Petition for Writ of Certiorari — Copeland Refrigeration Corp. v. Warriner Hermetics, Inc.

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INDEX TO CITATIONS

Cases:

Kugler v. AAMCO Automatic Transmissions, Inc., 460

oe Saree COU Cie. TOTS) oo cline sn ccc cccesces 11

-—~ Corp. v. Telecoin Corp., 204 F.2d 331 (2d Cir.

Northern Pac. Ry. v. United States, 356 U.S. 1 (1958) 8

Pick Mfg. Co. v. General Motors Corp., 80 F.2d 641

Re eae

_ Siegel v. Chicken Delight, Inc., 448 F.2d 43 (9th Cir.

1971), cert. denied, 405 U.S. 955 (1972) ......... 8,10

Susser v. Carvel Corp., 332 F.2d 505 (2d Cir. 1964),

cert. dismissed, 381 U.S. 125 (1965) ...... 9, 10, 11, 12

2g Te Co. v. Nashville Coal Co., 365 U.S. 320

Nh ca ie wi titain ee oud sae aun dt Meade chee 13

B98 USO. $1954(1) ............... issesumirths 2

IN THE

Supreme Court of the Anited States

- .QOotoper Term, 1972

No.

CoPELAND REFRiIgk&u:TION CORPORATION,

Petitioner,

Vv.

WakkINER Hermerics, INo., and Warriner Parts, Inc.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Copeland Refrigeration Corporation petitions for a

writ of certiorari to review the judgment of the United

States Court of Appeals for the Fifth Circuit entered

in this case.

OPINIONS BELOW

The opinion of the Court of Appeals is reported at

463 F.2d 1002 and appears in the appendix hereto

beginning at page la. The District Court rendered no

opinion, but its judgment appears in the appendix

hereto at page 29a.

The judgment of the Court of Appeals (p. 29a,

infra) was entered July 3, 1972. Petitioner’s petition

- for rehearing was denied July 25, 1972. (P. 30a, infra)

1

!

|

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}

i

The jurisdiction of this Court is invoked under 28

U'8.0. § 1254(1).

QUESTION PRESENTED

Whether, solely because goods are trademarked, an

otherwise lawful contract for their sale, which requires

the purchaser to refrain from dealing in the similar

goods of the seller’s competitors, is illegal under the

antitrust laws without regard to the competitive effect

of the contract.

STATUTES. INVOLVED

Section 1 of the Sherman Act, 15 U.S.C. §1, pro-

vides in pertinent part as follows:

‘“‘Every contract, combination in the form of

trust or otherwise, or conspiracy, in restraint of

Section 3 of the Clayton Act, 15 U.S.C. $14, pro-

vides as follows: —

°

of goods, wares, merchandise, machinery , supplies,

or other commodities, whether paten or unpat-

ented, for use, consumption, or resale ithin the

United States or any Territory thereof or the Dis-

trict of Columbia or any insular possession or

other apc the jurisdiction of the United

States, or fix a price therefor, or discoun

from, or rebate sinatape ont on the condition,

that the lessee or

of the lessor or seller, where the effect of such

lease, or contract for sale or such condition, agree-

ment, or understanding may be to substantially

lessen competition or tend to create a monopoly in

any line of commerce.’’

, STATEMENT

Respondents Warriner Hermetics, Inc., and War-

riner Parts, Inc., sued petitioner Copeland Refrigera-

tion Corporation, alleging violations of the antitrust

laws, specifically Sections 1 and 2 of the Sherman Act,

15 U.S.C. § § 1 and 2, and Section 3 of the Clayton Act,

15 U.S.C. § 14, and seeking damages and injunctive

relief.

Copeland is a manufacturer of refrigeration com-

pressors and their parts. Warriner Hermetics is in the

business of rebuilding compressors, and Warriner

Parts manufactures and distributes replacement parts

for compressors.

The two respondents claimed to be competitors of

‘Copeland’s and to have been damaged as a result of

certain business practices of Copeland’s. Such prac-

tices principally relate to Copeland’s arrangements

with wholesalers and rebuilders of its compressors.

The facts pertinent to the question of which review is

sought in this Court are, in brief, as follows:

Ninety percent of Copeland’s sales are to manufac-

turers of commercial refrigeration and air conditioning

units. Those manufacturers install Copeland compres-

sors, which bear a Copeland trademark and are well-

known and readily recognized as Copeland products

by the trade, in end products such as fresh vegetable

display cases, frozen food display cases and walk-in

refrigerators.

4

The other 10 percent of Copeland’s sales are to

numerous independently owned wholesalers located

throughout Copeland’s marketing area. These pur-

chasere are, by and large, locally owned general whole-

salers of plumbing, heating, refrigeration and air con-

ditioning products manufactured by numerous manu-

facturers.

Copeland deals with these wholesalers to meet the

problem of the emergency that ensues when a refriger-

ator compressor fails. Food quickly spoils in a defec-

tive display case, and customers will not patronize

stores with malfunctioning air-conditioning units.

Thus, speed of replacement is a major marketing prob-

lem. And for reasons relating to convenience it is de-

sirable to have compressors available on or near the

scene apart from considerations of speed.

