Power Test Petroleum Distributors, Inc. v. Calcu Gas, Inc.

Citation754 F.2d 91
Decision Date29 January 1985
Docket NumberD,No. 304,304
Parties, 1985-1 Trade Cases 66,409 POWER TEST PETROLEUM DISTRIBUTORS, INC., Plaintiff-Appellee, v. CALCU GAS, INC. and Yonkers Overpass Equities Corp., Defendants, Yonkers Overpass Equities Corp., Defendant-Appellant. ocket 84-7423.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Charles T. Bistany, White Plains, N.Y., for defendant-appellant.

Robert G. Del Gadio, Garden City, N.Y. (John P. Hannigan, Garden City, Steven M. Jampol, of counsel), for plaintiff-appellee.

Before NEWMAN, CARDAMONE and DAVIS, * Circuit Judges.

DAVIS, Circuit Judge:

The main question here is whether a gasoline franchisor which purchases a product from a manufacturer and then affixes its own trademark may require that the franchisee market only those products bearing the franchisor's trademark. We hold that, under the principles of trademark law, such an arrangement does not constitute an antitrust violation in this case, and therefore appellant has no valid defense to appellee's claim of trademark infringement. The district court did not abuse its discretion in issuing the preliminary injunction, and we affirm.

I

Appellee Power Test Petroleum Distributors, Inc. (Power Test) is in the business of purchasing and subsequently distributing gasoline and related petroleum products. It also leases and franchises gasoline stations in the northeast United States to carefully selected dealers who operate under the trademark and service mark, "Power Test." 1 The primary function of these stations is the sale of gasoline and motor oil to the consuming public. Power Test is not a refiner of gasoline but (in much the same way as a "jobber") purchases gasoline either from a third party (e.g., a major oil refiner) or on the "spotmarket." It then tests the gasoline for octane, viscosity and impurities before distributing the gasoline to its franchisees under the trademark "Power Test." Appellant Yonkers Overpass Equities Corp. (Yonkers) is one of these franchised gasoline stations.

Yonkers and Power Test entered into a "Retail Dealer Contract" (Contract) which requires Yonkers as franchisee to purchase all of its gasoline from Power Test. In addition, under the terms of the Contract, Yonkers is prohibited from both storing or selling gasoline received from any source other than Power Test, and covering or removing any of the Power Test signs or logos which appear on the premises. 2 The parties also simultaneously executed and entered into a "Retail Gasoline Station Lease Agreement" (Agreement) in which Power Test leased Yonkers the gas station in question. 3 Yonkers paid no franchise fee. As a dealer, Yonkers is an independent businessman subject only to the terms of the Contract and Agreement.

This dispute arose when an investigation conducted by Power Test disclosed that Yonkers was improperly selling a non-Power Test brand of gasoline supplied to it by Calcu Gas, Inc. (Calcu). 4 Power Test commenced this action for trademark and service mark infringement, wrongful use in commerce of false designations of origin, false descriptions and false representations--all in violation of the Lanham Trademark Act; and for unfair competition, trademark dilution and false advertising--under New York law. Power Test sought an accounting, punitive damages and interlocutory relief enjoining Yonkers from continued trademark infringement and violation of the Agreement and Contract.

After a hearing, the district court issued a temporary restraining order (TRO) prohibiting Yonkers from both purchasing gasoline from suppliers other than Power Test and covering any Power Test signs or logos on the premises. Later, Power Test moved for an order to show cause why Yonkers should not be held in contempt of court for violating the TRO; Power Test also requested damages, attorney's fees, costs and a preliminary injunction.

The court below found that Yonkers received a delivery of non-Power Test gasoline subsequent to the date of the TRO. In addition, the Power Test trademark on the signs and pumps had been covered up and motorists were told that they were purchasing non-Power Test gasoline. The district court held these acts to be a willful and intentional attempt to circumvent the terms of the TRO, and therefore constituted contempt. A fine commensurate with the amount of proven damages was then assessed against Yonkers. In addition, the court awarded attorney's fees and costs incurred in bringing the contempt motion. 5

Based on a Yonkers officer's admission that Yonkers did in fact sell non-Power Test gasoline, which he claimed was necessary so that Yonkers could stay in business, the district court issued a preliminary injunction. Appellant contended unsuccessfully that its purchase of gasoline is tied to the Power Test trademark by the Agreement and Contract in violation of the antitrust laws, thus precluding the issuance of a preliminary injunction. Being forced to purchase Power Test gasoline as a condition to licensing the Power Test trademark, argues Yonkers, produces economic harm to competition in the retail gas market in contravention of the antitrust laws. Judge Mishler held, however, that the trademark and gasoline are not separate items because Power Test is a source mark "identical to the product attached to the name." Therefore, because no separate products exist, there could not be a tying arrangement. In addition, the court found that Yonkers failed to allege or establish the additional requirements for an antitrust tying arrangement. As we have noted (note 5, supra ), Yonkers' appeal is directed solely to the asserted antitrust tying arrangement and the propriety of the preliminary injunction.

