41 F.3d 1081 (7th Cir. 1994), 92-3471, BASF Corp. v. Old World Trading Co., Inc.
|Docket Nº:||92-3471, 92-3486, 92-3645 and 92-3928.|
|Citation:||41 F.3d 1081|
|Party Name:||BASF CORPORATION, Plaintiff-Appellant/Cross-Appellee, v. OLD WORLD TRADING COMPANY, INCORPORATED, Defendant-Appellee/Cross-Appellant.|
|Case Date:||November 16, 1994|
|Court:||United States Courts of Appeals, Court of Appeals for the Seventh Circuit|
Argued Sept. 28, 1993.
[Copyrighted Material Omitted]
Francis D. Morrissey, William Lynch Schaller (argued), Michael A. Pollard, Michael Murtaugh, and Thomas R. Nelson, Baker & McKenzie, Chicago, IL, for plaintiff.
Alan S. Ganz, Marc A. Primack, Rooks, Pitts & Poust; David H. Kistenbroker, Freeborn & Peters, Chicago, IL, and Daniel M. Leep, and John F. Maloney (argued), McNally, Maloney & Peterson, Milwaukee, WI, for defendant.
Before CUDAHY, RIPPLE and MANION, Circuit Judges.
CUDAHY, Circuit Judge.
BASF and Old World Trading Company, a privately held Illinois corporation, are competitors in the antifreeze market. In the 1980s, Old World advertised that its antifreeze met certain industry specifications; BASF contended that Old World had never actually tested its antifreeze to determine whether it met the specifications. BASF brought suit for false advertising under the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982), and the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505 et seq. Old World counterclaimed for common law commercial defamation and product disparagement. The district court found Old World liable under the Lanham Act and state law, and awarded BASF $2,498,726 in lost profits, $1,737,778 in prejudgment interest, and nearly $275,000 in costs. The district court found for Old World on its counterclaim, and awarded $1. The district court granted in part and denied in part BASF's motion for reconsideration and to amend the judgment. BASF appealed, seeking a tenfold increase in the damage award. Old World cross-appealed, contending that its advertisements were not false under the Lanham Act, and that in any event BASF had not proven any damages. After the appeal was filed, the district court awarded attorneys' fees to BASF, but left the final amount undetermined pending the parties' agreement on an appropriate methodology for calculating fees. Old World also appeals from the order awarding BASF attorneys' fees. We affirm the district court in all respects.
Old World's antifreeze
Antifreeze, as the name implies, remains liquid at temperatures where water freezes, and is used as a water substitute to dissipate automotive engine heat. Antifreeze consists primarily of ethylene glycol (EG) mixed with water and chemicals added to prevent corrosion. Different metals corrode at different rates, so when auto manufacturers began using more aluminum components in the early 1980s, antifreeze manufacturers had to spend a considerable amount of money tinkering with anti-corrosion chemicals to meet the auto manufacturers' new specifications. "Specifications" are minimum performance standards adopted by each auto manufacturer. Whether an antifreeze meets an auto manufacturer's specifications is determined by its performance in a battery of specific (and, for the most part, complicated and expensive) tests, developed in part by the American Society of Testing and Materials (ASTM).
In 1982, after the auto manufacturers published new specifications, Old World began selling a new aluminum protective antifreeze. Old World advertised that its antifreeze met all of the auto manufacturers' specifications as well as the "Cummins specification," a special heavy duty truck standard. 1 No other antifreeze manufacturer could make the same claims. BASF, for example, claimed only that it was approved by manufacturers for factory fill, but did not claim to meet the Cummins specification. Thus Old World had an advantage, since a customer buying for resale would only need to buy one antifreeze to meet all specifications.
Old World did not have its own manufacturing facilities, but like many antifreeze companies, contracted out its antifreeze blending. Old World's antifreeze formula was developed by the Dearborn Chemical Company, a company with experience in manufacturing coolants but not in blending antifreeze. Dearborn either failed to perform or incorrectly performed certain tests required by several of the specifications Old World claimed to meet. Specifically, Dearborn failed to perform the Ford dynamometer test or fleet test, as required to meet Ford specification ESE-M97B44-A, and a General Motors 9066P test as required to meet GM specification 1825-M (1981). Dearborn also incorrectly performed the ASTM D-2809 test required by specifications SAE 11J1034, ASTM D-3306, GM 1899-M, and MCAT RP 302A.
