Delaware General Assembly

CHAPTER 214

FORMERLY

HOUSE BILL NO. 415

AS AMENDED BY HOUSE AMENDMENT NO. 1

AN ACT TO AMEND PART II, TITLE 6 OF THE DELAWARE CODE BY ADDING A NEW CHAPTER 26 TO BE KNOWN AS THE "UNFAIR CIGARETTE SALES ACT" AND PROHIBITING CERTAIN PRACTICES RELATING TO THE RETAIL AND WHOLESALE SALE OF CIGARETTES AND PROVIDING PENALTIES THEREFOR.

Be it enacted by the General Assembly of the State of Delaware:

Section 1. Amend Part II of Title 6 of the Delaware Code, by adding thereto a new Chapter 26, to be known as the "Unfair Cigarette Sales Act", to read as follows:

CHAPTER 26. UNFAIR CIGARETTE SALES ACT

§ 2601. Sale at less than cost

No retailer or wholesaler, with intent to injure a competitor or competitors, or with intent to destroy or substantially lessen competition, shall sell at retail or wholesale cigarettes at less than cost of the retailer or wholesaler, as the case may be, and no retailer shall purchase from a wholesaler, cigarettes at less than cost of the wholesaler, either directly or indirectly by any means or device whatever, including but not limited to offering or accepting or inducing or attempting to induce a rebate in price or a concession of any kind in connection with the sale or purchase of cigarettes.

§2602. Definitions

For the purposes of this chapter, the following definitions shall apply:

(a) "Cigarettes" includes any roll for smoking made wholly or in part of tobacco irrespective of size or shape and whether or not such tobacco is flavored, adulterated or mixed with any other ingredient, where such roll has a wrapper or cover made of paper or any other material except tobacco. Cigarettes shall not be construed to include cigars.

(b) "Retailer" means any person who purchases or receives stamped tobacco products from any source whatsoever for the proposed sale to the ultimate consumer.

() "Wholesaler" means any person who regularly sells tobacco products within this State to others who buy for the purpose of resale.

(a) "Vending machine operator" means any person who places one or more vending machines, owned, leased or operated by him, at locations where cigarettes are sold therefrom. The owner or lessee of the premises upon which a vending machine is placed shall not be considered the operator of the machine, if he does not own or lease the machine and if his sole remuneration therefrom is a flat rental fee or a commission based upon the number or value of tobacco products sold from the machine or a combination of both.

(b) "Secretary of Finance" or "Secretary" means the Secretary of Finance or his duly authorized designee, provided, that any such delegation of authority is consistent with the provisions of Chapter 83 of Title 29.

(c) "Sell" in addition to its usual meaning includes advertise, offer to sell, offer for sale, barter, exchange, transfer, gift and distribution.

(d) "Sell cigarettes at retail", "sale of cigarettes at retail" or 'retail sale of cigarettes' and similar expressions include any sale whereby cigarettes are sold for a valuable consideration (including exchange or barter and sales through vending machines) made in the ordinary course of trade or the usual conduct of the seller's business to a consumer.

(e) "Sell cigarettes at wholesale", "wholesale sales of cigarettes", "sales of cigarettes at wholesale", and similar expressions include any sale whereby cigarettes are sold for a valuable consideration, in the ordinary course of trade or in the usual conduct of the seller's business to a retailer (other than a vending machine operator) for the bona fide purpose of resale to a consumer, and include any such transfer of cigarettes on consignment or otherwise where title is retained by the seller as security for the payment of the purchase price.

(i) "Basic cost of cigarettes" means the invoice cost of cigarettes to the retailer or wholesaler as the case may be or the replacement cost of cigarettes to the retailer or wholesaler (i.e., the cost for which cigarettes could have been bought by the wholesaler or retailer at any time within 30 days prior to the date of sale by the wholesaler or retailer if bought in the same quantity as the last purchase made by him), whichever is lower, plus in-freight charges not otherwise included in invoice or replacement cost, less all trade discounts and the usual and customary 2 per cent cash discount, plus the full face value of any cigarette taxes payable on cigarettes sold.

