stances is dictated a hunderd percent by the franchisor, unless these protective measures were included in the bill, the franchisee would, therefore, be at a disadvantage. In other words, if he voluntarily agreed on arbitration subject to dictated provisions, he would have limited protection under the franchise and would have no recourse for his benefits.

Senator HART. We do understand that, whether it is spelled out, and that is what we are seeking to insure against by the language that we are concerned about here, and we will make sure it is clear.

Mr. Hopkins, on arbitration, for the record, let me ask you this question: Do you see anything that is detrimental to the franchisee in entering into arbitration with the franchisor if the arbitration is conducted by a neutral party under standards that are reasonable and fair?

Mr. HOPKINS. I see no objection to it as long as you said the standards are reasonable and fair. There is only one company in our industry that has a franchise program. There have been only three cases brought before the arbitrator in approximately 211⁄2 years. I do not think a real test of this particular arbitration plan has been developed but it specifically excludes the arbitration of money matters, and therefore I do not believe this particular company, and they are not sure themselves, but I do not believe they would be exempted under the act because they do not cover matters raised in section 2 and section 3—or sections 3 and 4.

Senator HART. For the record, because it is a slow-ball question, arbitration is a lot less costly in the long run than a lawsuit.

Mr. HOPKINS. No doubt about that.

Senator HART. Mr. Wiss, you cited that 25 percent figure that we have in section 2(b). You suggest that we drop it down to 10. What we are trying to do with the bill is to give some compensation to a franchisee who is dependent to a substantial degree upon a particular franchisor.

Now, the 25 percent is arbitrary as any figure is that we take from the top of the head, but do you have any background that would suggest that 10 percent would be more realistic in terms of the purpose of the bill?

Mr. Wiss. I think a 10 percent figure is more desirable because a small distributor could more readily absorb a 10-percent loss of his gross profit and still maintain his standard operating expenses than if he were obliged to lose 25 percent of his gross profit and still maintain most of his operating expenses, because the majority of them, as I have indicated, are not variables, which fluctuate in direct proportion to the volume of sales, but are either semivariable, in other words, a merely gradual device, or they are fixed where in they do not decrease at all despite the decline in the volume of sales.

Senator HART. The last point that your statement suggested is this business of valuation of goodwill. You suggest that industry panels be set up to determine the valuation. Others would feel that this is the kind of question that best could be left for the court, to get both sides of the story in a specific case, and then reach the fair determination in that fashion.

I am sure you have heard that point made. How do you react to it?

Mr. Wiss. As I have indicated in my written statement as submitted, there are many formulas for calculating goodwill, and if there were 100 experts, I daresay that you might get 50 to 105 formulas presented. Despite that fact, however, there is a very fundamental theory of what constitutes goodwill and that could be spelled out as a general concept: That it represents excess profits over and above a reasonable return on your invested capital. Using that principle, it can be supplemented in the various industries by providing for special situations.

I am certain that the situation in the beer industry may not be similar to the house-to-house vacuum cleaner distributor, and, therefore, I suggest perhaps a half dozen deviations or variations of the standard. However, I do not preclude the incorporation of a general concept of goodwill within the statute.

Senator HART. Gentlemen, thank you very much for your responses. Mr. Chumbris?

Mr. CHUMBRIS. Thank you, Mr. Chairman. The only thing I have is to make a note again of the recent decision of American Motors v. Semke which was decided on September 28, 1967, in the Tenth Court of Appeals. Really why I emphasize this, in the previous hearings and in this hearing, we have the problem of lack of success experienced by automobile dealers. Well, in this case the court of appeals, after giving a discussion of the present law, stated on page 9, starting on page 8, and I will quote in the instant case the appellee in substance alleged that these basic types of conduct by the appellant as proof of coercion or intimidation. One, refusal to supply him with automobiles unless he ordered unwanted American model automobiles; two, refusal to honor and/or credit him with services performed under the warranty arrangement of the franchise agreement; and three, refusal to approve a proposed assignment of his franchise. It would appear that only two of these allegations could be considered in determining the sufficiency of the proof to show that Semke was forced to terminate his franchise as the third allegation goes to actions taken after the decision to terminate had been made by him:

* * * which would indicate if he had taken those actions prior to termination, he may have qualified also on the failure to prove a proposed assignment of his franchise.

