160 F.3d 58 (1st Cir. 1998), 98-1948, Ocean Spray Cranberries, Inc. v. PepsiCo, Inc.

Docket Nº:98-1948.
Citation:160 F.3d 58
Party Name:OCEAN SPRAY CRANBERRIES, INC., Plaintiff, Appellant, v. PEPSICO, INC., Defendant, Appellee.
Case Date:November 12, 1998
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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160 F.3d 58 (1st Cir. 1998)

OCEAN SPRAY CRANBERRIES, INC., Plaintiff, Appellant,


PEPSICO, INC., Defendant, Appellee.

No. 98-1948.

United States Court of Appeals, First Circuit

November 12, 1998

Heard Oct. 5, 1998.

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James C. Burling with whom Michelle D. Miller, Cynthia D. Vreeland, Mark D. Selwyn and Hale and Dorr LLP were on brief for appellant.

Ronald S. Rolfe with whom Toni G. Wolfman, Michael A. Albert, Foley, Hoag & Eliot LLP, David J. Stone, Illana B. Chill, Victor L. Hou and Cravath, Swaine & Moore were on brief for appellee.

Before BOUDIN, Circuit Judge, REAVLEY, [*] Senior Circuit Judge, and LIPEZ, Circuit Judge.

BOUDIN, Circuit Judge.

This is an appeal by Ocean Spray Cranberries, Inc. ("Ocean Spray") from a district court order denying Ocean Spray a preliminary injunction against PepsiCo, Inc. ("Pepsi"). The dispute between the two companies centers on their distribution agreement, whose exclusivity clause has apparently been breached by Pepsi. Although the appeal is not without substance, we sustain the district court's refusal to grant the injunctive relief sought.

Ocean Spray is an agricultural cooperative owned by about 950 cranberry and citrus growers. It is a leading producer of canned and bottled juices and juice-flavored beverages; its annual sales appear to be well over $1 billion. Most of its revenue and profits come from so-called "multiserve" juice products (containers with more than 20 ounces), which are sold through brokers and wholesalers.

The issue in this case is Ocean Spray's sale of so-called "single-serve" juice products (containers of 20 ounces or less). Starting in 1992, Pepsi became Ocean Spray's exclusive distributor for single-serve juice products. By 1997, Ocean Spray was deriving about $125 million from the sale of such products through Pepsi's company-owned bottlers. It earned another $100 million or so by sales through independent bottlers licensed by Pepsi to handle Pepsi's own products, but the contracts between Ocean Spray and these independent Pepsi bottlers are not at issue in this case.

Pepsi's company-owned bottlers supply retailers with Pepsi products in territories not served by the independent licensed Pepsi bottlers. When Pepsi became the exclusive distributor for Ocean Spray, its company-owned bottlers ceased to handle the juices of companies competing with Ocean Spray

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(such as Welch's and Mott's). Since 1992, Ocean Spray has enjoyed the use of Pepsi's company-owned bottlers not only to distribute Ocean Spray's single-serve products, but also for a range of related services for those products, including promotion, the securing of national contracts, purchase of shelf space, and installation of coolers in grocery stores and restaurants.

The original 1992 agreement between Pepsi and Ocean Spray was a long-term agreement but did not work smoothly. It was replaced in 1995 by a new, short-term agreement that Pepsi then sought to terminate. Shortly before the termination date, the parties entered into the present agreement in March 1998; the agreement provided for Pepsi to distribute through its company-owned bottlers covered single-serve Ocean Spray juice products. The precise definition of a covered single-serve product is not in dispute.

The 1998 agreement included Pepsi's promise not only to distribute the covered products but also to employ "reasonable best efforts" to promote and sell the Ocean Spray products it distributes. It included exclusivity provisions shortly to be described. And since 1991, when the parties first entered into negotiations, both have been bound by a separate contract to protect each other's confidential information, from marketing and distribution strategy to research and product formulae.

The 1998 agreement is exclusive in both directions. With limited exceptions, Pepsi agreed that it would not distribute any noncarbonated juice or juice-containing beverage that competed with covered Ocean Spray products. One limited exception permitted Pepsi to distribute certain juice products that compete with Ocean Spray covered products if made by Pepsi itself and not acquired from a third party by a stock or asset purchase or otherwise. Conversely, Ocean Spray agreed that it would not distribute--other than through Pepsi--its own covered products in the territories of Pepsi bottlers.

The 1998 agreement provided for termination by either party, but the earliest notice Pepsi could give is in 1999, and even then the agreement was to continue until December 31, 2000. Nevertheless, in July 1998, four months after executing the new distribution agreement with Ocean Spray, Pepsi announced that it was purchasing Tropicana Products, Inc. ("Tropicana"), a leading producer of juices and a major competitor of Ocean Spray, especially in the supply of single-serve containers of orange juice.

On August 10, 1998, Ocean Spray filed a complaint and motion...

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