Billy Baxter, Inc. v. Coca-Cola Company

• Decision Date: 25 August 1970
• Docket Number: No. 697,Docket 34072.,697
• Citation: 431 F.2d 183
• Parties: BILLY BAXTER, INC., Plaintiff-Appellant, v. The COCA-COLA COMPANY and Cana da Dry Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

431 F.2d 183 (1970)

BILLY BAXTER, INC., Plaintiff-Appellant, v. The COCA-COLA COMPANY and Cana da Dry Corporation, Defendants-Appellees.

No. 697, Docket 34072.

United States Court of Appeals, Second Circuit.

Argued April 9, 1970.

Decided August 25, 1970.

James V. Joy, Jr., New York City (Greenburg & Adler, Lucille J. Becker, and Edward V. Egert, New York City, on the brief), for plaintiff-appellant.

Allan Blumstein, New York City (Paul, Weiss, Goldberg, Rifkind, Wharton & Garrison, and Paul R. Verkuil, New York City, on the brief for defendant-appellee The Coca-Cola Company. Dewey, Ballantine, Bushby, Palmer & Wood, Edward N. Sherry and Robert A. Meister, New York City, on the brief for defendant-appellee Canada Dry Corp.), for defendants-appellees.

Before WATERMAN and ANDERSON, Circuit Judges, and WEINFELD, District Judge.^*

ANDERSON, Circuit Judge:

Appellant Billy Baxter, Inc., is a Pennsylvania corporation organized in 1962 for the purpose of selling or otherwise granting franchises authorizing the production and bottling of a line of nonalcoholic carbonated beverages under the federally-registered trademark "Billy Baxter." The beverages, which include club soda, quinine water, ginger ale, ginger beer, sarsaparilla, root beer, and "lime 'n quine" (quinine water containing lime), have been produced and sold locally in the Pittsburgh area by others since 1889, bearing the registered trademarks "Red Cross" and "Billy Baxter" since 1900 and 1921, respectively. In December of 1962, the appellant purchased the trademarks and secret beverage recipes, licensed the former owner to continue local production, and announced its intention to expand the availability of Billy Baxter products to new markets by franchising bottlers to manufacture and sell them.

Billy Baxter, Inc., admits that it played a circumscribed role in the subsequent limited expansion of Billy Baxter beverage product distribution, describing its business as "the purchase of beverage extracts and the sale of same to franchised bottlers, with related advertising and promotional activities."¹ From its office in Pittsburgh, Billy Baxter, Inc., bought various flavored extracts, which had been manufactured by others, and resold them to its franchised bottlers. The bottlers then manufactured the beverages by mixing these extracts with carbonated water, syrups, or other ingredients according to the specified secret formulae. The franchisee-bottlers sold the beverages in their geographic territories, remitting specified royalties to Billy Baxter, Inc., based on the number of cases of their products which they sold. The appellant franchisor had no plants or facilities other than its administrative offices in Pittsburgh and New York (where its president practices law); and in the normal course of business it "neither manufactured, bottled, distributed nor sold products" other than the extracts supplied to its franchisees.²

Four bottlers were licensed as Billy Baxter franchisees between 1962 and 1964, serving parts of Pennsylvania, Ohio, West Virginia, New Jersey and New York; and others also were approached and asked to test markets for the products. But Billy Baxter operations, which required that franchisees use a uniquely-shaped non-returnable bottle and distribute products which traditionally "sold at a higher-than-average cost,"³ did not flourish. The appellant's gross income from sale of extracts and royalties, as well as "occasional" resale of some of its francisees' bottled beverages,⁴ rose from some $18,000 during its first year to $45,500 in its second; but thereafter it declined precipitously, with three of the four bottlers ultimately relinquishing their franchises.

In 1966, Billy Baxter, Inc., commenced this action against the Coca-Cola Company and Canada Dry Corporation, Delaware corporations which manufacture various products and license bottlers to do the same, sweepingly alleging that they have violated various parts of the Sherman, Clayton, and Robinson-Patman Acts.⁵ It contended that these two firms restrained competition in the "non-alcoholic carbonated beverage industry" in the five aforementioned states by agreeing to "avoid genuine competition with each other's primary product line." It further charged that they "acted in concert * * * to exclude plaintiff from the normal channels of interstate commerce, and through discriminatory, unfair and unlawful price concessions, discounts, gifts and allowances directed specifically to plaintiff's customers, induced them to exclude plaintiff's products from their places of business." The complaint alleged that these actions, followed by supplementary improper activities,⁶ injured Billy Baxter, Inc., by causing "lost profits" estimated at $500,000; and it sought this amount trebled as damages.