Each wholesaler purchases compressors from Cope-

land for resale, obtaining legal title at the time of the

purchase. To encourage a wholesaler to maintain a

variety of compressors in inventory and thereby insure

their availability, Copeland partially reimburses the

wholesaler for the cost of maintaining an inventory by

granting an annual 5 percent credit upon the purchase

of a minimum inventory. The reimbursement is only

partial because at all pertinent times the cost of bor-

rowing money has been more than 5 percent.

(Copeland warrants its compressors for a year, and

it is the wholesalers who initially honor the warranty by

providing ultimate users with replacements for failed

compressors. A wholesaler replaces a failed compres-

sor from its inventory and in turn receives a free

réplacement from Copeland (or, as explained below,

from a rebuilder). Be

5

Throughout its history Copeland has rebuilt its own

compressors. In the late 1950’s it began to license

others to receive failed compressors from

wholesalers, rebuild them and return them to the Cope-

land wholesalers for resale or replacement. These re-

built compressors bear the Copeland trade name and the

same warranty as new compressors. They are rebuilt

to Copeland standards and contain only parts manu-

factured by Copeland. There is thus no difference be-

tween the new and rebuilt compressors, and the rebuilt

compressors are completely interchangeable with the

new units. Indeed, the new and rebuilt compressors

are sold at the same prices.

‘Copeland has licensed three rebuilders, each of which

serves a region in which Copeland compressors are

marketed. In the Southwest the licensed rebuilder for

a short time was the respondent Warriner Hermetics,

but the arrangement was terminated.

The licensees pay no royalty or other fee, but instead

each assumes the obligation of fulfilling Copeland’s

warranty commitment to wholesalers in its region, bill-

ing Copeland only for parts used and freight to and

from the wholesaler. Each of the licensees also rebuilds

compressors originally built by other manufacturers.

Warriner Hermetics’ principal business has always

been the rebuilding of compressors manufactured by

Tecumseh Products Company, a competitor of Cope-

land’s. After its unsuccessful brief tenure as a Cope-

land licensed rebuilder, it undertook the rebuilding of

Copeland units for a refrigerator manufacturer. That

relationship was terminated because of the poor quality

of Warriner’s work. Warriner did not again attempt

to rebuild Copeland compressors until approximately

1966, almost at the end of the damage period.

6 |

Warriner Paris, which as stated above is a compres-

sor parts manufacturer, sells parts to authorized Cope-

land rebuilders regularly for use in other types of com-

pressors, but it offered no evidence that it had planned

or tried to sell them parts for use in rebuilding Cope-

land compressors. (R. 700-01, 1104, 1349-50, 2004-05).

The respondents contended, among other things, that

would not allow wholesalers to sell both

After a long trial, the jury answered a series of

special interrogatories. Judgment was entered thereon

7

The court below ruled that, if the arrangements

between Copeland and its wholesalers and licensees

decision is to make a per se antitrust violation of every

exclusive dealing or requirements contract involving a

trademarked product. The court’s decision on this

important issue of antitrust law is contrary to control-

ling rulings of this Court that there is a tying arrange-

ment only when the sale of one distinct product is tied

to the sale of another and that ordinary exclusive deal-

ing arrangements are illegal only if they have the anti-

ve consequences described in Section 3 of the

Olayton Act. It also conflicts with the decision of

another court of appeals that exclusive dealing con-

tracts involving trademarked items are not illegal per

se under the antitrust laws.

1. A manufacturer's method of distributing its pro-

ducts is a tying arrangement only when there are two

separate items, and the opportunity to purchase one is

conditioned upon the purchase of the other. This Court

so ruled in Times-Picayune Pub. Co. v. United States,

345 U.S. 594, 614 (1953), saying: ‘‘The common core

of the adjudicated unlawful tying arrangements is the

forced purchase of a second distinct commodity with

the desired purchase of a dominant ‘tying’ product,

resulting in economic harm to competition in the ‘tied’

market.’’ Accord, Washington Gas Light Co. v. Vir-

ginia Electric and Power Co., 438 F.2d 248 (4th Cir.

1971). The vice of a tying arrangement is that it fore-

closes competitors of the seller from the market for one

product solely because of the seller’s ‘‘ power of leverage

in another market” for another product. Northern

Pac. Ry. v. United States, 356 U.S. 1 (1958).

The court below concluded that Copeland had tied to

its grant of permission for use of the Copeland trade-

mark the sale of compressors rebuilt by Oopeland or

authorized Copeland rebuilders to wholesalers and the

sale of parts manufactured by Copeland to authorized

rebuilders. It took what it described as ‘‘an approach

similar to that of the Ninth Circuit” in Siegel v.

Chicken Delight, Inc., 448 F 2d 43 (9th Cir. 1971), cert.

denied, 405 U.S. 955 (1972), and held that Copeland’s

Whatever the merits of the decision in Chicken

Delight—which involved, as the title of the case sug-

gesta, the highly contentious area of relations between

fast food franchisors and their franchisees—a survey

of Copeland’s distribution system demonstrates that no

tying arrangement is involved. Copeland sells a trade-

marked product. It is not tied to anything. Nothing is

tied to it. Nor is the wholesaler required to purchase

non-Copeland products as a condition to purchasing

Copeland compressors. Indeed, Warriner did not even

make such an allegation.