In this court, Yonkers continues to claim that a tying arrangement exists. It argues that the Power Test trademark does not identify the "source" of the gasoline products, but merely warrants their "quality." Further, Yonkers contends that the source is actually the manufacturer or refiner from which Power Test buys its gasoline. Because the trademark is said to be a "quality" trademark separable from the gasoline products, and the Contract requires that the products be purchased from the trademark owner, an illegal tying arrangement is claimed to exist. Moreover, because gasoline is gasoline, and Power Test's product is not unique, Yonkers denies that any justification for such a tie-in exists in this case. Such alleged monopolistic practices are said to constitute a complete defense to Power Test's trademark infringement claims, and a preliminary injunction is improper. Power Test, on the other hand, argues that the Power Test trademark is not a separate and distinct product from Power Test gasoline, and, even if there is a tie-in, there has been no showing of the additional requirements for an antitrust violation.

II

The sole issue is whether the district court properly granted appellee's motion for a preliminary injunction. The grant of interlocutory injunctive relief is within the sound discretion of the district court judge, and this court will not disturb an injunction unless the appellant can show an abuse of discretion. Coca-Cola Co. v. Tropicana Products, Inc., 690 F.2d 312 (2d Cir.1982); Societe Comptoire de L'indus. Etc. v. Alexander's Dept. Stores, Inc., 299 F.2d 33 (2d Cir.1962). Such abuse of discretion may exist if the district court's findings of fact are shown to be clearly erroneous or if the district court made an error of law. See Coca-Cola, supra, 690 F.2d at 315. The party requesting preliminary relief must show (1) irreparable harm, and (2) either (a) a likelihood of success on the merits, or (b) sufficiently serious questions going to the merits to make them fair grounds for litigation and a balance of hardships tipping decidedly in favor of the movant. Arrow United Industries, Inc. v. Hugh Richards, Inc., 678 F.2d 410, 413-14 (2d Cir.1982). We hold that the district court properly found both elements ((1) and (2)(a)) present in this case.

The first element, irreparable injury, exists in a trademark case when the party seeking the injunction shows that it will lose control over the reputation of its trademark pending trial. See 2 McCarthy, Trademarks and Unfair Competition, Sec. 30.15 (2d ed. 1984). Reputation is not calculable nor precisely compensable. In this instance it rests on Power Test's activities in distributing the gasoline, and may very well diminish as a result of confusion caused by Yonkers' selling non-Power Test gasoline from a Power Test franchised location. 6 Accordingly, the district court did not err in concluding that irreparable injury flowed from the trademark infringement.

Yonkers admits that it sold non-Power Test gasoline. Thus, likelihood of success on the merits is also present. Yonkers asserts, however, the defense of an antitrust tie-in. An antitrust tie-in claim, if proven, will constitute a defense to trademark infringement. See Carl Zeiss Stiftung v. V.E.B. Carl Zeiss, Jena, 293 F.Supp. 892 (S.D.N.Y.1968), modified on other grounds, 433 F.2d 686 (2d Cir.1970), cert. denied, 403 U.S. 905, 91 S.Ct. 2205, 29 L.Ed.2d 680 (1971). A "tie-in" includes an agreement by a party to sell or lease one product only on the condition that the buyer also purchases or leases a different product from the same seller. It is the forced purchase of a second distinct "tied" product with the desired purchase of a dominant "tying" product that reduces competition in the "tied" market. See Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 73 S.Ct. 872, 97 L.Ed. 1277 (1953). Five elements of a tying arrangement must exist in order for there to be an antitrust violation: (1) two distinct products; (2) evidence of coercion; (3) sufficient economic power in the tying product market; (4) anticompetitive effect in the tied market; and (5) involvement of a not insubstantial amount of interstate commerce in the tied market. ...

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