Capital Temporaries, Inc. of Hartford v. Olsten Corp.

• Citation: 365 F. Supp. 888
• Decision Date: 11 October 1973
• Docket Number: Civ. No. 14749.
• Court: U.S. District Court — District of Connecticut
• Parties: CAPITAL TEMPORARIES, INC. OF HARTFORD et al. v. The OLSTEN CORPORATION.

365 F. Supp. 888

CAPITAL TEMPORARIES, INC. OF HARTFORD et al. v. The OLSTEN CORPORATION.

Civ. No. 14749.

United States District Court, D. Connecticut.

October 11, 1973.

COPYRIGHT MATERIAL OMITTED

Philip S. Walker, Robert P. Knickerbocker, Jr., Ralph C. Dixon, Hartford, Conn., for plaintiffs.

Irving S. Ribicoff, Louise H. Hunt, Matthew J. Forstadt, Hartford, Conn., for defendant.

RULING ON CROSS MOTIONS FOR SUMMARY JUDGMENT ON COUNT FIVE OF PLAINTIFFS' COMPLAINT

BLUMENFELD, Chief Judge.

On September 17, 1965, Constantine T. Zessos (Zessos) entered into a franchise agreement with the Olsten Corporation (Olsten), which licenses employment service businesses to operate under its trademark throughout the United States and Canada. Pursuant to this contract,¹ Zessos was permitted to use the Olsten trademark and received supplies and instruction in conducting the operation of a "white-collar" (largely secretarial) employment service; in return he agreed to pay $6,000 plus five per cent of his gross billing as franchise fees to the defendant. The agreement gave Zessos the right to open an Olsten's office in Hartford and Middlesex counties;² a "Rider" signed the same day gave him the right to operate in New Haven as well, provided he opened an Olsten's office there within eighteen months of the first billing made by the Hartford operation.³

In addition, Paragraph 2 of the agreement provided:

"The grant of the license hereunder includes the right of the LICENSEE to use the trade mark and name HANDY ANDY LABOR. All `blue collar' personnel shall be supplied by a division of the LICENSEE designated as HANDY ANDY LABOR commencing six (6) months from the date hereof. For the purposes of standards and rate of franchise fee, the total of all billings from whatever source shall be included.

The division shall be known as HANDY ANDY LABOR, a division of OLSTEN'S OF GREATER HARTFORD, INC. At the option of the LICENSEE, such division may be operated as a separate corporate entity. In such event, it shall be designated as HANDY ANDY LABOR OF GREATER HARTFORD, INC. In either event, separate bookkeeping shall be kept for the `blue collar' division. In the event the LICENSEE incorporates, all of the provisions as set forth in paragraph 23 shall apply."

The Rider makes no mention whatever about Handy Andy operations in New Haven.

Zessos claims that under the contract he was compelled to open a blue-collar Handy Andy employment service in order to receive the Olsten's white-collar franchise he desired.⁴ He asserts that Olsten, in yoking the two operations and refusing him the choice of taking the one he wanted by itself, enforced a tying arrangement (tie-in) unlawful under Section 1 of the Sherman Act, 15 U.S.C. § 1.⁵ The defendant denies that either its conduct or the contract itself obligated or compelled Zessos to operate a Handy Andy. In other words, Olsten argues that while Zessos was afforded the opportunity to operate the blue-collar agency if he chose to do so, he was required only to run the Olsten's office and pay the franchise fees. Both parties have moved for summary judgment on their claims.⁶ Fed.R.Civ.P. 56. Before examining their conflicting contentions as to the construction of the contract and its attendant circumstances, it is appropriate to review the antitrust principles pertinent to the dispute.

I. The Law Concerning Tie-ins

Under the Sherman Act, certain business practices are considered so blatantly at odds with the statute's policy of furthering competition that they are considered per se unreasonable⁷ and therefore "illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Northern Pac. R. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). Included on this roll of condemned practices are price fixing, group boycotts, market division and, if certain prerequisites are met, tying arrangements. Id. at 5, 78 S.Ct. 514. This practice "may be defined as an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier."⁸Id. at 5-6, 78 S.Ct. at 518. Since "tying arrangements serve hardly any purpose beyond the suppression of competition," Standard Oil Co. of California v. United States, 337 U.S. 293, 305-306, 69 S.Ct. 1051, 1058, 93 L. Ed. 1371 (1949), they "fare harshly under the laws forbidding restraints of trade." Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 606, 73 S. Ct. 872, 879, 97 L.Ed. 1277 (1953).

