HOUSE BILL NO. 578
AS AMENDED BY HOUSE AMENDMENT NO. 1
AN ACT TO AMEND PART II, TITLE 6 OF THE DELAWARE CODE BY SUBSTITUTING FOR THE PRESENT CHAPTER 26, KNOWN AS THE "UNFAIR CIGARETTE SALES ACT", A NEW CHAPTER 26 WHICH PROHIBITS CERTAIN PRACTICES RELATING TO THE 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 striking Chapter 26 thereof in its entirety, and inserting in lieu thereof a new Chapter 26 to read as follows:
CHAPTER 26. UNFAIR CIGARETTE SALES ACT
§2601. Sale at less than cost
No wholesaler, with intent to injure a competitor or competitors, or with intent to destroy or substantially lessen competition, shall sell at wholesale cigarettes at less than the cost to 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.
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) "Wholesaler" means any person who regularly sells tobacco products within this State to others who buy for the purpose of resale to the ultimate consumer or any person who, because of volume of cigarette sale business and other criteria as determined by the manufacturer, has the privilege of buying direct from the manufacturer.
() "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.
(a) "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, Title 29 of the Delaware Code.
(b) "Sell", in addition to its usual meaning, includes to advertise, offer to sell, offer for sale, barter, exchange, transfer, gift or distribution.
(c) "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 the ultimate consumer, and includes 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.
(d) "Basic cost of cigarettes" means the invoice cost of cigarettes to the wholesaler, or the replacement cost of cigarettes to the wholesaler (i.e., the cost for which cigarettes could have been bought by the wholesaler at any time within thirty days prior to the date of sale by the wholesaler 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 two percent (2%) cash discount, plus the full face value of any cigarette taxes payable on cigarettes sold.
(h) "Cost to the wholesaler" means the basic cost of cigarettes to the wholesaler plus a markup 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 (5%) 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 (10) packages shall be rounded off to the next higher cent.
() "Consumer" means any person who has possession of tobacco products for any purpose other than transportation or sale.
§2603. Special cost provisions
(a) Markup 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 markup of five percent (5%) provided in Section 2602 (h) of this Chapter may be reduced by two cents for each carton containing 200 cigarettes.
(b) 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 (h) of this Chapter, but said seller must include in said selling price "basic cost of cigarettes" as defined in Section 2602 (g) of this Chapter plus a charge of one percent (1c) 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 (h) of this Chapter.
§2604. Combination sales and concessions
It shall be a violation of this Chapter for any wholesaler, 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 wholesaler, as herein defined, plus the cost to the wholesaler 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; and
(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 non-discriminatory 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.
(a) Clearance sales, liquidation sale, etc.
The provisions of this Chapter shall not apply to sales at wholesale:
(1) where cigarettes are imperfect, damaged or being discontinued, if advertised and marked as such, and the quantity and quality is 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 wholesaler at a price fixed in good faith to meet the competition 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) through (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 to any wholesaler of cigarettes purchased at any sale under paragraphs (1) through (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 (g) of this Chapter, based upon the quantity last purchased by the seller through the ordinary channels of trade.
(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.
(b) Evidence bearing on cost
In determining cost to the wholesaler, 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.
(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 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 located in 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 wholesaler, the Secretary shall suspend or revoke the offender's wholesale cigarette vendor's license required by Section 5307, Title 30 of the Delaware Code.
(c) Whoever violates the provisions of this Chapter shall be fined not more than one thousand dollars ($1,000.00) for the first offense and not more than five thousand dollars ($5,000.00) for each subsequent offense. The Superior Court shall have jurisdiction of such offenses.
§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.
If any part or provision of this Chapter or the application thereof to any person or circumstance shall 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 April 20, 1974.