If a wholesaler does not purchase genuine Copeland

compressors he has nothing to sell bearing the Cope-

land name, and nothing remains of his association with

His business name and method of doing

business do not change because he did not receive those

from Copeland. He simply loses one line of products.

10

very traditional methods of dealing through whole-

salers and using rebuilders in the field to speed distri-

bution of rebuilt compressors. Chicken Delight and

Carvel (a soft ice cream franchisor) have much more

to sell than chicken or ice cream; they have a unique

business concept to sell and it is that concept which is

trademarked. Indeed, the usual dispute in these fran-

chise cases concerns whether the franchisee may con-

tinue to operate under the franchisor’s business con-

cept, utilizing the franchisor’s trademark while refus-

ing to purchase products solely from suppliers

“‘approved’’ by the franchisor. The franchisors are not

even the manufacturers of the products, and the trade-

mark does have a recognized economic existence inde-

pendent of the underlying product or service.

As the Ninth Circuit observed in Chicken Delight,

the historical notion of the trademark as an identifica-

tion of the source of the product has been abandoned in

some circumstances, ‘particularly ...in the case of a

franchise system set up not to distribute the trade-

marked goods of the franchisor, but, as here, to con-

duct a certain business under a common... trade-

name....”? 448 F.2d at 48 (emphasis added). The

court itself thus recognized the distinction between the

sale of a trademarked product and the sale of a busi-

- ness concept.

In the franchise area, where the critical product is

the trademarked business concept, the intangibles that

enable the trademark to help a “‘little band of .. . deal-

ers swim a bit faster than their rivals up the highly

competitive stream,” Susser v. Carvel Corp., supra at

519, are integral parts of the product and cannot there-

fore be the subject of tying arrangements—even though

physical goods that enter into the end product sold to

ll

consumers may be. Thus, in Kugler v. AAMCO Auto-

matic Transmissions, Inc., 460 F.2d 1214 (8th Cir.

1972), the court upheld a summary judgment against a

claim that forcing a franchisee to purchase advertising

materials was a tying arrangement. Advertising ser-

vices, on the court’s view, were an inseparable part of

the license, or franchise package; they were needed to

impart economic value to it. In the case of the Cope-

land “‘franchise,”’ the critical component is the physi-

cal compressors. The trademark that identifies those

compressors has no economic value to the wholesalers

and rebuilders independent of the compressors the

wholesalers and rebuilders sell and rebuild.

Since the tying product must be useable without the

tied product, the Copeland trademark or the designa-

tion as a Copeland distributor without the compressors

cannot be a tying product. Under this Court’s decision

in Times-Picayune Pub. Co. v. United States, 345 U.S.

594 (1953), there can be no tying arrangement without

a tying product. The court below held contrarily, and

its decision warrants review by this Court for that

reason.

the Second Cireuit’s ruling in the Susser case is mani-

fest.

In the Susser case the Second Circuit had before it an

13

were tying arrangements and as such were per se viola-

tions of the Sherman Act.

If the decision of the court below is allowed to stand

and is followed, the consequences are grave: all exclu-

sive dealing contracts involving trademarked products

—and probably not many products move through a dis-

tribution system without a trademark—are per se

illegal. This Court, which was at pains in Tampa

Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961),

to make clear that exclusive dealing agreements are not

illegal per se, should ensure that that decision is not

undermined by the judicial creation of single-product

tying arrangemenis.

CONCLUSION

A writ of certiorari should be issued.

Respectfully submitted,

Patrick E. HicarnsorHamM

3600 First National

Bank Building,

Dallas, Texas 75202

Wii™ H. Attzn

Harvey M. AprLesauM

Grorce R. PorEHNER

888 Sixteenth Street, N.W.

Washington, D.C. 20006

Attorneys for Petitioner

[7 74,062]

Waneiner Hermetios, Ino. anp Wanetner Parts, Ino.

v.

Copzianp Reraiczration Corp.

U.S. COURT OF APPEALS, FIFTH CIRCUIT

No. 30854,

DATED JuLy 3, 1972.

APPEAL FROM U.S. DISTRIOT COURT, NORTHERN DISTRICT OF TEXAS.

a * * » e * . * * *

Before Wispom, Cotman and Suvpson, Circuit Judges.

Suxpson, Circuit Judge: Warriner Hermetics, Inc. (Her-

metics), and Warriner Parts, Inc. (Parts), Texas corpora-

tions headquartered in Fort Worth, brought suit for dam-

» ages and injunctive relief against the Copeland Refrigera-

» . tion Corporation (Copeland), a Michigan corporation with

| its principal place of business in Sidney, Ohio, alleging

- violations of the Sherman Act, Title 15, U.S.C., Sections ©

1 and 2, the Clayton Act, Title 15, U.S.C. Section ©

1 Title 15, U.S.C., §1:

_ “Trusts, ete., in restraint of trade illegal; exception of resale

price agreements: penalty.

