612 F.2d 1164 (9th Cir. 1980), 77-3536, First Beverages, Inc. of Las Vegas v. Royal Crown Cola Co.

Docket Nº:77-3536, 78-1050.
Citation:612 F.2d 1164
Party Name:FIRST BEVERAGES, INC. OF LAS VEGAS, a Nevada Corporation, and Norton Packaging, Inc. of Arizona, an Arizona Corporation, Plaintiffs-Appellants, and Will Norton, Counter-Defendant-Appellant, v. ROYAL CROWN COLA CO., a Delaware Corporation, Defendant-Appellee, and Royal Crown Beverage Co., etc., et al., Defendants. H & M SALES CO., INC. and Mae-Con E
Case Date:January 30, 1980
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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612 F.2d 1164 (9th Cir. 1980)


and Norton Packaging, Inc. of Arizona, an Arizona

Corporation, Plaintiffs-Appellants,


Will Norton, Counter-Defendant-Appellant,


ROYAL CROWN COLA CO., a Delaware Corporation,

Defendant-Appellee, and Royal Crown Beverage Co.,

etc., et al., Defendants.

H & M SALES CO., INC. and Mae-Con Enterprises, Inc.,



ROYAL CROWN COLA CO., Defendant-Appellee.

Nos. 77-3536, 78-1050.

United States Court of Appeals, Ninth Circuit

January 30, 1980

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[Copyrighted Material Omitted]

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William Lee McLane, Phoenix, Ariz., for plaintiffs-appellants.

Joel R. Bennett, Kendrick, Netter, Orr & Bennett, Los Angeles, Cal., on brief; James H. Wallace, Jr., Washington, D. C., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before CHOY and TANG, Circuit Judges, and FOLEY, [*] District Judge.

CHOY, Circuit Judge:

Appellants filed suit contending that Royal Crown Cola Co.'s vertically-imposed territorial market restrictions violated § 1 of the Sherman Antitrust Act. Royal Crown responded that its exclusive territorial trademark licensing system was lawful and filed breach of contract and antitrust counterclaims against appellants.

The jury found in Royal Crown's favor on appellants' claims and on the counterclaims. We affirm.

I. Statement of the Case

Royal Crown is a well-established soft drink manufacturer. It sells soft drink concentrate to its bottlers, who mix the concentrate with sugar and water, add carbonate gas, and bottle the resulting soft drink, all according to strict standards imposed by Royal Crown. The bottlers normally then sell the bottled soft drinks to retail outlets. There generally are no intermediaries in the distribution chain between the bottlers and the retail outlets.

The bottlers also distribute canned soft drinks, but do not manufacture them. Royal Crown supplies all the raw products for canned soft drinks to contract canners such as Norton Packaging. The canners produce the finished canned drinks and are paid for their services on a volume basis. The title to the cans and their contents at all times remains with Royal Crown. Royal Crown sells the finished canned soft drinks to its licensed bottlers for distribution.

During 1969 and 1970, First Beverages, Inc. was a licensed bottler of Royal Crown. Its licensing agreements with Royal Crown gave it the right to purchase soft drink concentrate, to manufacture bottled soft drinks and to sell bottled and canned soft drinks under Royal Crown's trademarked names in a "restricted" territory. The restricted or exclusive territory assigned to First Beverages was the Las Vegas, Nevada area.

Bottlers such as First Beverages are not allowed to sell Royal Crown products outside of their exclusive territories. This eliminates intrabrand competition. Apparently all major soft drink manufacturers use similar exclusive license distribution schemes. See In the Matter of the Coca-Cola Co., No. 8855 (F.T.C. April 25, 1978), Trade Reg.Rep. (CCH) Supp. No. 330; In the Matter of PepsiCo, Inc., No. 8856, Id. However, the FTC has recently declared that Coca-Cola Co.'s and PepsiCo's territorial distribution restrictions are unlawful, insofar as they apply to distribution of soft drinks in non-returnable containers. Id. 1

A. Central Warehousing

In recent years, there has been a trend in the retail grocery industry toward developing central warehouse distribution systems. In a central warehousing system, a grocery chain or cooperative grocery-buying association buys goods in large lots from manufacturers and suppliers. The goods are delivered to a central warehouse by the manufacturer

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or supplier. From there, trucks belonging to the chain or cooperative haul the goods to individual retail stores.

Such a system benefits the chains and cooperatives. They pay less for the products than they would if the supplier made delivery to individual stores. Also, they can consolidate deliveries from the warehouse to individual stores. Thus, their savings due to buying in large lots and arranging for central delivery are greater than their added delivery costs.

