California Glazed Products, Inc. v. Burns and Russell Co. of Baltimore City

• Decision Date: 22 June 1983
• Docket Number: Nos. 82-4129,82-4135,s. 82-4129
• Citation: 708 F.2d 1423
• Parties: , 1983-1 Trade Cases 65,467 CALIFORNIA GLAZED PRODUCTS, INC., a California corporation, Plaintiff-Appellant/Cross Appellee, v. The BURNS AND RUSSELL COMPANY OF BALTIMORE CITY, a Maryland corporation, Defendant-Appellee/Cross Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1423

708 F.2d 1423

219 U.S.P.Q. 209, 1983-1 Trade Cases 65,467

CALIFORNIA GLAZED PRODUCTS, INC., a California corporation Plaintiff-Appellant/Cross Appellee, v. The BURNS AND RUSSELL COMPANY OF BALTIMORE CITY, a Maryland corporation, Defendant-Appellee/Cross Appellant.

Nos. 82-4129, 82-4135.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 12, 1983.

Decided June 22, 1983.

Richard Haas, Lasky, Haas, Cohler & Munter, San Francisco, Cal., for plaintiff-appellant/cross-appellee.

Lawrence Alioto, Alioto & Alioto, San Francisco, Cal., for defendant-appellee/cross-appellant.

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

Before WISDOM ^*, Senior Circuit Judge, and SKOPIL and FERGUSON, Circuit Judges.

WISDOM, Senior Circuit Judge:

This appeal presents the issue whether a trademark licensing agreement requiring California Glazed Products Co. ("CGP") to purchase from the Burns & Russell Company ("B & R") all the ingredients needed to make finished masonry blocks constitutes an unlawful tying arrangement in violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. Sec. 1 (1976). ¹ The jury found that an unlawful tying arrangement existed and awarded damages to CGP for losses stemming from the tying arrangement. Because we conclude that no tying arrangement exists in this case, we reverse.

I.

B & R is a small Baltimore company which makes glazed masonry blocks. One of its employees, John Sergovic, a polymer chemist, with others, invented a patented process for baking a tinted, glazed face on a masonry block and developed the secret compounds used in that process. B & R owns three registered trademarks: (1) "Spectra-Glaze," which identifies the secret compound used in making glazed masonry blocks; (2) "Spectra-Glaze," which identifies the finished masonry block; and (3) "S-G Sand," which is the filler used in making the "Spectra-Glaze" facing. B & R also owns U.S. Letters Patent Nos. 3,328,231 and 4,031,289, which explain how to glaze a masonry block with a smooth, stain-resistant facing and how to make the finished product.

The main ingredients used to make the facing of a Spectra-Glaze block ² are Spectra-Glaze Compound, ³ S-G Sand, ⁴ S-G Colors, ⁵ and fire retardant. These materials have been improved, tested, and refined over a period of years to develop a facing for masonry blocks that is resistant to staining, cracking, and discoloration. These blocks are available in 48 standard colors, come in a number of different scores, designs, and textures, and can be used to construct interior or exterior walls.

On March 7, 1958, CGP signed two agreements with B & R allowing it to manufacture and sell the Spectra-Glaze line of masonry blocks. The first, a patent license agreement, allowed CGP to use any patent owned by B & R for a two percent royalty. The term of the patent license agreement was for the life of the patents, and it did not require CGP to do or buy anything. The second agreement, the trademark license, authorized CGP to sell glazed blocks under the trademark Spectra-Glaze, but only if the blocks were glazed with Spectra-Glaze Compound. Under the trademark license, CGP agreed to purchase all its requirements needed to make the Spectra-Glaze facing from B & R. The term of the trademark agreement was 20 years, and after the first year, CGP could terminate it on 60 days' notice. ⁶

Under these agreements, B & R furnished CGP formulas for combining the ingredients used in making Spectra-Glaze facing. B & R also furnished technical manuals and extensive technical assistance to CGP when problems arose or technical advice was needed. ⁷ B & R also provided marketing assistance and had an "Advisory Committee" to decide on how to advertise the Spectra-Glaze line. B & R provided CGP with sales and management support, including regular bulletins of market conditions and sales prospects, advertising material, sales aids, and sales training seminars. B & R commissioned independent laboratory tests to determine the quality of its product. With the exception of advertising, these services and others were provided to CGP at no charge.

From the outset, CGP's business was unsuccessful, in part because of the adverse effect of California building codes, business slumps, and strikes in the construction industry. ⁸ On March 7, 1978, CGP requested and was granted an extension of the trademark license. B & R attempted to help CGP by furnishing it new materials on consignment. Indeed, the defendant avers that the plaintiff remained in business only because the defendant was willing to act as its banker. On May 31, 1979, CGP notified B & R that it would terminate its contract because of technical and sales difficulties. CGP went out of business in June 1979.