The case went to the jury. The jury rendered a verdict, and the court of appeals upheld the verdict, even though the defendant went through the whole history and claimed that under the prior decisions, they could not be successful. And I would suggest that only as a suggestion, as an alternative, that those franchisees who do not come under the Automobile Day in Court Act might consider, in view of this decision, that an amendment to that act might do the job.

Senator HART. I am sure they would take seriously your suggestion. And also consider the earlier decisions under that act where the suggestion was less dramatic.

Mr. CHUMBRIS. That is why I say this is the first time that a court of appeals has rendered this type of a decision. Most of the other decisions were in the lower court. Some of them did go up to the Supreme Court but the Supreme Court did not take jurisdiction in the case.

Senator HART. Thank you very much, gentlemen.

89-151-68- -3

Rather than adjourn because of the inconvenience I know will be caused the witnesses who are here, and who are prepared to testify, let me suggest a recess until 11:15.

(Short recess.)

Senator HART. The committee will be in order.

A quorum was not present for the meeting of the Judiciary Committee which permits us to resume our subcommittee hearing now. The balance of our testimony today will involve expressions from the Independent Cash Register Dealers Association and several individual dealers. I think perhaps the executive secretary of the association, Mr. Stanley Hayman, might lead off. I want, first, to welcome your very able counsel, Mr. Hellring. I had a chance to visit with him very briefly before I took my leave to go upstrairs and I am delighted that we were able to resume without inconveniencing half the cash register dealers of the country. We are glad to have you, Mr. Hellring. STATEMENT OF BERNARD HELLRING, COUNSEL, INDEPENDENT CASH REGISTER DEALERS ASSOCIATION; ACCOMPANIED BY STANLEY HAYMAN, EXECUTIVE SECRETARY, ICRDA; D. TAYLOR MATTHEWS, PRESIDENT, ICRDA; ROBERT CARVER, VICE PRESIDENT, ICRDA; ROBERT WHARTON, GENERAL MANAGER, OPERATIONS DAYTON; AND DAVID SIMON, ATTORNEY

Mr. HELLRING. Thank you, Mr. Chairman.

Mr. Chairman, in the interest of brevity, and as well in the interest of affording an adequate amount of time for the chairman and the members of the staff to make inquiry, by way of questions, of the witnesses we have today (who are all representatives of the Independent Cash Register Dealers of America) we have decided to read only portions of the statements, which in their full form have been filed with the committee, so that it will take less time and then we can get to the questioning more quickly.

Senator HART. You are very kind, and let me order that the statements to which you make reference, be printed in full in the record as though given.

Mr. HELLRING. Thank you, sir. Mr. Hayman will make the first one in abbreviated form.

Mr. HAYMAN. A cash register may be described as a tamperproof mechanical device, which, by visual indication and the automatic printing of a receipt on a locked-in tape, both showing the total amount or amounts of a retail sale transaction, forces an accurate accounting for cash received and paid out of a controlled cash drawer. It may also provide additional information on a specific transaction through separate automatic totals by types of merchandise, types of sales, by clerk, or other similar classification.

The function of a cash register is not only to protect the retail merchant's cash, but also to furnish him with information that will enable him to prepare records needed to operate his business efficiently and to protect the customer with honest indication and accurate automatic calculation.

The principal attribute of a cash register is "indication” and the four basic characteristics of a cash register are:

1. That it record the amount of each sale on a locked-in tape; 2. That it exhibit the amount of each recorded sale by means of indicators visible to the clerk and the customer;

3. That it include a cash drawer; and

4. That it include one or more built-in totaling devices. The number of these totaling devices, known as totalizers, determines the number of separate accounts that may be kept in one cash register.

There are some similar machines or devices available which are, in essence, electrically or hand-operated adding machines with built-in cash drawers and recording tapes. These machines differ basically from a cash register in that they have no indication. Moreover, they rarely have more than one totalizer. Because of these differences, these machines or devices do not effectively compete with cash registers and are not part of the relevant market. They are often referred to as "amod" machines which really means "adding machine on a drawer."