_“*Every contract, combination in the form of trust or otherwise,

or conspiracy, in restraint of trade or commerce among the several

States, or with foreign nations, is declared to be illegal: Provided,

"That nothing contained in sections 1-7 of this title shall render

illegal, contracts or agreements prescribing minimum prices for

the resale of a commodity which bears, or the label or container of

which bears, the trademark, brand, or name of the producer or dis-

@ tributor of such commodity and which is in free and open competi-

_ tion with commodities of the same general class produced or distrib-

. ~ uted by others, when contracts or agreements of that description are

- lawful as applied to intrastate transactions, under any statute, law,

x or public policy now or hereafter in effect in any State, Territory,

=. or the District of Columbia in which such resale is to be made, or

: | 2a

14? and the Robinson-Patman Amendment to the Clayton

Title 15, U.8.0. §2:

‘*Monopolizing trade a misdemeanor ; penalty.

‘*Bvery person who shal! monopolize, or attempt to monopolize,

or combine, or conspire with any other person or persons, to mono-

among the several States,

3a

Act, Title 15, U.8.C., Section 13. Following a jury verdict

for Copeland, the district court denied the plaintiffs’ mo-

ions for judgment notwithstanding the verdict and for new

trial, entered judgment for Copeland on the damages issue,

to pose proper interrogatories to the jury with respect to the

plaintiffs’ theory of Copeland’s alleged per se violations

of the Sherman Act, we reverse and remand for a new trial.

Copeland Refrigeration Corporation

Copeland was founded in 1918 in Flint, Michigan, by

Edward Copeland, the designer and builder of the world’s

first mechanical

stock. When the Gleason group gained control of Cope-

land, it was manufacturing refrigerators and compressors,

The compressor plays a pivotal role in any mechanical

refrigeration system. During the refrigeration cycle, the

refrigerant is transformed from a gas to a liquid by the

’ *

Compressing action of the piston. The refrigerant is then

permitted to escape at a controlled rate through a valve,

at which time it resumes its gaseous state by absorbing

heat from its environment. The process of heat absorption

ani suffered from belt wear as well as wearing of the

pulley shafts, with consequent escape of the refrigerant,

_ * Contentions as to Robinson-Patman violations received a very

Minor emphasis below; they are involved only slightly and peri-

_ pherally in our treatment of this appeal. In the interest of space

we refrain from setting forth the text of the Robinson-Patman

_ Amendment, Title 15, U.S.C. § 13,

3

TH

Supply

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1967, Hermetics at-

sell its rebuilt Copelametics to Thermal

ane ee niga tee ae After Ther-

During the period 1963 through

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dno lover i pi a meet cei from the pas

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These allegations of Copeland’s antitrust law violations

severe economic damages as a proximate result thereof.

Relief was sought injunctively and in the form of treble

damages.

The Copeland Defense

Because we focus our attention in this opinion upon the

doctrinal accuracy of the trial judge’s special interroga-

tories to the jury, we outline here Copeland’s legal defense

of its franchising practices. Copeland, in the district court

and in this Court, has taken the following positions:

(A) Any condition which Copeland may have imposed

upon its franchisees that they not purchase products manu-

factured by Copeland’s competitors constituted ‘‘exclusive

dealing’’ arrangements measurable under the Clayton

Act’s ‘ests of reasonableness and anticompetitive effect.

(B) Agreements pursuant to which the wholesalers un-

dertook to purchase only from Copeland or its authorized

measurable under Clayton Act standards. The same stan-

dard was to be applied to similar conditions placed upon

Copeland’s franchised rebuilders.

(C) There was no basis upon which a jury could con-

clude that the Copeland franchise had any independent

economic value to which could be tied the purchase of

Copeland’s products.

Special Issue Number 3(c)

At the conclusion of the trial, special issues were sub-

mitted to the jury. Special Issue Number 3(c) dealt with

the plaintiffs’ allegations of Copeland’s unlawful tying

practices with respect to its franchisees:

‘Do you find from a preponderance of the evidence

that defendant Copeland entered into any one or more

of the following alleged contracts combinations or

conspiracies with non-defendant alleged co-conspira-

tors hereinbefore named as Copeland ‘authorized’

wholesalers and as Copeland ‘authorized’ rebuilders ;

that such contracts, combinations or conspiracies con-

stituted an unreasonable restraint of trade; and that

either or both plaintiffs were injured in their business

or property as a direct and proximate result thereof,

Viz. : i.

(a) see

(b) °° 2

(c) with one or more of such Copeland ‘authorized’

wholesalers or rebuilders in furtherance of which de-

fendant, Copeland, sold or fixed a price charged on new

or rebuilt Copeland compressors or parts on the con-

dition, agreement or understanding that such ‘author-

ized’ wholesalers or rebuilders not use or deal in the

products of the plaintiffs, where the effect of such sale,

condition, agreement or understanding may be sub-

stantially to lessen competition or tend to create a

monopoly in any line of commerce you have found?”’