During the 20-plus years of the parties' relationship, CGP had never advised B & R that it did not want to buy from B & R, or that CGP wanted to buy from someone else, or that CGP wanted any change in the relationship. Instead, on March 7, 1978, when the 20-year term of the trademark license expired, CGP requested that the license be extended for two additional years with an evergreen provision for additional two year periods.

CGP brought a suit against B & R alleging that the agreements between CGP and B & R constituted an illegal tying arrangement. CGP's contention at trial was that B & R unlawfully tied the sale of its Spectra-Glaze trademark for glazed, masonry blocks to the sale of the materials required to make Spectra-Glaze facing. CGP alleged that B & R overcharged CGP for these materials. ⁹ B & R counterclaimed for money due on patent royalties, a promissory note, and an open book account.

CGP and B & R agreed that CGP owed $12,866.36 on the promissory note and $18,750 on the patent royalties claim, and the jury was instructed to return a verdict in these amounts on these claims. The jury found that $4,444.28 was due on the open book account and awarded CGP $51,787.27 on its claim for overcharge damages. The court added interest of $4,745.93 to the amount of unpaid patent royalties. After trebling the damages and offsetting the amounts owed to B & R, the district court awarded $114,575.24 to CGP. The district court denied B & R's motion for judgment notwithstanding the verdict.

The defendant appeals on the ground that it is entitled to a judgment as a matter of law, and that there is no substantial evidence to support a reasonable jury's finding that there was an unlawful tying arrangement which caused damage to CGP. B & R contends also that if a tying arrangement existed, it was lawful and justifiable. Finally, B & R contends that there was insufficient evidence to support the award for damages. CGP argues that these issues involved factual determinations appropriate for jury resolution and that the jury properly found the existence of an illegal tie-in.

In deciding whether to reverse the district court's refusal to grant B & R's motion for judgment n.o.v., this court must determine whether the evidence when viewed most favorably to the party against whom the motion is directed cannot support a verdict in that party's favor. See Traver v. Meshriy, 627 F.2d 934, 939-40 (9th Cir.1980); Quichocho v. Kelvinator Corp., 546 F.2d 812, 813 (9th Cir.1976).

II.

Tying arrangements traditionally have been treated as per se illegal under Section 2 of the Sherman Act and Section 3 of the Clayton Act, 15 U.S.C. Sec. 14 (1976). See Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 498-99, 89 S.Ct. 1252, 1258-1259, 22 L.Ed.2d 495, 502-03 (1969) (Fortner I). ¹⁰ A tying arrangement exists when a seller conditions a buyer's purchase of a desired product (tying product) on the buyer's agreement to purchase another product (tied product). Northern Pac. Ry. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545, 550 (1958). To prevail on a tying claim, a plaintiff must show that the scheme involves two separate products and conditions the purchase of the tying product on the purchase of the tied product; that the seller possesses sufficient economic power in the tying market to restrain competition in the tied product market; and that a "not insubstantial" amount of commerce is affected by the tie-in. Fortner I, 394 U.S. at 499, 89 S.Ct. 1252, 1258, 22 L.Ed.2d 495, 502 (1969). Hirsh v. Martindale-Hubbell, Inc., 674 F.2d 1343, 1346-47 (9th Cir.1982), cert. denied, --- U.S. ----, 103 S.Ct. 305, 74 L.Ed.2d 285 (1982); Siegel v. Chicken Delight, Inc., 448 F.2d 43 (9th Cir.1971), cert. denied, 405 U.S. 955, 92 S.Ct. 1172, 31 L.Ed.2d 232 (1972). This court has said that plaintiffs must show "some modicum of coercion" to establish a tie-in. Moore v. James H. Matthews & Co., 550 F.2d 1207, 1216 (9th Cir.1977).

III.

In a tie-in case the first issue to be determined is whether two separate products exist that are tied together. The two products allegedly tied in this case are the Spectra-Glaze trademark and the ingredients used to make Spectra-Glaze blocks. CGP contends that the jury properly determined that the Spectra-Glaze trademark was the tying product B & R used to force CGP to buy Spectra-Glaze Compound and other ingredients from B & R. ¹¹ B & R argues that, as a matter of law, the Spectra-Glaze trademark was not a separate tying product from the ingredients and the finished masonry block which the trademark identifies.

This Court recently has considered the issue whether a trademark can be a separate tying product from the products it represents. ¹² In Krehl v. Baskin-Robbins Ice Cream Co., 664 F.2d 1348 (9th Cir.1982), decided after the judgment was rendered in the district court in the instant case, we found that the determination "whether a trademark may appropriately be regarded as a separate product requires an inquiry into the relationship between the trademark and the products allegedly tied to its sale." Id. at 1353. The Krehl Court distinguished between...