Edwin K. Williams & Co., Inc. v. Edwin K. Williams & Co.-East

• Decision Date: 31 August 1976
• Docket Number: Nos. 74-2449,74-1998,s. 74-2449
• Parties: , 1976-2 Trade Cases 61,077 EDWIN K. WILLIAMS & CO., INC., a California Corporation, Plaintiff-Appellee and Cross-Appellant, v. EDWIN K. WILLIAMS & CO.-EAST, a Virginia Corporation, and Marcoin, Inc., a Virginia Corporation, Defendants-Appellants. EDWIN K. WILLIAMS & CO.-EAST, INC., Plaintiff on the Counterclaims-Appellant, v. EDWIN K. WILLIAMS & CO., INC., Defendant on the Counterclaims-Appellee, and Kemp Printing Co. and Mrs. E. K. Williams, Additional Defendants on the Counterclaims-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1053

542 F.2d 1053

191 U.S.P.Q. 563, 1976-2 Trade Cases 61,077

EDWIN K. WILLIAMS & CO., INC., a California Corporation, Plaintiff-Appellee and Cross-Appellant, v. EDWIN K. WILLIAMS & CO.-EAST, a Virginia Corporation, and Marcoin, Inc., a Virginia Corporation,

Defendants-Appellants.

EDWIN K. WILLIAMS & CO.-EAST, INC., Plaintiff on the

Counterclaims-Appellant, v. EDWIN K. WILLIAMS & CO., INC., Defendant on the Counterclaims-Appellee, and Kemp Printing Co. and Mrs. E. K. Williams, Additional

Defendants on the Counterclaims-Appellees.

Nos. 74-2449, 74-1998.

United States Court of Appeals Ninth Circuit.

Aug. 31, 1976.

Rehearing and Rehearing En Banc Denied Nov. 17, 1976.

Donald C. Smaltz and Harlan P. Huebner (both argued), Los Angeles, Cal., for appellant in 74-2449 and for appellee in 74-1998.

Raymond C. Fisher (argued), Los Angeles, Cal., for appellants in 74-1998 and for appellee in 74-2449.

OPINION

Before WRIGHT and CHOY, Circuit Judges, and SOLOMON, District Judge. ^*

SOLOMON, Judge.

Defendants appeal from judgments for $586,781.51 and $6,212.00 in favor of the plaintiff based on breach of contract and copyright infringement. ¹ The plaintiff cross-appeals.

Defendants, appellants here, are Edwin K. Williams & Co.-East (East) and Marcoin, Inc., two Virginia corporations. East is the wholly-owned subsidiary of Marcoin.

Plaintiff, appellee here, is Edwin K. Williams & Co., Inc. (West), a California corporation. Mrs. E. K. Williams, president of West, and Kemp Printing Co. (Kemp), West's printing affiliate, are defendants on the counterclaims.

Beginning in 1935, Edwin K. Williams designed and sold record-keeping books to gasoline service station dealers in California. He also showed the dealers how to keep their books.

In 1946, Williams and Fred G. Harris formed Edwin K. Williams & Co. Williams owned 75 per cent ² and Harris owned 25 per cent. Williams and Harris formed a subsidiary of Edwin K. Williams & Co. called "Serv-A-Station" to provide a bookkeeping service to gasoline service station dealers. Harris became president of Serv-A-Station. ³

In 1949, Williams bought Harris's interest for $10,000, payable at $100 a month. Thereafter, for a short time Harris provided bookkeeping and counseling services to a few stations around Los Angeles. He then joined the Navy, and served in Washington, D. C., during the Korean War.

In July 1952, when Williams still owed Harris $5,300, they entered into an agreement (the 1952 Agreement). Harris's attorney drafted this 1952 Agreement, which was the predecessor of the agreement at issue in this action. The draftsmanship of the 1952 Agreement was not a model of clarity. The district court characterized the relationship created by the agreement as a license.

In the agreement, Harris was the "First Party", and Williams, West, and Serv-A-Station were the "Second Party". The agreement recited that:

". . . Second Party does hereby grant, bargain and sell unto First Party the exclusive right, title and interest to sell, market and promote all book-keeping systems, forms, books and methods under said names (including "Williams"), which now are used . . . or which hereafter are developed by Second Party . . . for all states east of the Mississippi River (with details and exceptions) . . . and thence north through Canada . . . ."

The 1952 Agreement gave Harris the right to set up licensees on the bookkeeping service, ". . . the same as is being done by Serv-A-Station, Inc. on the west coast." Harris was to give Williams 30 per cent of all revenues from the bookkeeping service, except for licensing fees, which Harris was to retain.

Harris's book customers were to send their orders and payments to West in California, and Harris would receive a 30 per cent commission less freight.