Appellants contend that this special issue, which the jury

answered in the negative, erroneously submitted the **ty-

ing’’ question to the jury on a theory of ‘‘reasonableness”’

The Development of the Per Se IMegality Doctrine

Mr. Justice Black, speaking for the Court in Northern

Pacific Railway Company v. United States [1958 Tape

Cases { 68,961], 1958, 356 U. S. 1, 78 S. Ct. 514, 2 L. Ed. 2d

545, discussed the origins of the doctrine of a per se Sher-

man Act violation in the following manner:

open to question, the policy unequivocally laid down

by the Act is competition. And to this end it prohibits

‘Every contract, combination * * * or conspiracy, in

restraint of trade or commerce among the several

States.’ Although this prohibition is literally all-en-

compassing, the courts have construed it as precluding

only those contracts or combinations which ‘unrea-

sonably’ restrain competition. Standard Ow Co. of

New Jersey v. Usited States, 221 U.S. 1, 31 S.Ct. 502,

55 L. Ed. 619; Chicago Board of Trade v. United

States 246 U.S. 231, 38 8.Ot. 242, 62 L. Ed. 683.

‘‘However, there are certain agreements or practices

which because of their pernicious effect on competition

and lack of any redeeming virtue are conclusively

lla

presumed to be unreasonable and therefore illegal

without elaborate inquiry as to the precise harm they

have caused or the business excuse for their use. This

principle of per se unreasonableness not only makes

the type of restraints which are proscribed by the

Sherman Act more certain to the benefit of everyone

concerned, but it also avoids the necessity for an in-

credibly complicated and prolonged economic investi-

gation into the entire history of the industry involved,

as well as related industries, in an effort to determine

at large whether a particular restraint has been un-

reasonable—an inquiry so often wholly fruitless when

undertaken. Among the practices which the courts

have heretofore deemed to be unlawful in and of them-

selves are price fixing, United States v. Socony-Vac-

uum Oil Co. [1940-1943 Taape Cases J 56,031], 310 U.S.

150, 210, 60 S.Ct. 811, 838, 84 L. Ed. 1129; division of

markets, United States v. Addyston Pipe & Steel-Co.,

6 Cir., 85 F. 271, 46 L. RB. A. 122, affirmed 175 U.S. 211,

20 S.Ct. 96, 44 L. Ed 136; group boycotts, Fashion

Originators’ Guild of America v. Federal Trade Comm.

[1940-1943 Trane Cases 7 56,101], 312 U.S. 457, 668, 61

S.Ct. 703, 85 L. Ed. 949; and tying arrangements, In-

ternational Salt Co. v. United States [1946-1947 Trapz

Cases { 57,635], 332 U.S. 392, 68 S.Ct. 12, 92 L. Ea

20.’” 356 U.S. at 4-5, 78 S.Ct. at 517-8, 2 L. Ed. 2d at

549-50.

The Evolution of the Tie-In Concept

International Salt Co. v. United States, 1947, 332 U.S.

392, 68 S.Ct. 12, 92 L. Ed. 20, involved a government anti-

trust action to enjoin the International Salt Company from

enforcing provisions of the leases of its patented machines

requiring lessees to use therein only the defendant’s salt

and salt products. The district court granted judgment on

the pleadings to the United States and the Supreme Court

affirmed on direct appeal. Mr. Justice Jackson was the

i2a

Court’s spokesman. The interrelationship between the de-

fendant’s patents and antitrust statutes was there treated

in this fashion:

‘The appellant’s patents confer a limited monopoly

. of the invention they reward. From them appellant

derives a right to restrain others from making, vend-

ing or using the patented machines. But the patents

’ confer no right to restrain use of, or trade in, unpat-

ented salt. By contracting to close this market for

salt against competition, International has engaged in a

restraint of trade for which its patents afford no im-

munity from antitrust laws.’’ 332 U.S. at 395-6, 68

S.Ct. at 15, 92 L. Ed. at 25-26.

The Court went on to hold that while it is unreasonable,

per se, to foreclose competitors from any substantial mar-

ket, a lessor of machinery ‘‘may impose on a lessee rea-

sonable restrictions designed in good faith to minimize

maintenance burdens and to assure satisfactory opera-

tion.’? 382 U.S. at 397, 68 S.Ct. at 16, 92 L. Ed at 27. Mr.

Justice Jackson’s opinion made it clear, however, that

while such restrictions could not be couched in terms of

a particular vendor they could nevertheless set quality

specifications to their intended purposes. 332

U.S. at 397-8, 68 S.Ct. at 16, 92 L.Ed. at 27.

“ying agreements serve hardly any purpose be-

yond the suppression of competition. The justification

most often advanced in their defense—the protection

13a

of the good will of the manufacturer of the tying

device—fails in the usual situation because specifica-

tion of the type and quality of the product to be used

in connection with the tying device is protection

enough. If the manufacturer’s brand of the tied prod-

uct is in fact superior to that of competitors, the buyer

will presumably choose it anyway. The only situation,

indeed, in which the protection of good will may neces-

sitate the use of tying clauses is where specifications

for a substitute would be so detailed that they could

not practicably be supplied. In the usual case only

the prospect of reducing competition would persuade

a seller to adopt such a contract and only his control

of the supply of the tying device, whether conferred

by patent monopoly or otherwise obtained, could in-

duce a buyer to enter one... The existence of market

control of the tying device, therefore, affords a strong

foundation for the presumption that it has been or

probably will be used to limit competition in the tied

product also.’’ 337 U.S. at 305-6 69 S.Ct. at 1058, 93

L. Ed. at 1382,

In Times-Picayune Publishing Co. v. United States [1953

Trape Cases { 67,494], 1953, 345 U.S. 594, 73 S.Ct. 872, 97

L, Ed. 1277, the United States brought a civil action against

& single publisher of morning and evening newspapers in

New Orleans for Sherman Act violations because the pub-

lisher’s advertising contracts required that advertisers

buy space in both newspapers. Advertisements were not

accepted for one paper. The Supreme Court found no per

se Sherman Act violations because both newspapers were

found to sell the same product to advertisers, to wit: read-

ership. Accordingly the Court found that no tie-in existed

and the per se rule was inapplicable.

