reversing the district court because it "should have directed the cancellation" of a trademark once the mark was found to be "merely descriptive"Summary of this case from Hipple v. SCIX, LLC
No. 108, Docket 22490.
Argued December 8, 1952.
Decided April 20, 1953. Writ of Certiorari Denied June 15, 1953. See 73 S.Ct. 1133.
This is an appeal and cross-appeal from a judgment entered after a jury trial in a treble-damage suit under the Anti-trust statutes. The complaint alleged that defendant Telecoin (1) made illegal tie-in sales to plaintiffs, in violation of § 3 of the Clayton Act, 15 U.S.C.A. § 14, and (2) conspired with Bendix Home Appliances, Inc., a manufacturer of washing-machines, and Bruno-New York, Inc., Bendix's New York distributor, to deny plaintiffs access to Bendix automatic washing-machines for commercial use except through Telecoin, in violation of §§ 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 1, 2. The plaintiffs are either "store" or "route" operators, or both (the meaning of these designations will later appear), of Bendix Home Laundries. Originally four, the number of plaintiffs increased when the suit was converted to a class action under Rule 23(a)(3), Fed.Rules Civ.Proc. 28 U.S.C.A. by court order.
The defendants were originally Bendix, Telecoin and Bruno. The action was discontinued, without prejudice, against Bendix and Bruno by stipulation. The suit against the remaining defendant, Telecoin, was consolidated with actions against Farny, a director of Telecoin, and Percival and Melroy, officers of Telecoin. The claim against Farny was later dismissed by judgment.
The first trial ended in a jury disagreement. At the end of the second trial, verdict and judgment were had for seventeen of nineteen plaintiffs against defendant Telecoin, but not against Percival or Melroy. The evidence at the trial showed the following:
In 1937, Bendix Home Appliances, Inc., began producing an automatic home laundry machine. In late 1938, Farny and Percival, as partners, bought several of these machines from Bruno-New York, a Bendix distributor, equipped them with coin meters, and installed them in the basement of an apartment-house for use by the tenants. Success prompted them to expand and they added personnel. They began by contracting with landlords for permission to install a group of machines. The machines and the "location" would then be sold to an "operator," the partners making the installation. It was possible for an "operator" to maintain and monitor several installations; this has been given the name of a "route."
In 1943, a corporation was formed under the name "Telecoin Corporation" (the defendant here), to take over the partnership business. This corporation operated a "route" of some 600 machines. In late 1944, the corporation opened its first "store," a battery of machines operated on a self-service basis, and the name "Launderette" was originated to apply to such operation.
As the number of store operators multiplied, Telecoin experimented with different hot-water boilers, wallboards, and flooring. When it became apparent that the Bendix designed for home use would not stand up under commercial use, i.e., use in stores and apartment-houses. Bendix, beginning in 1947, put out commercial models provided with a heavy-duty clutch, a third bearing and a larger driveshaft.
In 1945, Telecoin and Bendix entered into an agreement by which Telecoin was designated the exclusive distributor of Bendix machines to "route" and "store" operators, and promised to promote sales and installations of the Bendix for commercial use and to use Bendix equipment exclusively, and to maintain or cause to be maintained "in first-class operating condition" all such Bendix machines. Bendix agreed to "use its best efforts" to obtain a modification of existing agreements with its other distributors to protect Telecoin's market, and Telecoin agreed to use Bendix equipment exclusively. The contract provided that Telecoin should buy the machines from other distributors. As it worked out, the machines were sold directly by Bendix to Telecoin. When Telecoin remitted to Bendix, the latter sent a $10 "override" to the distributor in whose geographical area the machine was sold.
Telecoin drew up a "franchise" agreement for store-operators who wished to use the trademark "Launderette." Under this agreement, the operator had to pay a monthly franchise fee on each machine and to construct, decorate and operate the store according to "Launderette" standards, as set by Telecoin. Plaintiffs' witnesses testified that, under this franchise, the operator had to buy equipment such as meters, clocks, scales, soaps and signs from Telecoin, and that machines were impossible to obtain without signing such franchise. Defendant's witnesses testified that the signing of franchises was purely optional, and that, in return, the operator was granted the use of the trademark and certain services such as instructions for operators, discounts on parts and territory protection.
