting
its essential character. And we may say here, as we said in No. 41,
that we are not concerned with consideration of a business in which
coupons, etc., are issued or used and not redeemed in merchandise
-- that is, where they are used as a rebate upon the price of the
article or a discount upon purchases -- nor with the legality of a
statute which should regulate or prevent such use of the coupons
disassociated from other uses of them. Complainants contend for a
broad use, and assert that there cannot legally be any limitation
of their methods of redemption, which they comprehensively
denominate the "premium system."
The opinion in No. 41 is therefore decisive of the contentions
in this case. We said there that there were manifest differences
between the "premium system" of advertising and the other methods
enumerated, and that those differences justified a difference in
measures. And this is justified not only by the wide
Page 240 U. S. 382
discretion which may be exercised in legislation, but by a rigid
principle of classification. Classification is not different in law
than in other departments of knowledge.
"It is the grouping of things in speculation or practice because
they 'agree with one another in certain particulars and differ from
other things in those particulars.'"
Billings v. Illinois, 188 U. S. 97,
188 U. S. 102.
Upon what differences or resemblances it may be exercised depends
necessarily upon the object in view, may be narrow or wide
according to that object. Red things may be associated by reason of
their redness, with disregard of all other resemblances or of
distinctions. Such classification would be logically appropriate.
Apply it further: make a rule of conduct depend upon it, and
distinguish in legislation between red-haired men and black-haired
men, and the classification would immediately be seen to be wrong;
it would have only arbitrary relation to the purpose and province
of legislation. The power of legislation over the subject matter is
hence to be considered. It may not make the distinction adverted
to, but it may make others the appropriateness of which, considered
logically, may be challenged -- for instance, between sales of
stock upon margin or for immediate or future delivery (
Otis v.
Parker, 187 U. S. 606);
between acts directed against a regularly established dealer and
one not so established (
Central Lumber Co. v. South
Dakota, 226 U. S. 157); in
an inspection law, between coal mines where more than five men are
employed and coal mines where that or a lesser number are employed
(
St. Louis Cons. Coal Co. v. Illinois, 185 U.
S. 203), and a like distinction in a workmen's
compensation law (
Jeffrey Mfg. Co. v. Blagg, 235 U.
S. 571); between a combination of purchasers and a
combination of laborers (
International Harvester Co. v.
Missouri, 234 U. S. 199);
between residents and nonresidents (
Travelers' Ins. Co. v.
Connecticut, 185 U. S. 364); in
a law requiring railroads to heat passenger coaches, between roads
of 50 miles and
Page 240 U. S. 383
roads of that length or less (
N.Y., N.H. & H. R. Co. v.
New York, 165 U. S. 628;
see also Dow v. Beidelman, 125 U.
S. 680;
Postal Telegraph Co. v. Adams,
155 U. S. 688);
between theaters according to the price of admission
(
Metropolis Theatre Co. v. Chicago, 228 U. S.
61); between landowners as to liability for permitting
certain noxious grasses to go to seed on the lands (
Missouri,
Kansas & Texas Ry. v. May, 194 U.
S. 267); between businesses in the solicitation of
patronage on railroad trains and at depots (
Williams v.
Arkansas, 217 U. S. 79), and
a distinction based on the evidence of the qualifications of
physicians (
Watson v. Maryland, 218
U. S. 179).
Those were instances (and others might be cited) of the
regulation of conduct and the restriction of its freedom, it being
the conception of the legislature that the regulation and
restriction were in the interest of the public welfare. Those
classifications were sustained as legal, being within the power of
the legislature over the subject matter, and having proper bases of
community.
But the classification which was sustained in
St. Louis Coal
Co. v. Illinois, 185 U. S. 203, was
condemned in
Truax v. Raich, 239 U. S.
33. The statute in the latter case required employers of
more than five workers at any one time to employ not less than 80
percent qualified electors or native-born citizens of the United
States or of some subdivision of such. The statute was held void
because there was no authority to deal with that at which the
legislation was aimed. And this is important to be kept in mind. If
there is no such authority, a classification, however logical,
appropriate, or scientific, will not be sustained; if such
authority exist, a classification may be deficient in those
attributes, may be harsh and oppressive, and yet be within the
power of the legislature. This has been declared many times. Let us
apply the test to the case at bar. Let it be granted that the
"premium system" is a method of advertising; can there not be
differences in advertising
Page 240 U. S. 384
which may be subject to differences in legislation? Can there
not be advertising at places or at times or in kind or effect
subversive of public order or convenience?