In Northern Pacific Railway Company v. United States,

supra, the government had brought an antitrust suit below

against the railroad and its lands subsidiary to have cer-

léa

tain contractual provisions contained in deeds and leases

executed by the subsidiary declared illegal. The Supreme

Court held that per s¢ violations of the Sherman Act oc-

curred where the railroad and the subsidiary deeded and

leased the railroad’s land under instruments containing

clauses requiring the grantees and lessees to ship products

obtained from the use of the land over Northern Pacific

routes unless the rates or services of competing carriers

were more favorable. In effect, real property was deemed

in and of itself so unique as to constitute a tying product

for purposes of the Sherman Act.

* The Supreme Court in United States v. Loew’s Inc. [1962

Traps Cases { 70,537], 1962, 371 U.S. 38, 83 S.Ct. 97, 9 L.

Ed. 2d 11, citing; its 1948 decision in United States v. Para-

mount Picturzs, Inc. [1948-1949 Trap Cases {[ 62,244], 334

US. 131, 68 S.Ct. 915, 92 L. Ed. 1230, held that block book-

ing of copyrighted feature motion pictures for television

exhibition was in violation of the Sherman Act as a per se

illegal tying arrangement. The existence of a copyright

was deemed strongly persuasive evidence of significant

market power in the tied products: the feature films to

which were tied much less desirable ones.

Fortner Enterprises, Inc. v. United States Steel Corpora-

tion [1969 Trav Cases {| 72,757], 1969, 394 U.S, 495, 89 S.Ct.

1252, 22 L. Ed. 2d 495, is generally regarded as a notable

expansion of the applicability of the per se illegality doc-

trine with respect to tying arrangements. That case con-

cerned a private civil antitrust action by Fortner, a hous-

ing developer, against the manufacturer of prefabricated

houses and its wholly owned subsidiary. Fortner charged

that a per se Sherman Act violation occurred in a tying

arrangement whereby loans by the subsidiary to Fortner

for the purchase and development of land were conditioned

upon Fortner’s agreeing to erect a prefabricated house

manufactured by the parent on each of the lots purchased

with the loan proceeds. The district court granted sum-

15a:

to the issue before us in this case, Mr. Justice Black’s

opinion for the Court in Fortner Enterprises observed :

‘There is, at the outset of every tie-in case, includ-

ing the familiar cases involving physical goods, the

problem of determining whether two separate products

are involved.’ 394 U.S. at 507, 89 S.Ct. at 1260, 29

L, Ed. 2d at 507.

The Treatment of Exclusive Dealing

Requirements Contracts

In Standard Oil Co. of California and Standard Stations,

Inc. v. United States, supra, the United States sought a de-

claratory judgment holding that exclusive supply contracts

between the defendants and independent dealers in petro-

leum products and automobile accessories were illegal. In-

junctive relief was also asked. Mr. Justice Frankfurter,

as the Court’s organ, used this language in affirming a

judgment below for the plaintiff United States :

suming public. In the case of the buyer, they may as-

sure supply, afford protection against rises in price,

enable long-term planning on the basis of known costs,

and obviate the expense and risk of storage in the

quantity necessary for a commodity having a fluctua-

16a

ting demand. From the seller’s point of view, re-

ts contracts may make possible the substan-

tial reduction of selling expenses, give protection

against price fluctuations, and—of particular advan-

tage to a newcomer to the field to whom it is important

to know what capital expenditures are justified—offer

the possibility of a predictable market. . . . Since

these advantages of requirements contracts may often

be sufficient to account for their use, the coverage by

such contracts of a substantial amount of business af-

fords a weaker basis for the inference that competition

may be lessened than would similar coverage by tying

clauses, especially where use of the latter is combined

with market control of the tying device. A patent,

moreover, although in fact there may be many com-

peting substitutes for the patented article, is at least

prima facie evidence of such control. . . .’? 337 U.S. at

306-7, 69 S.Ct. at 1058-9, 93 L. Ed. at 1382-3.

The Supreme Court’s sympathetic approach to nontying

contractual arrangements was exemplified in its decision

in Tampa Electric Company v. Nashville Coal Company

[1961 Trane Cases {[ 69,940], 1961, 365 U.S. 320, 81 S.Ct.