Many grocery chains and cooperatives operate central warehouses in the Los Angeles/Orange County, California area. These central warehouses serve wide geographic areas, including some stores in the Las Vegas area.

B. Sales to Operators of Central Warehouses

  1. The Los Angeles Royal Crown Bottler

    In the mid-1960's, the Los Angeles Royal Crown bottler began selling and delivering soft drinks to central warehouses in the Los Angeles/Orange County area, an area within its exclusive selling territory. Soft drinks from those warehouses were delivered into the exclusive territories of other Royal Crown bottlers, including First Beverages' Las Vegas territory.

    The bottlers into whose areas the Southern California central warehouses were delivering complained to the Los Angeles bottler. The Los Angeles bottler refused to stop delivering to the warehouses. When Royal Crown was apprised of the situation, it took no action.

  2. First Beverages' Sales

    In July 1970, H & M, a Los Angeles food broker, inquired whether or not First Beverages would be interested in selling large quantities of soft drinks for delivery to Alpha Beta, a large supermarket chain, at its Southern California central warehouse. First Beverages agreed to sell the soft drinks to Mae-Con, a Las Vegas food distributor. Mae-Con took title to the soft drinks in Las Vegas, arranged for their shipment and resale in Los Angeles and paid H & M's brokerage fees. The truckers used by Mae-Con were not licensed to carry goods for hire in interstate commerce by the ICC and charged substantially less than the ICC-authorized rates for delivery. Royal Crown characterizes this agreement as a conspiracy to undermine its distribution system and argues that Mae-Con's taking title was a sham designed to mislead Royal Crown into believing that First Beverages was selling within its territory when in fact it was selling directly to Alpha Beta in Southern California.

    The Los Angeles bottler discovered that soft drinks produced in Las Vegas were coming into its territory and complained to Royal Crown. Royal Crown investigated the complaint and decided to take action against First Beverages and its principal owner. 2 It issued two letters: one to First Beverages indicating that it was limiting the amount of concentrate it would sell to First Beverages in the future to an amount based on its average past monthly sales (before sales to Mae-Con began), and one to Norton Packaging indicating that Norton Packaging's canning contract would be terminated in 60 days. Royal Crown enforced neither of these letters a few weeks after the letters went out First Beverages sold its Royal Crown franchise to a company which agreed to terminate the Alpha Beta sales, and, apparently because of this turn of events, Norton Packaging was continued as a contract canner until it went out of business several years later.

    C. Proceedings Below

    First Beverages and Norton Packaging filed suit against Royal Crown in October of 1974. About one month later, H & M and Mae-Con filed a similar suit. All of these appellants alleged that Royal Crown's franchise system and other actions violated the antitrust laws.

    Royal Crown responded that its franchise system was lawful and asserted counterclaims

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    against the plaintiffs and Will Norton. Royal Crown urged that appellants had violated the antitrust laws by breaching and conspiring to breach First Beverages' bottling agreement. Breach of contract and related counterclaims were also stated.

    Trial began in August, 1976, and ended in October of the same year. Near the end of the trial, the district court concluded that Royal Crown's territorial restraints had to be judged under the rule of reason. The court therefore refused appellants' proffered Per se instruction and gave a rule of reason instruction. 3

    The jury found for Royal Crown both on appellants' claims and on Royal Crown's counterclaims. Royal Crown was awarded $500 on each of its six counterclaims that went to a verdict; the amount was trebled for the five antitrust claims. The jury's verdict was filed on October 8, 1976, and judgment was entered a week later. 4

    II. Appellants' Antitrust Claims

    Appellants contend that an intervening change of law requires that their antitrust claims be retried. They also argue that the district court committed several other errors during the trial.

    A. Refusal to Give a Per Se Instruction

    Appellants proposed that the jury be given an instruction that a vertical territorial restraint is Per se unreasonable and violative of Sherman Act § 1. 5 The district court refused to give such an instruction and instead gave a "rule of reason" instruction.

    Appellants argue that the district court erred, under the law as it stood at the time of trial, in refusing their proffered Per se instruction, citing United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), and Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 45-46, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977). However, they recognize that the district court's refusal to give a Per se instruction based on Schwinn was vindicated by the Supreme Court's GTE Sylvania opinion. 433 U.S. at 47-59, 97 S.Ct. 2549. 6

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    Nonetheless, they contend that they are entitled to a new trial. They maintain that while GTE Sylvania overruled the Schwinn per se rule, it did not...

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