Barnosky Oils, Inc. v. Union Oil Co. of California

• Decision Date: 24 November 1981
• Docket Number: No. 79-1125,79-1125
• Citation: 665 F.2d 74
• Parties: , 1981-2 Trade Cases 64,374 BARNOSKY OILS, INC., Plaintiff-Appellant, v. UNION OIL COMPANY OF CALIFORNIA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 74

665 F.2d 74

214 U.S.P.Q. 23, 1981-2 Trade Cases 64,374

BARNOSKY OILS, INC., Plaintiff-Appellant, v. UNION OIL COMPANY OF CALIFORNIA, Defendant-Appellee.

No. 79-1125.

United States Court of Appeals Sixth Circuit.

Argued Dec. 4, 1980.

Decided Nov. 24, 1981.

Irving I. Saul, Dayton, Ohio, Clint L. Pierson, Jr., Covington, La., for plaintiff-appellant.

John A. Krsul, Jr., Philip M. Frost, Dickinson, Wright, McKean, Cudlip & Moon, Thomas Zimmer, Detroit, Mich., for defendant-appellee.

Before BROWN and MARTIN, Circuit Judges, and SPEIGEL, ^* District Judge.

BOYCE F. MARTIN, Jr., Circuit Judge.

Barnosky Oils, Inc. appeals a judgment granting dismissal of its complaint alleging violations of federal and state antitrust laws.

The defendant below, Union Oil Company, is a major oil company engaged in the refining and marketing of petroleum products. It distributes products to the retail outlets that it serves directly, known as direct-served dealers, as well as to independent wholesalers, known as jobbers. The jobbers in turn distribute the products to retail outlets, or "jobber-served dealers." Barnosky is a Union jobber in the Metropolitan Detroit area. ¹ Count One of the complaint alleges that Union exercised its control over the use of its brands, trade names and trademarks to facilitate a horizontal customer and territorial allocation in violation of section 1 of the Sherman Act, 15 U.S.C. § 1. ² Count Two alleges that Union also violated section 1 of the Sherman Act by requiring Barnosky to cease selling gasoline to a customer that discounted gasoline at the retail level. Count Three of the complaint alleges that Union imposed exclusive dealing arrangements on its direct-served dealers, in violation of section 1 of the Sherman Act and section 3 of the Clayton Act, 15 U.S.C. § 14. ³ Count Four alleges price discrimination in violation of section 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a). ⁴ Finally, Count Five alleges that Union's conduct also violated the Michigan antitrust laws, ⁵ which parallel federal law.

Count One of Barnosky's complaint alleges that Union engaged in horizontal customer and territorial allocations throughout its Eastern Sales Region, including the metropolitan Detroit area. The combined effect of two agreements that Union demanded of its jobbers allegedly restrained Barnosky's trade. The Jobber Sales Agreement, which is the basic supply agreement, provides that the buyer: 1) may not display Union's name without its consent; and 2) must sell all Union products using Union's brands, trade names, and trademarks. The second contract is the Loan Agreement-Signs and Related Equipment. Pursuant to this agreement Union lends its jobbers large signs which identify a retailer as a Union station. The jobbers in turn authorize the dealers they serve to display the Union signs. The most important of the signs is the sign pole-a large sphere bearing either the phrase "Union 76" or the number "76." The sign sits on top of a tall pole. Barnosky alleges that Union reserved exclusive authority over sign-pole placement at all Union retail outlets by reserving to itself in the Loan Agreement the right to remove the sign poles from jobber-served outlets. Barnosky contends that, under the agreement, it may provide signs to its customers only with Union's permission. Union essentially admits this fact in the affidavit of Robert Koch, sales manager of Union's Detroit Division.

Barnosky further alleges that Union has maintained this control in order to preclude competition between Barnosky's customers and the retail outlets that Union supplies directly. It claims that without the sign pole, a retail station is effectively "unbranded" and is therefore less able to attract customers. ⁶ According to the complaint, Union's control of the sign pole facilitates Union's control over the number, identity, and location of the dealers to whom Barnosky will sell gasoline. Barnosky claims that the resulting diminution in intrabrand competition caused it to lose sales of more than 70 million gallons of gasoline during the period of time in question. Because Union also serves dealers directly, Barnosky claims that the alleged restraint is horizontal, and therefore constitutes a per se violation of the Sherman Act under United States v. Topco Associates, Inc., 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1975).