623, 5 L. Ed. 2d 580. Tampa Electric Company brought

suit for a declaratory judgment, declaring the validity of

its fuel requirements contract with the defendant coal

company and for enforcement of the contract according to

its terms. The Supreme Court held that the contract, which

covered all coal to be used by the utility for twenty years

and which pre-empted less than one percent of the total

relevant coal market, did not substantially foreclose com-

petition in that market. In addition, the Court determined

that the contract did not constitute a significant limitation

of opportunity for other traders to enter into or remain in

the relevant market, so as to violate Section 3 of the Clay-

ton Act, Title 15, U.S8.C., Section 14, 365 U.S. at 327, 81

S. Ct: at 628, 629, 5 L. Ed. 2d at 587.

17a

Mach of the Tampa Electric opinion was taken up in

a delineation of the relevant coal market. The Court found

that the market extended to at least seven states and not to

the much more restricted area cited by the defendant coal

company. Mr. Justice Clark’s opinion asserted:

**In practical

found

The Court Examines Franchising

The Supreme Court took the opportunity to study fran-

chising agreements in United States v. Arnold, Schwinn &

Co. [1967 Trapz Cases 1 72,126], 1967, 388 U. 8. 365, 87 S.

Ot, 1856, 18 L. Ed. 2d 1249, The United States brought a

civil antitrust action under the Sherman Act against a

manufacturer of bicycles, Arnold Schwinn & Co., an asso-

ciation of Schwinn distributors, and a Schwinn distributor,

asking for a declaratory judgment establishing the invalid.

ity of the manufacturer’s franchising system for the dis-

tribution of its products. Schwinn distributed its bicycles

by means of direct shipments to franchised retailers. These

retailers were forbidden by their franchise agreement to

sell Schwinn bicycles to anyone other than ultimate con-

sumers. The manufacturer also distributed its products

to franchised distributors and barred these distributors

by contract from reselling the bicycles to anyone outside

their assigned territories, i

“‘As the District Court held, where a manufacturer

sells products to his distributor subject to territorial

restrictions upon resale, a per se violation of the Sher-

‘i *e1tig rH

+t } oe

3s

i

HAH

|

questions :

;

A

he

cial Issue Number 3(c) we must consider two

(a) Did Special Issue Number

ory.

é

ul

it it

wom oh A

HE a

att a

the one hand, and an exclu-

Tease Cass 170,950), 5. D. N.Y.

Dawson's district court opinion is reported as Susser v.

Carvel Corporation (1962

.

ie |

(i

Judge

tween a tying arrangement, on

« Judge

pute i HE it

iit eae H ti it

isl i

ta i

itl

ih it a

aiid eit

iii

in

iti

Judge Friendly, joined by Judge Medina, found no

Sherman Act violation in Carvel’s requirement that its

franchisees purchase all supplies through specified sup-

righted items is meaningful only in the situation where

the desirability of the patented item is what moti-

vates the purchaser to make further commitments or

to give up some liberty of choice as to other prod-

ucts. .. . In this case, the patented items appear to

have been virtually without motivating significance

in bringing about the agreement. The true tying item

was rather the Carvel trademark, whose growing re-

inth Circuit decision,

+ Supra. This was an anti-

franchisees of Chicken De-

for injuries resulting from

imposed by the defendant’s

condition of obtaining the def trade-mark license

to operate home delivery and pick-up food stores. The

district court® entered judgment for the plaintiffs and

i ireui i and remanded for a new

“Chicken Delight urges us to hold that its trade-

mark and franchise licenses are not items separate

5 Siegel v. Chi. Delight, Ine. [1970 TRADE CASES { 73,146},

N. D. if. 1970, 311 F. Supp. 847, Chief Judge Harris.

i

ts Tes 0 ow

ii

Hie hee

of the franchisor, but, as here, to conduct a certain

business under a common trade-mark or trade name.

Under such a type of franchise, the trade-mark sim-

ply reflects the goodwill and quality standards of the

aaiil

ae

St

iid

operate a business in the prescribed

and to benefit from the goodwill of trade

im no way requires the forced sale by the fran-

of some or all of the component articles. Just

issue of whether there

is a tie-in but rather the issue of whether the tie-in

is justifiable . . .”’

“We conclude that the District Court was not in

error in ruling as a matter of law that

t involved distinct ty;

The Ninth Circuit acknowledged the validity of one pos-

sible justification for a franchisor’s use of tying arrange-

ments: the maintenance of ‘‘quality control’, but went

on to caution:

‘‘However, to recognize that such a duty exists is

not to say that every means of meeting it is justified.

Restraint of trade can be justified only in the absence

of less restrictive alternatives. In cases such as this,

where the alternative of specification is available, the

language used in Standard Oil Co. v. United States,

supra, 337 US. at 306, 69 S. Ct. at 1058, 93 L. Ed.

1371, in our view states the proper test, applicable

in the case of trade-marks as well as in other

cases... .’’ 448 F.2d at 51.

We conclude that an approach similar to that of the

Ninth Cirenit in Chicken Delight is proper in the case at

bar. Chief Judge Lumbard’s views in dissent in Carvel,

supra, help us reach this conclusion.

