Booth Bottling Co., Inc. v. Beverages Internat'l, Inc., Civ. A. No. 70-1510.

• Decision Date: 17 July 1973
• Docket Number: Civ. A. No. 70-1510.
• Citation: 361 F. Supp. 340
• Parties: BOOTH BOTTLING COMPANY, INC., Plaintiff, v. BEVERAGES INTERNATIONAL, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

361 F. Supp. 340

BOOTH BOTTLING COMPANY, INC., Plaintiff, v. BEVERAGES INTERNATIONAL, INC., et al., Defendants.

Civ. A. No. 70-1510.

United States District Court, E. D. Pennsylvania.

July 17, 1973.

Theodore W. Flowers, White & Williams, Philadelphia, Pa., for plaintiff Booth Bottling Co., Inc.

Benjamin M. Quigg, Jr., Morgan, Lewis & Bockius, Philadelphia, Pa., for Beverages International, Inc. and Crush International, Inc.

Stephen E. Angstreich, Mann & Ungar, Philadelphia, Pa., for Canada Dry and Pepsi Cola.

MEMORANDUM AND ORDER

JOHN MORGAN DAVIS, District Judge.

Presently before this Court is a complex anti-trust case in which two Motions have been submitted for ruling. One submitted by the Plaintiff, Booth Bottling Company, Inc. (hereinafter "Booth"), requests this Court grant partial summary judgment on count 1 of the above captioned Complaint. The second Motion, submitted by Beverages International, Inc., (hereinafter "Beverages"), and Crush International, Inc., (hereinafter "Crush"), is a request to dismiss count 3 of the above captioned case as to Defendants' "Beverages" and "Crush" only. The Court will consider the Motion for partial summary judgment first after a short discussion of the history and facts in this case.

I. DISCUSSION OF THE FACTS

The Plaintiff filed its Complaint in 1970 under Section 4 of the Act of Congress, October 15, 1914, 15 U.S.C. ž 4, alleging violations of žž 1, 2 of the Sherman Act, 15 U.S.C. žž 1, 2; and ž 7 of the Clayton Act, 15 U.S.C. ž 18. "Booth" is also alleging a breach of contract in count No. 4 of an alleged subfranchise agreement. The only count which we are concerned with in the Motion for Partial Summary Judgment is count 1, which alleges a violation of ž 1 of the Sherman Act.

The facts in this case indicate that "Beverages" is the owner of a product and trademark called Hires Root Beer. "Beverages" contracts to various bottlers and distributors throughout the country the right to bottle and distribute their product. "Beverages" contracts to sell the syrup to the bottler distributor who then manufactures and distributes the product under the Hires label. In this case there is a franchise agreement, included in the Brief of the Plaintiff "Booth", which indicates that there was an agreement between "Beverages" and Pepsi-Cola Bottling Company of Pennsauken (hereinafter "Pepsi") to manufacture and distribute Hires Root Beer within a certain designated area in the Delaware Valley of New Jersey, Delaware and Pennsylvania. What control "Beverages" maintains over the final product is unknown to this Court. As the defendant "Beverages" owns the trademark, there must be some control of the product sold under the trademark as far as quality and other standards are concerned. The remainder of any facts which are known to the Court at this time will be developed as it rules on the two Motions which are before it.

At this time discovery is essentially complete and the parties are prepared for trial. The Court in effect has the full discovery record before it but it does not have a full trial record which it feels is an essential ingredient in a determination of a complex anti-trust case such as this one.

II. VERTICAL INTEGRATION

"Booth" has submitted to this Court a Motion for Partial Summary Judgment on Count 1 in which the main thrust of the argument is that there is a per se violation of the Sherman Act because the defendants "Beverages" and "Crush" have placed vertical restrictions on the sale of the product, Hires Root Beer, by imposing territorial boundaries in the Delaware Valley Area. They contend that such vertical restrictions are a per se violation of the Sherman Act; and this factual situation is completely covered by the law and factual situation presented in the case of United States v. Arnold Schwinn and Company, 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967). The Plaintiff also contends that the factual situation in Schwinn is extended by United States v. Glaxo Group Limited, 302 F.Supp. 1 (D.D.C. 1969).