Fifth Ave. Coach Co.
v. New York, 221 U. S. 467;
Commonwealth v. McCafferty, 145 Mass. 384. However, a
decisive answer to the questions need not be given, for we have
said, in
Rast v. Van Deman & Lewis Co. ante, p.
240 U. S. 342,
that the "premium system" is not one of advertising merely. It has
other, and, it may be, deleterious, consequences. It does not
terminate with the bringing together of seller and buyer, the
profit of one and the desire of the other satisfied, the article
bought and its price being equivalents. It is not so limited in
purpose or effect. It has ulterior purpose, and how it has
developed complainants vividly represent by their averments. It
appears that companies are formed, called trading stamp companies,
* which extend and
facilitate the schemes, making a seller of merchandise their agent
for the distribution of stamps to be redeemed by them or other
merchants, the profit of all being secured through the retail
purchaser who has been brought under the attraction of the system.
There must therefore be something more in it than the giving of
discounts, something more than the mere laudation of wares. If
companies -- evolved from the system, as counsel say in
justification of them -- are able to reap a profit from it, it may
well be thought there is something in it which is masked from the
common eye, and that the purchaser at retail is made to believe
that he can get more out of the fund than he has put into it,
something of value which is not offset in the prices or quality of
the articles which he buys. It is certain that the prices he pays
make the
Page 240 U. S. 385
efficiency of the system and the fund, if we may individualize
it, out of which the cost of the instruments and agents of the
system must be defrayed and the profit to all concerned paid. The
system therefore has features different from the ordinary
transactions of trade which have their impulse, as we have said, in
immediate and definite desires having definite and measurable
results. There may be in them at times reckless buying, but it is
not provoked or systematized by the seller.
Complainants charge that the tax of the statute is not upon the
business, but upon its incidents. The separation is artificial. It
is the incidents which give character to the business, affecting it
with evil, it was thought, provoking therefore against it the power
of the state, and taking away from it the immunity it else might
have.
It is unimportant what the incidents may be called, whether a
method of advertising, discount giving, or profit-sharing. Their
significance is not in their designations, but in their influence
upon the public welfare. And of this, the judgment of the
legislature must prevail, though it be controverted and opposed by
arguments of strength. Nor is there support of the system or
obstruction to the statute in declamation against sumptuary laws,
nor in the assertion that there is evil lesson in the statute, nor
in the prophecies which are ventured of more serious intermeddling
with the conduct of business. Neither the declamation, the
assertion, nor the prophecies can influence a present judgment. As
to what extent legislation should interfere in affairs, political
philosophers have disputed and always will dispute. It is not in
our province to engage on either side, nor to pronounce
anticipatory judgments. We must wait for the instance. Our present
duty is to pass upon the statute before us, and if it has been
enacted upon a belief of evils that is not arbitrary we cannot
measure their extent against the estimate of the legislature.
McLean v. Arkansas, 211 U. S. 539.
Such belief
Page 240 U. S. 386
has many examples in state legislation, and, we have seen, it
has persisted against adverse judicial opinion. If it may be said
to be a judgment from experience as against a judgment from
speculation, certainly, from its generality, it cannot be declared
to be made in mere wantonness.
Central Lumber Co. v. South
Dakota, 226 U. S. 157,
226 U. S. 160;
Purity Extract & Tonic Co. v. Lynch, 226 U.
S. 192,
226 U. S.
204-205.
Discrimination aside, the power to enact the legislation we need
not discuss, but may refer to the opinion in
Rast v. Van Deman
& Lewis. Of course, it is in the exercise of the police
power of the state. We will not here define it or its limitations.
As was said by Mr. Justice Brown in
Camfield v. United
States, 167 U. S. 518,
167 U. S. 524,
citing
Rideout v. Knox, 148 Mass. 368: "The police power
is not subject to any definite limitations, but is coextensive with
the necessities of the case and the safeguard of the public
interests."
In the view that the license is prohibitive we may concur, and
concede that such is the effect given it by the supreme court of
the state in
State v. Pitney, 80 Wash. 699, one of the
cases submitted with this one. And we think it was competent for
the state to give it that effect. The cases cited by Judge Rudkin
and those cited in the opinion in No. 41 so establish.
For answer to the other contentions which we consider material
to notice, we refer to that case.
Decree reversed and case remanded with directions to dismiss
the bill.
*
Lansburgh v. District of Columbia, 11 App.D.C. 512;
Attorney General v. Sperry & Hutchinson Co., 110 Minn.
378;
Louisiana v. C. A. Underwood or Southern Merchandise
Exchange, decided October 18, 1915, by the Supreme Court of
Louisiana;
Hewin v. Atlanta, 121 Ga. 723.