The substantial use of cash registers in the commercial market was just starting at the beginning of this century. By 1916 it was a big business in the United States and the National Cash Register Co. was already the dominant factor in the industry. In 1916 the U.S. Government entered into a consent decree with the National Cash Register Co. which sought to curb the dominance of that company in this industry and its monopolistic practices.

The consent decree of 1916 was most ineffectual. On the contrary, the National Cash Register Co. continued to increase its dominance in the industry and, one by one, all of the other manufacturers of cash registers in the United States were eliminated. As a result, by the time of World War II, the National Cash Register Co. was virtually the only manufacturer of cash registers in the United States and this condition continues today.

The present condition in the industry, therefore, starts with the fact that the National Cash Register Co. is the only manufacturer and distributor, wholesale or retail, of new cash registers manufactured in the United States. The Victor Co. in 1963 introduced an adding machine converted to look like a cash register, but this item has not entered the mainstream of the cash register market. Therefore, all discussions of distribution problems in the cash register industry must have as a basic background the presence of the National Cash Register Co. and its total monopoly of the manufacture, sale, and distribution of new cash registers manufactured in the United States.

There is a big business in the United States in used National cash registers. The distribution and sale of used National cash registers is a much more common practice in regular commercial channels and among regular commercial consumers than is usually found in other types of office or commercial machinery and equipment. So, for example, the National Cash Register Co. itself, engages very heavily in the sale and distribution of used National cash registers. Almost all of its hundreds of branches and branch outlets throughout the country sell used National cash registers as well as new ones and there is nothing peculiar about a retail store purchasing a used cash register such as there might be in some other office machine or commercial device.

As a matter of fact, the National Cash Register Co. supports its own business in the used cash register field by an important program of

factory rebuilding all used National cash registers. While we are not here for the purpose of discussing the distribution practices of the National Cash Register Co., this background is essential to an understanding of the condition of the industry and of the consequences of the franchising problems endured by the dealers at the hands of the foreign-made cash register manufacturers, which we are here to discuss today.

The sale and distribution of used National cash registers is a business that is also conducted by several hundred independent retail merchants, many of whom are members of the Independent Cash Register Dealers Association. These independent dealers are a hardy and vigorous lot. It is not easy to become a successful independent cash register dealer. This is not a business into which one can enter casually. There must be a long background of training and experience in the industry, either as an employee of the National Cash Register Co. in sales or service, or as an employee or an associate for a long period of time in the business of another independent cash register dealer.

One cannot sensibly become a small businessman in the cash register industry merely by having a little capital and opening a store. There must be a deep technical knowledge of the uses and purposes and complex functions of a cash register. There must be a knowledge of how the machine works, how to take it apart and put it together again, how to maintain it and repair it, what kind of use it can withstand. Aside from this mechanical and technical training, there must be years of experience in the sale of cash registers so as to be able to understand the needs of a particular end user and the function that a cash register must perform in a particular store whether it be a supermarket, a department store, a gas station, a drugstore, or any other particular type of retail establishment.

The Independent Cash Register Dealers Association survived the acquisition by the National Cash Register Co. of its total dominance of the cash register industry in this country. Even after the National Cash Register Co. had eliminated virtually all other manufacturers of cash registers in the United States, that company still continued to sell some of its cash registers through independent dealers under varying arrangements. This was still true to some extent during the thirties but was virtually terminated in the forties. The present group of independent cash register dealers are, to a large extent, the survivors of the old dealer groups who sold for the National Cash Register Co. and their sons and other descendants in their businesses. The ranks of the independent cash register dealers are constantly reinforced by the departure of personnel trained in the National Cash Register Co. either at its factories in Dayton, Ohio, or in its hundreds of branch offices throughout the country. The fact that the independent cash register dealers have survived the conditions described above is surely a testimonial to their vigor and determination as small businessmen. This is particularly true when one considers that their merchandise has consisted to a large extent of used equipment. Except for the type of foreign-made equipment, which will be described shortly, the small businessmen in this country known as the Independent Cash Register Dealers have nothing to sell except used cash registers originally manufactured by the National Cash Register Co.