Old World never requested that Dearborn perform a specific test or requested that Dearborn supply written test data. Instead, Old World claims it relied on Dearborn's assurances that the formula met specifications, in particular Dearborn's representation that it had conducted the dynamometer test required by the Ford specification, and that the Dearborn Formula met the Ford and GM specifications. But the district court found it incredible that Old World would have relied on Dearborn's word. Old World's chief technical officer, Jess Starkey, a long-time member of the ASTM committee that designed the industry specifications, had assisted in preparation of various test protocols and knew, for example, that Dearborn had not followed one of the protocols during its tests.
In June 1983, Old World and Dearborn modified the antifreeze formula. Old World claims that Dearborn's representatives assured Old World that the new formula met the same specifications as the earlier formula. 2 Some time after 1983, Starkey altered the Dearborn formula even further by reducing the amount of EG and other chemicals. No additional tests were performed after these modifications, although Old World claims that once Dearborn was aware of the adjustments, it informed Old World that the formula met the specifications. This modified
formula was sent to Old World blenders from 1983 until the introduction of a new formula for the 1987-88 antifreeze season. 3
In October 1985, BASF wrote to Old World challenging the accuracy of Old World's claim that it met the Ford specifications. Dearborn antifreeze was first subjected to rigorous performance testing under the protocols in January 1986, when a BASF sales representative purchased some Old World antifreeze and ran the ASTM D-2809, D-1384, D-4340, D-2580 and similar Ford tests. Old World passed all of the tests. BASF attempted to conduct a Ford dynamometer test, but the test was never concluded. In June 1986, Dearborn stopped making advertising claims about the Ford specification. BASF brought the present action on May 21, 1986.
In December 1986, Old World purchased antifreeze manufacturing facilities and a new formula ("Peak") from Northern Petro. The new formula met all auto manufacturers' specifications, but not the Cummins standard. Old World stopped advertising that it met all of the specifications. The district court found (although BASF vigorously disagrees) that Old World sold no more Dearborn formula after March 31, 1987.
Following a bench trial, the district court issued an opinion on May 21, 1992 holding that Old World's representations violated Sec. 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a). The district court found that BASF had produced overwhelming evidence that Old World's testing was insufficiently reliable to justify its claims that the antifreeze met the auto manufacturers' performance specifications. The district court also found that Old World's advertisements were literally false, since the antifreeze had not been subjected to tests which must be passed to meet the specifications. Numerous experts had testified that Old World could not truthfully represent that its antifreeze met the specifications unless all of the required tests had been run and passed. The district court also found that purchasers were actually misled by Old World's representations. In addition, the court found Old World liable under the Illinois Act.
The antifreeze market is highly price-driven, resulting in a very competitive, low margin business. In 1983, the antifreeze market was dominated by eight companies, although by 1987 both Dow and Northern Petro had left the market. 4 Although the antifreeze industry was relatively stagnant during the mid-1980s, both Old World and BASF gained market share. Old World's market share increased from 4% to 15%, with Old World's 1986 acquisition of Northern Petro accounting for 6% of this increase. Meanwhile, BASF's market share increased from 15% to 18%.
BASF and Old World competed in the "private label" segment of the antifreeze market. This is the section of market where antifreeze is sold under a customer's trade name (for example, BASF would sell to Quaker State, who marketed the antifreeze under its own label). From 1983-1987, BASF was the largest producer of private label antifreeze. By the winter of 1986, several competitors (Northern Petro, Union Carbide, Conoco and Shell) had dropped out of the private label business, leaving only BASF, Old World and Texaco in the market.
Old World contends that its market share grew more rapidly than BASF's because of Old World's increased price sensitivity. The price of antifreeze is determined in great part by the price of EG, its primary component. BASF produces its own EG rather than purchasing it on the open market; Old World buys its EG on the market, and thus could take advantage of declining EG prices
in the mid-1980s. Old World also contended that BASF locked itself into a high-pricing strategy trying to market its own trademark in the mid-1980s, and could not...
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