(j) "Cost of the wholesaler" means the basic cost of cigarettes to the wholesaler plus a mark-up to cover the cost of doing business by the wholesaler including cartage to the retailer. In the absence of satisfactory proof of a lesser cost of doing business by any wholesaler, his cost of doing business shall be presumed to be five percent of the basic cost of cigarettes to him. Any fractional part of a cent, amounting to one-tenth of a cent or more, in the cost of the wholesaler per carton of ten packages shall be rounded off to the next higher cent.

(k) "Cost of the retailer" means the basic cost of cigarettes to the retailer, which shall include 'cost of the wholesaler' as defined in subsection (j) above, plus a mark-up to cover the cost of doing business by the retailer. In the absence of satisfactory proof of a lesser cost of doing business by any retailer, the cost of doing business by the retailer shall be presumed to be 8 per cent of the basic cost of cigarettes to the retailer. Any fractional part of a cent per carton of ten packages amounting to one-tenth of a cent or more in the cost to the retailer as aforesaid shall be rounded off to the next higher cent.

(1) "Consumer" means any person who has possession of tobacco products for any purpose other than transportation or sale.

§2603. Special cost provisions

(a) Mark-up on sales at wholesale on cash and carry basis—

In any sale of cigarettes at wholesale on a cash and carry basis (i.e., where cigarettes are not delivered unless the full price thereof is received by the seller at or before delivery and where the purchaser performs or pays for the cartage of the cigarettes to the purchaser's place of business), the presumptive wholesale mark-up of five per cent provided in Section 2602 (j) of this Chapter may be reduced by two cents for each carton containing 200 cigarettes.

(b) Seller at both retail and wholesale—

Any person who is engaged in the business of making sales both at retail and at wholesale is a retailer as herein defined as to the retail portion of his business, and a wholesaler as to the wholesale portion.

(c) Retail or vending machine operator receiving wholesaler's discounts—

Any vending machine operator, as herein defined, and any retailer who purchases cigarettes at prices ordinarily invoiced to a wholesaler and receives the wholesaler's discounts thereon, shall first add to his basic cost of cigarettes the five per cent mark-up to cover the cost of doing business as a wholesaler, and then, on the resultant sum, the retail mark-up of eight per cent as herein provided, in the absence of proof of a lower aggregate cost of doing business by such retailer or vending machine operator, as the case may be; provided, however, that if the discount received by such retailer or vending machine operator shall be less than that ordinarily allowed to wholesalers, then the wholesaler's mark-up of five per cent above provided for may be reduced by the difference between the discount ordinarily allowed to wholesalers and the discount received by such retailer or vending machine operator.

(d) Sales by wholesalers to other wholesalers and vending machine operators—

When one wholesaler sells cigarettes to any other wholesaler or vending machine operator, as herein defined, the former shall not be required to include in his selling price to the latter 'cost of the wholesaler', as provided by Section 2602 (j) of this Chapter, but said seller must include in said selling price 'basic cost of cigarettes' as defined in Section 2602 (i) of this Chapter plus a charge of one per cent thereon, in the absence of satisfactory proof of a lesser cost for the rendition of such service by the seller, and the latter wholesaler, upon resale to a retailer, shall be deemed to be the wholesaler governed by the provisions of Section 2602 (j) of this Chapter.

§2601. Combination sales and concessions

It shall be a violation of this Chapter for any wholesaler or retailer, with the purpose or intent specified in Section 2601 of this Chapter:

(a) To sell cigarettes in combination with any other item or items of merchandise where any such other item is given free of charge or sold at a price which is below the cost of such item to the seller.

(b) To sell cigarettes in combination with any other item or items of merchandise where the total sale price for all the items included in the sale is less than the sum of the cost of cigarettes to the retailer or wholesaler, as the case may be, as herein defined, plus the cost to the wholesaler or retailer, as the case may be, of all other items included in the sale, including items given free of charge in connection with the sale.

(c) To give cigarettes free of charge, except in the case of specially packaged manufacturers' samples which are designated on the package as not to be sold.