Copeland is one of the nation’s leading manufacturers

of compressors for refrigeration and air conditioning

equipment. The one-year warranty which it extends on

its products is available only through its franchised whole-

salers. In addition, the franchised wholesalers are able

to replace failed compressors at reduced prices, as a result

of Copeland’s financial assistance, even after the warranty |

period has expired. There can be little doubt but that

the designation of a wholesaler as a Copeland ‘‘author-

ized’’ outlet is of great economic value to the wholesalers

so designated. Similarly, the designation of a rebuilder as

a Copeland ‘‘authorized’’ rebuilder is highly regarded as

a competitive advantage in the rebuilding field. In sum-

mary, the Copeland trademark, like the Chicken Delight

mark, is persuasive evidence of significant market lever-

age in the hands of Copeland. To this trade-mark Cope-

27a

land has tied compressors rebuilt by ‘‘authorized’’ Cope-

land rebuilders and parts manufactured by Copeland.

The plaintiffs were entitled to have the jury instructed

that Copeland’s policies of barring its franchised whole-

salers from dealing in compressors rebuilt by non-au-

and ‘‘anticompeti-

tive effect’’. Special Issue Number 3(c) did not so inform

the jury This requires reversal of the judgment entered

below, and remand for another trial before a jury in-

structed to this effect.

Entitlement of the plaintiffs to a per se instruction upon

retrial will not end the inquiry into Copeland’s liability

under the antitrust statutes. As it contended on the first

trial, Copeland will be able to assert that its franchising

policies did not proximately canse the plaintiffs to suffer

economic losses and that any reverses suffered by the

plaintiffs were caused by their own technological and

managerial mistakes. In addition, Copeland will be able

to offer evidence tending to show that its franchising

policies constitute the least restrictive techniques avail-

able for preserving the goodwill associated with the Cope-

Although the plaintiffs have been successful on this

appeal in establishing their right to a per se Sherman

Act jury instruction, it is clear that they still have a tor-

must sustain the burden

allegedly unlawful practices of

28a

Copeland vis-a-vis Copeland’s franchisees, the plaintiffs

would have done a certain amount of business with the

franchisees. Because Special Issue Number 3(c) combined

the elements of Copeland’s conduct, proximate ig WAT

and plaintiffs’ damages into a single item for the jury

consideration, it is impossible for us to determine on a this

appeal what the triers of the facts found with respect to

business allegedly foreclosed to the plaintiffs by Cope-

land’s franchising practices. Upon retrial, the jury should

be asked to render separate answers to special interroga-

tories on each of these elements bearing upon Copeland’s

liability for perpetrating an allegedly unlawful tying ar-

rangement.

CONCLUSION

The plaintiffs-appellants assign twenty asserted errors

in the proceedings in the district court as grounds for re-

versal of the judgment entered below. Since we find that

the inquiry to the jury regarding per se Sherman Act vio-

lations on Copeland’s part was prejudicial error, we do

not address ourselves to the other questions discussed in

the briefs of the parties. Many of these concern matters

of procedure which took place in the district court prior

to and during the prior trial. They are unlikely to recur.

Others are inconsequential and do not warrant discussion.

The judgment of the district court is Reversed and the

cause is Remanded for a new trial.

Reversed and Remanded.

29a

Judgment

(Number and title omitted) (Filed May 18, 1970)

This action came on for trial before the Court and a

jury, the Honorable Joe E. Estes, District Judge, pre-

siding, and the issues having been duly tried and the jury

having duly rendered its verdict and the Court having con-

sidered Plaintiffs’ claim for equitable relief;

It is OnpErep, Apsupczp and Decrzep that the Plaintiffs

take nothing, that the action be dismissed on the merits,

and that the Defendant Copeland Refrigeration Corpora-

tion recover of the Plaintiffs Warriner Hermetics, Inc.,

and Warriner Parts, Inc., jointly and severally, its costs ;

that all claims for equitable relief be denied.

Sicnep and Onpzrep Enrerep this the 18th day of May,

1970.

/s/ Jow E. Esres

United States District Judge

[Caption Omitted]

Judgment

This cause came on to be heard on the transcript of the

record from the United States District Court for the North-

ern District of Texas, and was argued by counsel ;

Own Consmeration Wueneor, It is now here ordered and

adjudged by this Court that the judgment of the said Dis-

trict Court in this cause be, and the same is hereby, re-

versed; and that this cause be, and the same is hereby

remanded to the said District Court for a new trial in

accordance with the opinion of this Court;

It is further ordered that defendant-appellee pay to

plaintiffs-appellants the costs on appeal to be taxed by the

Clerk of this Court.

July 3, 1972

Issued as Mandate: Aug 2 1972

30a

TO ALL PARTIES LISTED BELOW

Re: No, 30654—Warriner Hermetics, Inc.; and Warriner

Parts, Inc., vs. Copeland Refrigeration Corp.

Gentleman :

You are hereby advised that the Court has today entered

an order denying the Petition( ) for Rehearing in the

above case. No opinion was rendered in connection there-

with. See Rule 41, Federal Rules of Appellate Procedure

for issuance and stay of the mandate. 7

Very truly yours,

Epwarp M. WapswortH,

Clerk

By Atvis M. WincHEsTER

Deputy Clerk

/amw

ec: Mr. Winfred Hooper, Jr.

Mr. John G. Weinman

Mr. Patrick E. Higginbotham

Mr. James C. McKay