The jury, in response to interrogatories on the Clayton Act issue, found (1) that defendants had made tie-in sales of meters, boilers, clocks, soaps, scales and/or schedule pads, upon which sales of machines were conditioned, but (2) that the effect was not such as "to substantially lessen competition or tend to create a monopoly in any line of commerce", as required by the Clayton Act.
On the Sherman Act issue, the court charged the jury that the agreement between Bendix and Telecoin "amounted to a contract, combination and conspiracy in restraint of trade or commerce in violation of the Sherman Act as a matter of law." The jury answered affirmatively the question whether the plaintiffs had been injured by anything forbidden by the anti-trust laws and done by the defendant, and awarded damages to seventeen of the nineteen plaintiffs.
As part of its defense, the defendant set up the fact that it had registered the trademark "Launderette" with the United States Patent Office. Evidence was introduced by plaintiffs to show that the registration had been fraudulently obtained. Plaintiffs sought to have this trademark cancelled. The trial court did not submit this to the jury, and denied the relief without giving reasons. Plaintiffs also moved to have the judgment held open to permit intervention by other parties similarly situated; this was also denied.
The defendant appeals from the judgment entered on the verdict. The plaintiffs, in their cross-appeal, seek modification of the judgment; they ask this court to order that the trial court (1) direct cancellation of defendant's trademark "Launderette," and (2) hold open the judgment for a reasonable time, allowing intervention by other parties similarly situated.
Arnold Malkan, New York City (Cyrus Austin and David H. Isacson, New York City, of counsel), for plaintiffs-appellants.
Hawkins, Delafield Wood, New York City (Webster, Sheffield Chrystie, Bethuel M. Webster and Frederick P. Haas, Franklin S. Wood and Clarence Fried, New York City, of counsel), for Telecoin Corp.
Before AUGUSTUS N. HAND, CHASE and FRANK, Circuit Judges.
I. Defendant's Appeal
1. The Clayton Act issue.
The complaint charged the violation of §§ 1 and 2 of the Sherman Act and § 3 of the Clayton Act. Plaintiffs demanded a jury trial. The jury found that the defendant sold Bendix machines to the plaintiffs under tie-in contracts restricting the use of meters, boilers, clocks, soaps, schedule pads, and like commodities, to those supplied by the defendant. The jury also found that such tie-in arrangements did not tend to create a monopoly or substantially to lessen competition in commerce. Whether or not this latter question was correctly submitted to the jury under International Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20 — see Lockhart Sacks, Exclusive Arrangements, 65 Harv.L.Rev. 913 — is not before us, since plaintiffs have not appealed as to that aspect of the case.
2. The Sherman Act issue.
(a) Defendant argues that the judgment cannot stand because the jury returned a verdict inconsistent in respect to damages. Apart from the fact that, if there were inconsistency, it would not ordinarily cause reversal, we see none here: As the jury found no violation of the Clayton Act, it could of course award no damages on that account. But if the Sherman Act was violated, the actual damages flowing from that violation may well have included the additional amount which the plaintiffs had to pay because of the tie-in purchases they were compelled to make. Cf. Federal Trade Commission v. Motion Picture Adv. Co., 344 U.S. 392, 397, 73 S.Ct. 361.
(b) The judge said in his charge: "We come now to the second final theory upon which the plaintiffs might possibly recover. As we have already indicated, this theory arises from a conspiracy and combination of defendants with * * * Bendix, the manufacturer, and its distributors, especially Bruno-New York, Inc. It is based upon violation of the Sherman Act and especially Section 1 of that act. * * * The principal evidence offered in support of this conspiracy theory is a written contract between Bendix and Telecoin * * * This agreement amounted to a contract, combination and conspiracy in restraint of trade or commerce in violation of the Sherman Act as a matter of law." Defendant's counsel made a timely objection. The judge's statement was erroneous, for it amounted to a directed verdict for plaintiffs on this issue (except as to damages to the several plaintiffs). This was wrong in the light of United States v. Bausch Lomb Optical Co., D.C., 45 F. Supp. 387, 398-399, by which we feel bound since, on the matter here pertinent, the Supreme Court affirmed in 321 U.S. 707, 719, 64 S.Ct. 805, 88 L.Ed. 1024 (although by a four-to-four decision and without opinion).