Williams conveyed to Harris all his "accounts, goodwill and contracts" in the eastern territory, and Harris agreed to use his best efforts to develop the territory. The agreement characterized Harris in various ways as an "independent proprietor", as an "independent contractor" in the eastern territory, and as "the exclusive proprietor and sales organizer for the territory".

The 1952 Agreement did not provide for any controls on Harris's use of the rights he acquired. It set no time limit on that use, nor did it specify the consequences of misuse. There was no provision in the contract which gave West any rights in the eastern territory.

This 1952 Agreement, with modifications, ⁴ served until 1968. Williams licensed other regional representatives in the Northwest (1953), South Central (1955), North Central (1959), and Rocky Mountain territories (1961). Williams himself was responsible for the Southwest, and Harris was responsible for the East. In 1963, when Williams died, his widow, Mrs. E. K. Williams, became president of West.

Although Williams and Harris prospered under the 1952 Agreement, their relations were not cordial. The district court noted, ". . . the sublimated rivalry between Williams and Harris and the determination of each to maintain a posture of superiority over the other. Needless to say, there were many business disputes . . . ." 377 F.Supp. at 421. This rivalry continued after Mrs. Williams took over West.

Both West and East took orders for West's record-keeping books, and both provided bookkeeping services. Beginning in 1966, East also presented seminars for oil company employees and gasoline service station dealers.

In 1968, Harris attempted to hold a seminar in California, outside the eastern territory. West objected and filed an action in the United States District Court for the Northern District of California. West alleged tradename and copyright infringement and claimed unpaid credits from East. West and East negotiated a settlement, which included a "Revised Agreement" to replace the 1952 Agreement.

The 1968 Revised Agreement is the basis for this action and is the contract which West charges that East breached.

The 1968 Revised Agreement terminated and superseded the 1952 Agreement. Each party abandoned all prior rights under the 1952 Agreement and its modifications. California law was to govern.

The Revised Agreement provided for a transfer of rights:

"Subject to the terms hereof, Williams (West) irrevocably grants in perpetuity to Williams-East exclusive rights to the Operation (elsewhere defined to 'include all of the activities of Williams, territorial rights to which were heretofore granted to Williams-East and which are confirmed in this Revised Agreement . . .') in the (eastern) Territory, said rights to include an exclusive license within the Territory to all present and future copyrighted material to which Williams is the proprietor."

East was required to use the Williams name in the eastern territory for all its activities within the petroleum marketing industry. If East went into business outside that industry, it was required to use a name other than Williams.

West and East agreed to cooperate and to promote business and goodwill for each other, to exchange copyrights freely, and not to contest each other's copyrights.

West and East also agreed to include seminars within the territorial restrictions. Although in 1968 West did not offer seminars, the Revised Agreement provided that each could inspect the other's seminar materials. Each was entitled to be present if the other called on the headquarters of an oil company located in the first's territory.

Nevertheless, they asserted their mutual independence; they disclaimed a relationship of joint venture, partnership, or agency and they provided for the termination of their relationship. If East failed to make any payment, West could terminate the Revised Agreement on 60 days' notice and all rights to the eastern territory would revert to West 120 days later. If East became bankrupt, West could terminate "forthwith".

The 1968 Revised Agreement provided for the continuance of the business of the parties as before, except that now East was required, not merely permitted, to use the Williams name in the eastern territory.

In book sales, West maintained representatives throughout the United States. ⁵ East was its representative only in the eastern part of the country. The representatives solicited book orders primarily from oil companies in their territories and forwarded the orders to West. Kemp, West's printing affiliate, printed the books and sent them directly to the oil companies. The representatives received commissions of one to seven per cent, except that East received a commission of 30 per cent less freight. Each service station dealer used about $20 in books a year.

Oftentimes oil companies, instead of buying the books directly, merely recommended them to their dealers, or guaranteed to West that a specified number of dealers would buy the books. All the representatives solicited these recommendations and guarantees. Their commissions were based on the number of books shipped to dealers in their territories.

The book-sales business remained essentially the same from its beginning in 1935, except that, in later years, more books were sold to oil companies and less were sold to dealers directly.

In the bookkeeping service, West maintained licensees throughout the United States. East was the licensee in the eastern territory. West's licensees visited service station dealers twice a month. On the first visit, the dealer turned over his records; and on the second, he received a detailed account of his profit and loss as well as his inventory. The dealer also received tax advice and general business counseling. The service cost $60 a month.

In the eastern territory, East offered the service through its own sublicensees and branch offices. The dealers paid East directly, and East passed on a 30 per cent commission to West. West's licensees in other territories paid West commissions of 30 to 60 per cent.

The bookkeeping service remained essentially the same, but in later years...