(d) To make any rebate, advertising allowance, or any other concession by any means or device whatever in connection with the sale of cigarettes, whereby the cigarettes are in effect sold below cost as herein defined, except that any reduction in cost to the seller resulting from any payment or compensation given by manufacturers of cigarettes on a uniform and nondiscriminatory basis for promotional services, and any coupons issued and ultimately redeemed by the manufacturer on the same basis, may be passed on to the purchaser without violating this Chapter.

§2605. Exceptions

(a) Clearance sales, liquidation sales, etc.—The provisions of this Chapter shall not apply to sales at retail or sales at wholesale:

(1) Where cigarettes are imperfect, damaged or being discontinued if advertised and marked as such, and the quantity accurately, clearly and conspicuously stated in all advertising of such sale and in signs conspicuously posted where the sale takes place.

(2) Where cigarettes are sold upon the complete and final liquidation of the seller's business.

(3) Where cigarettes are sold under the order, direction or supervision of a court.

(4) Where cigarettes are sold by a retailer or wholesaler at a price fixed in good faith to meet the competition of another retailer, or of another wholesaler who is rendering the same type of service (i.e., 'cash and carry' or 'service') as the seller, and provided that the competitor's price which seller desires to meet is itself lawful and not in violation of the provisions of this Chapter. The price of cigarettes sold under paragraphs (1) - (3) inclusive of this subsection shall not be deemed the price of a competitor under this paragraph.

(b) Calculating basic cost.—In calculating the basic cost of any wholesaler or retailer of cigarettes purchased at any sale under paragraphs (1) - (4) inclusive of subsection (a) of this section or at any other sale outside the ordinary channels of trade, invoice cost shall not be used but there shall be used instead the replacement cost of the cigarettes as defined in Section 2602 (i) of this Chapter based upon the quantity last purchased by the seller through the ordinary channels of trade.

§2606. Evidence

(a) Prima facie evidence of intent.—In any action or proceeding pursuant to this Chapter, including proceedings before the Secretary relating to licenses, proof of a sale of cigarettes or any other item or items in combination or in connection with cigarettes at less than cost to the seller as defined and specified in this Chapter, shall be prima facie evidence of intent to injure a competitor or competitors and/or of intent to destroy or substantially lessen competition.

() Evidence bearing on cost.—In determining cost to the retailer or cost to the wholesaler, as the case may be, the Secretary or any Court shall receive and consider as bearing on the bona fides of such cost, evidence tending to show that any person complained against under the provisions of this Chapter purchased cigarettes with respect to the sale of which complaint is made at a fictitious price or upon terms or in such a manner or under such invoices as to conceal the true costs, discounts or terms of purchase and shall also receive and consider as bearing on the bona fides of such cost, evidence of the normal, customary, and prevailing terms and discounts in connection with other sales of a similar nature in the trade area.

§2607. Remedies

(a) Injunction ; action for damages.—Upon complaint of the Secretary or of any person affected, the Court of Chancery shall have jurisdiction to enjoin any retailer or wholesaler from the commission of any act prohibited by this Chapter, and to award damages and costs. Such action shall be brought in the Court of Chancery of the county in which the alleged unlawful practice has been or is to be partially or completely performed.

(b) Suspension or revocation of license.—Upon violation of this Chapter by any retailer or wholesaler, the Secretary shall suspend or revoke the special cigarette vendor's license of such offender required by Section 5313 of Title 30 of this Code.

§2608. Administration and enforcement

It shall be the duty of the Secretary to enforce this chapter. He shall, within the limitations of available appropriations, and in accordance with the laws of this State, employ and fix the duties and compensation of such inspectors and other personnel necessary to carry out the provisions of this chapter. He shall make such reasonable rules and regulations as may be necessary to effectuate and enforce the policies of this chapter.

§2609. Severability

If any part or provision of this Chapter or the application thereof to any person or circumstance be adjudged invalid by any court of competent jurisdiction, such judgment shall be confined in its operation to the particular provision or application directly involved in the controversy in which such judgment is rendered and shall not affect or impair the validity of the remainder of this Chapter or the application thereof to other persons or circumstances."

Approved July 17, 1973.