The District Court held that Barnosky failed to allege facts sufficient to state a claim under section 1 of the Sherman Act. It observed that Barnosky failed to allege that Union acted in concert with any other party or entity and that Barnosky expressly denied such an allegation during the oral argument on Union's motion. In the court's view, Union's alleged acts were unilateral. The court further held, citing Ace Beer Distributors, Inc. v. Kohn, Inc., 318 F.2d 283, 287 (6th Cir.), cert. denied, 375 U.S. 922, 84 S.Ct. 267, 11 L.Ed.2d 166 (1973), that Union's conduct could not amount to an unreasonable restraint of trade. For these reasons, the court concluded that Barnosky failed to state a cause of action under section 1, and that Count One should therefore be dismissed. ⁷ Because we agree that Barnosky failed to allege that Union engaged in concerted activity, we affirm the dismissal of this count of the complaint.

Accepting the allegations of the complaint as true, Westlake v. Lucas, 537 F.2d 857 (6th Cir. 1976), we assume that Union controlled the placement of the sign poles bearing its trade names and trademarks in order to allocate territories among itself and Union jobbers. Section 1 of the Sherman Act does not proscribe every act that restrains trade. Rather, it outlaws concerted activity by two or more persons; it expressly requires a "contract, combination ... or conspiracy in restraint of trade." The classic example of concerted action is an agreement among competitors to engage in a common course of conduct. However, it is clear that the combination requirement of section 1 is not confined to such agreements.

Barnosky relies on Albrecht v. Herald Co., 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998 (1968), to support its contention that it alleged sufficient joint conduct to support a section 1 claim. Albrecht was a newspaper carrier for the defendant Herald Company. All carriers had exclusive territories. These were subject to termination if prices exceeded Herald's advertised suggested maximum price. After adhering to the suggested price for some time, Albrecht raised his price. Herald responded by notifying him that it would offer the paper to subscribers on his route at the lower price. Herald also hired a circulation company to solicit customers along Albrecht's route. Three hundred of Albrecht's twelve hundred customers switched to direct delivery by Herald. These customers were turned over to another carrier, George Kroner, who took over the route knowing that he might have to return it if Albrecht lowered his price. Herald continued to sell newspapers to Albrecht, but threatened to terminate his appointment as a carrier if he continued to overcharge.

Albrecht sued, charging a combination in restraint of trade between Herald, Albrecht's customers, the circulation company, and Kroner. The jury found for Herald. Albrecht moved for a judgment notwithstanding the verdict on the ground that the undisputed facts showed as a matter of law a combination to fix resale prices. The motion was denied, and judgment was entered on the verdict. The Eighth Circuit affirmed, but the Supreme Court reversed. Citing United States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960), the Court stated that Herald, the circulation company, and Kroner had combined to force Albrecht to conform to the advertised retail price. 390 U.S. at 149, 88 S.Ct. at 871. In a footnote the Court also stated that "(u)nder Parke, Davis (Albrecht) could have claimed a combination between (Herald) and himself, at least as of the day he unwillingly complied with (Herald's) advertised price." Id. at 150, n.6, 88 S.Ct. at 872. See also Perma Life Mufflers v. International Parts Corp., 392 U.S. 134, 142, 88 S.Ct. 1981, 1986, 20 L.Ed 982 (1968).

Barnosky contends that the requisite joint action is established in this case because it was forced to comply with a contractual arrangement giving Union exclusive control over the placement of Union signs. We disagree, and hold that the rationale of Albrecht and Parke, Davis does not apply to these facts.

Albrecht's theory of combination requires a finding that the antitrust plaintiff was coercively induced to participate in the alleged illegal activity. "We made clear in United States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505, that a supplier may not use coercion on its retail outlets to achieve resale price maintenance. We reiterate that view, adding that it matters not what the coercive device is." Simpson v. Union Oil Co., 377 U.S. 13, 17, 84 S.Ct. 1051, 1054, 12 L.Ed.2d 98 (1964). See also Perma Life Mufflers, supra, at 142, 88 S.Ct. at 1986. ⁸ The facts alleged by Barnosky preclude a finding that Union engaged in any coercive conduct or that Barnosky in any way participated in the alleged territorial allocation. By controlling the placement of its signs, Union was merely exercising its right to limit the use of its trade names and trademarks by its customers. Indeed, Union must exercise this control or risk losing its trademark protection. See, e. g. Haymaker Sports, Inc. v. Turian, 581 F.2d 257, 261 (C.C.P.A.1978); Edwin K. Williams & Co., Inc. v. Edwin K. Williams & Co.-East, 542 F.2d 1053, 1059 (9th Cir. 1976), cert. denied, 443 U.S. 908, 97 S.Ct. 2973, 53 L.Ed.2d 1092 (1977). In its brief, Barnosky emphasizes the fact that Union's control over sign post placement is evident from the Jobber Sales Agreement and the Loan Agreement, and that Union referred to those documents in exercising that authority. Those facts are not...