Thereafter both Coca-Cola and Canada Dry served written interrogatories on Billy Baxter, Inc.; and the appellant's answers significantly narrowed the scope of the activities which were alleged to have caused harm to the franchisor's business. Billy Baxter, Inc., explained that the alleged market division injured it because Canada Dry was able to concentrate economic power in the "mixer market," using "advertising, price concessions, pricing of product and similar practices" to maintain market domination. But it added that these activities affected it specifically because of practices aimed at its "customers," listing as known examples three Pittsburgh hotels, two distributors, and a cocktail lounge allegedly induced to cease purchasing Billy Baxter products. In fact, none of these was a customer of the appellant Billy Baxter, Inc. Instead, each was a retail outlet or distributor which had purchased beverages from one of the franchised bottlers, which in turn paid royalties to the appellant.

After both the filing of the appellees' joint summary judgment motion and a special master's report on a motion to strike certain interrogatories, in each of which it was suggested that Billy Baxter, Inc. lacked standing to sue as a franchisor for its own lost profits on its franchisees' sales, appellant moved to amend both its complaint and its revealing answers to the interrogatories. It requested permission to file an amended pleading characterizing itself as a seller of bottled beverages purchased from its own franchised bottlers for resale, deleting its prior reference to "occasional" resales and describing the same two isolated sets of transactions as "substantial" retail sales.⁷ Nevertheless, the district court found that this proposed verbal change did not alter the fact that "at no time was plaintiff any part of the marketing operations of its licensees." Conclusory statements to the contrary were found to be without factual basis;⁸ and summary judgment was granted because Billy Baxter, Inc. was outside the "target area" of the alleged antitrust activities, the marketing of bottled beverages. Billy Baxter, Inc. v. Coca-Cola Co., 47 F.R.D. 345, 349-350 (S.D.N.Y.1969). We affirm.

Section 4 of the Clayton Act, 15 U.S.C. § 15, provides:

"That any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor * * * and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney\'s fee."

The statutory requirement that treble damage suits be based on injuries which occur "by reason of" antitrust violations expressly restricts the right to sue under this section. There must be a causal connection between an antitrust violation and an injury sufficient for the trier of fact to establish that the violation was a "material cause" of or a "substantial factor" in the occurrence of damage. Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 702, 82 S.Ct. 1404, 8 L.Ed. 2d 777 (1962); Bigelow v. RKO Radio Pictures, 327 U.S. 251, 66 S.Ct. 574, 90 L.Ed. 652 (1946); Note, Standing to Sue for Treble Damages Under Section 4 of the Clayton Act, 64 Colum.L.Rev. 570, 575-6 (1964). And this connection must also link a specific form of illegal act to a plaintiff engaged in the sort of legitimate activities which the prohibition of this type of violation was clearly intended to protect. While any antitrust violation disrupts the competitive economy to some extent and creates entirely foreseeable ripples of injury which may be shown to reach individual employees, stockholders, or consumers, it has long been held that not all of these have the requisite standing to sue for treble damages and thereby take a leading role in the enforcement of the prohibition in question. See, e. g., Data Digests, Inc. v. Standard & Poor's Corp., 43 F.R.D. 386 (S.D.N.Y.1967). The private action, intended as "an ever-present threat to deter anyone contemplating business behavior in violation of the antitrust laws," Perma Life Mufflers, Inc. v. Int'l Parts Corp., 392 U.S. 134, 139, 88 S.Ct. 1981, 1984, 20 L. Ed.2d 982 (1968), can only serve as an effective deterrent if the courts are able to administer it with some degree of certainty. Contourless rules of causation would pose the threat of a parallel relaxation of the standard of business behavior enforced by the allowance of treble recovery. Consequently, a plaintiff must allege a causative link to his injury which is "direct" rather than "incidental" or which indicates that his business or property was in the "target area" of the defendant's illegal act. SCM Corp. v. Radio Corp. of America, 407 F.2d 166 (2 Cir.), cert. denied 395 U.S. 943, 89 S.Ct. 2014, 23 L.Ed.2d 461 (1969); Productive Inventions, Inc. v. Trico Products Corp., 224 F.2d 678 (2 Cir. 1955), cert. denied 350 U.S. 936, 76 S.Ct. 301, 100 L.Ed. 818 (1956). These terms do not provide talismanic guides to decision, but they do indicate the need to examine the form of violation alleged and the nature of its effect on a plaintiff's own business activities. See generally Pollock, Standing to Sue, Remoteness of...