For a tie-in to fall under the per se prohibition of the Sherman Act, "the seller must have `sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product . . . .'" United States v. Loew's, Inc., 371 U.S. 38, 45, 83 S.Ct. 97, 102, 94 L.Ed. 1380 (1962), quoting Northern Pac. R. Co. v. United States, supra, 356 U.S. at 6, 78 S.Ct. 514. In addition, "a `not insubstantial' amount of interstate commerce must be affected." Northern Pac. R. Co. v. United States, supra, 356 U.S. at 6, 78 S.Ct. at 518. See also Fortner Enterprises v. United States Steel Corp., 394 U.S. 495, 501-504, 89 S. Ct. 1252, 22 L.Ed.2d 495 (1969).

A. The Requirement of Economic Power

While some, commentators have suggested that the Supreme Court has implicitly abandoned the requirement of economic power, see The Supreme Court, 1968 Term, 83 Harv.L.Rev. 7, 235 (1969), that proposition is not supported by case law. Rather, the Court has made the test progressively more easy to satisfy — compare Times-Picayune Pub. Co. v. United States, supra, with Fortner Enterprises v. United States Steel Corp., supra — and in certain circumstances permits the requisite economic power to be presumed. Foremost among the circumstances creating the presumption is when a barrier to competition is posed by the law, as when a product is protected by patent or copyright. See Fortner Enterprises v. United States Steel Corp., supra, 394 U.S. at 505 n. 2, 89 S.Ct. 1252; United States v. Loew's Inc., supra, 371 U.S. at 45, 83 S.Ct. 97. Soon after the Loew's case, this Circuit included a trademark or franchise license within the category of tying products. Susser v. Carvel Corp., 332 F.2d 505 (2d Cir. 1964), cert. granted, 379 U.S. 885, 85 S.Ct. 158 (1964), cert. dismissed, 381 U.S. 125, 85 S.Ct. 1364 (1965). But the majority in Susser refused to hold that the requisite economic power could be presumed from the existence of the trademark. See 332 F.2d at 519. They applied a "market dominance" standard in finding that the defendant in Susser lacked the requisite power; by rejecting that standard in Fortner Enterprises v. United States Steel Corp., supra, 394 U. S. at 502-506, 83 S.Ct. 1252, the Supreme Court vindicated Chief Judge Lumbard's dissenting opinion in Susser. See 332 F.2d at 513.⁹

It must be emphasized that Fortner does not hold that the mere existence of economic power in a seller is enough to meet the first criterion needed to establish the illegality of a tie-in. The economic power must not simply exist; it must be used. "There can be no illegal tie unless unlawful coercion by the seller influences the buyer's choice." Amer. Mfrs. Mut. Ins. Co. v. Amer. B-P Theatres, 446 F.2d 1131, 1137 (2d Cir. 1971), cert. denied, 404 U.S. 1063, 92 S. Ct. 737, 30 L.Ed.2d 752 (1972). See also, Belliston v. Texaco, Inc., 455 F.2d 175, 183-184 (10th Cir. 1972), cert. denied, 408 U.S. 928, 92 S.Ct. 2494, 33 L. Ed.2d 341 (1972); Abercrombie v. Lum's Inc., 345 F.Supp. 387, 391 (S.D. Fla.1972).

B. Impact on Interstate Commerce

As it has eased plaintiff's burden of proving the seller's market power, so has the Supreme Court liberalized its view of what proof will satisfy the requirement of a "not insubstantial" burden on the affected interstate commerce. In Fortner the Court sharply curtailed the market-share analysis that had been used by several lower courts, and stated that "normally the controlling consideration is simply whether a total amount of business, substantial enough in terms of dollar-volume so as not to be merely de minimis, is foreclosed to competitors by the tie." 394 U.S. at 501, 89 S.Ct. at 1258. It emphasized the role of the private antitrust plaintiff in "vindicating the important public interest in free competition," and thus refocused inquiry on the total impact of the practice under attack. "The relevant figure is the total volume of sales tied by the sales policy under challenge," not the plaintiff's portion of that total. 394 U. S. at 502, 89 S.Ct. at 1258. However, the Court's relaxation of a plaintiff's burden of proof on this point has not dispensed with the need for him to make some showing that the defendant's acts have in fact had some effect on interstate commerce.

II. Plaintiff's Motion for Summary Judgment

It is apparent from the foregoing review of tie-in doctrine that the plaintiff is contending for a novel extension of its reach. In defining the evil proscribed, all the cases talk about the power of sellers to force buyers to purchase products they might choose not to obtain from the seller if the tying arrangement did not obstruct free competition. See generally Note, The Logic of Foreclosure, 79 Yale L.J. 86 (1969). This action does not present that situation.

Unlike the plaintiffs in Susser v. Carvel Corp., supra, who were required to buy flavoring, topping and cones along with the franchise name, or the franchisees in Siegel v. Chicken Delight, supra, who had to buy spices, cooking equipment and packaging supplies from the defendant, Zessos was not constrained to pay Olsten any money whatever for the Handy Andy license. As appears from the plain language of the contract (para. 2), he simply received the right to use the Handy Andy trademark along with the Olsten name. The defendant earned no income from that...