Before discussing the present factual situation as related to the most recent cases, a short history of vertical integration is warranted. Vertical integration or restriction is a term that first finds itself in the legal terminology of anti-trust cases in United States v. Yellow Cab Co., 332 U.S. 218, 67 S.Ct. 1560, 91 L.Ed. 2010 (1947). The Supreme Court said at 227, 67 S.Ct. at 1565:

The fact that these restraints occur in a setting described by the appellees as a vertically integrated enterprise, does not necessarily remove the ban from the Sherman Act. The test of illegality under the Act is the presence or absence of an unreasonable restraint on interstate commerce. Such a restraint may result as readily from a conspiracy among those who are affiliated or integrated under common ownership as from a conspiracy among those who are otherwise independent.

The fact situation in Yellow Cab is similar to many of the other cases in which vertical restrictions have been alleged against the defendant, i.e. the defendant has attempted to retain the immediate control of a product after he has sold it to a distributor by restricting the sales of the distributor.

The Supreme Court in attempting to give guidelines as to the legality of vertical integration under the Sherman Act stated in United States v. Paramount Pictures, 334 U.S. 131, 174, 68 S.Ct. 915, 92 L.Ed. 1260 (1947) that there are two considerations that must be taken into account in analyzing vertical restrictions or integration. First, the purpose or the intent with which vertical integration was conceived and second the power it creates in the attendant purpose or intent. Thus, this Court feels that it is required to look behind the facts as presented in an attempt to determine the intent of the corporations involved. The best way this Court knows of determining intent is to question and examine the witnesses themselves as only in that manner can innuendos, nuances of meaning, and credibility be determined by the Court in the trial of the facts.

In the case of the United States v. Columbia Steel Co., 334 U.S. 495, at 527, 68 S.Ct. 1107 at 1124, 92 L.Ed. 1533 (1947), the Supreme Court looked into

. . . we conclude that the so-called vertical integration resulting from the acquisition of Consolidated does not unreasonably restrict the opportunities of the competitor producers of rolled steel to market their product. We accept as the relevant competitive market the total demand for rolled steel products in the eleven-state area; over the past ten years Consolidated has accounted for only 3% of that demand, and if expectations as to the development of the western steel industry are realized, Consolidated's proportion may be expected to be lower than that figure in the future. Nor can we find a specific intent in the present case to accomplish an unreasonable restraint . . .

The Court was looking at the effect of vertical integration in the Columbia case, and was attempting to determine if there was an unreasonable restraint on Interstate Commerce by looking at competitive markets. From an analysis of the entire facts in the case and after a complete trial was held on the facts, the Supreme Court was able to state that there was no violation of the Sherman Act through vertical integration as the territorial restrictions had little impact on the competitive market.

The question before this Court is whether there is a per se violation of the Sherman Act by means of vertical restrictions or integration. In White Motor Company v. United States, 372 U.S. 253, 83 S.Ct. 696, 9 L.Ed.2d 738 (1963), the Supreme Court refused to classify vertical territorial limitations as a per se violation of the Sherman Act. The Court said at 263, 83 S.Ct. at 702:

"Horizontal territorial limitations . . . are naked restraints of trade with no purpose except stifling of competition. A vertical territorial limitation may or may not have that purpose or effect. We do not know enough of the economic and business stuff out of which these arrangements emerge to be certain. They may be too dangerous to sanction or they may be allowable protections against aggressive competitiors, or the only practicable means a small company has for breaking into or staying in business . . . and within "the rule of reason." We need to know more than we do about the actual impact of these arrangements on competition to decide whether they have such a "pernicious effect on competition and lack . . . any redeeming virtue" (Northern Pacific Railroad Co. v. United States, supra, 356 U.S. 1, p. 5, 78 S.Ct. 514, 2 L.Ed.2d 545) and therefore should be classified as per se violations of the Sherman Act.

Although the White Motor case, supra, was decided prior to Schwinn, supra, which is the Supreme Court's latest ruling on vertical integration, its analysis of the rule of reason to be applied in certain situations remains the law. The Schwinn case, supra, and its extensions indicates in what situations a court is permitted to grant summary judgment if there is a per se violation of the Sherman Act by means of vertical territorial restrictions.

In Schwinn, supra, the Supreme Court did not rule that all vertical territorial restrictions are per se illegal. The Supreme Court found that part of the Schwinn distribution plan was a per se violation of the Sherman Act while another part of the Schwinn plan was not a per se violation of the Sherman Act. If the manufacturer retains or attempts to retain dominion or control over its product upon sale and delivery to an independent distributor, then this Court following the reasoning in Schwinn, supra, would have to grant Summary Judgment in this case as there would be a per se violation of the Sherman Act. However, the Supreme Court applied the rule of reason to the situation where the delivery of bicycles to distributors who were indistinguishable from salesmen or agents of the manufacturer and...