"I object to that portion of the charge wherein your Honor instructed the jury that the agreement between Bendix and Telecoin is a conspiracy as a matter of law."
There a manufacturer agreed to sell one of its products to no one other than a single distributor. Judge Rifkind — relying on United States v. Addyston Pipe Steel Co., 6 Cir., 85 F. 271, 46 L.R.A. 122, affirmed 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136, and on the Restatement of Contracts §§ 515 and 516 — said, [ 45 F. Supp. 398] that the Sherman Act was not violated, because the manufacturer had no monopoly of the product, and the "restraint of trade" was (a) ancillary to a reasonable main purpose — a source of supply to the distributor — and (b) fairly protective of that distributor's interests but not so large as to interfere with the interests of the public.
The contract in the instant case was therefore not unlawful in and of itself. The plaintiffs could win only if they proved (1) that Bendix had a monopoly in fact of the product it sold to Telecoin and/or (2) the exclusive arrangement, as carried out, was without a reasonable economic basis and merely served as an instrument for unduly restraining trade. The error in the charge might have been harmless if the evidence as to (1) or (2) had been so indisputable as to leave nothing for the jury to decide on the issue. The evidence, however, was not so unequivocal, but, being in conflict and resting on oral as well as documentary evidence, was such that the jury might reasonably have drawn an inference in favor of either side. The judge's charge, in taking the question from the jury, was reversible error.
Plaintiffs point to facts which they assert differentiate this case from Bausch Lomb, supra, viz., that this was not really an exclusive distributorship, that Bendix was implicated in the restrictions on the operators, and that Bausch Lomb had no patent or monopoly. We think none of these factors significant: Telecoin was an exclusive distributor in the commercial field, and the relationship of Bendix to the agreement is a jury question, as is the question of whether Bendix had a monopoly in the instant case.
In support of point (1), plaintiffs put in evidence a survey by the "American Washer Ironer Manufacturers' Association," which they maintain showed that Bendix made a large majority of the automatic washing-machine equipment in the United States. But the evidence was such that the jury might reasonably have inferred that the Association did not include all washing-machine manufacturers, and that there was no showing that all of the members reported.
Concerning the second point, on the evidence the jury could reasonably have found that defendant used the exclusive distributorship to force plaintiffs to sign franchises, pay fees, conform to store specifications, and purchase supplies. But on the evidence the jury could reasonably have found to the contrary, i.e., that the franchises were voluntary with the operators who voluntarily signed to obtain use of the name "Launderette"; the jury could also have found that the "override" paid by Telecoin covered costs to distributors of services performed under machine warranties, and of carrying special inventory for the commercial machine.
Also in dispute was the value of the services rendered by Telecoin to its operators; a factor bearing on the economic justification of the exclusive arrangement.
II. Plaintiffs' Cross-Appeal
1. Since the defendant set up its registered trade-mark as a defense, we think this was an "action involving a registered mark" within § 37 of the Lanham Act, 15 U.S.C.A. § 1119, conferring jurisdiction to order the mark's cancellation. The evidence so clearly shows that the mark was merely descriptive that the judge should have directed the cancellation of its registration.
See also 15 U.S.C.A. § 1115(b)(7).
2. We think there was a sufficiently "common question" and a sufficiently "common relief" sought to render this a spurious class suit under Rule 23(a)(3). But petitions for intervention made previous to the trial were properly denied, in the court's discretion, when plaintiffs refused to consent to an adjournment to permit examination before trial of the proposed intervenors. The judge did not err in refusing to hold open the judgment to permit persons to intervene after the verdict. The suggestion in York v. Guaranty Trust Co., 2 Cir., 143 F.2d 503, 528-529, does not apply to a jury case after the trial has concluded, for it would involve a new hearing of the evidence by the jury.
On defendant's appeal, reversed and remanded.
On plaintiffs' cross-appeal, reversed and remanded with directions to enter an order cancelling the defendant's trademark.