Eastex Aviation, Inc. v. Sperry & Hutchinson Company
| Decision Date | 20 November 1973 |
| Docket Number | Civ. A. No. 5601. |
| Citation | 367 F. Supp. 868 |
| Parties | EASTEX AVIATION, INC. v. The SPERRY & HUTCHINSON COMPANY et al. |
| Court | U.S. District Court — Eastern District of Texas |
Jack N. Price, Price, Fisher, Hill, Patton & McLemore, Longview, Tex., for plaintiff.
J. Sam Winters, Donald Scott Thomas, Jr., Clark, Thomas, Denius, Winters & Shapiro, Austin, Tex., for defendant Sperry & Hutchinson Company.
John M. Smith, Smead, Roberts, Harbour, Smith, Harris & French, Longview, Tex., for defendants Royce Barnwell and Gregg County Aviation, Inc.
JUSTICE, District Judge.
In this civil action, the plaintiff attacks and the defendant seeks to protect certain business practices of Sperry and Hutchinson Company (hereinafter "S&H"), marketer of the familiar "S&H Green Stamps" that many merchants hand over to their customers as an incentive to do business with them. In applying for a permanent injunction against S&H, the plaintiff relies, inter alia, upon Sections One and Two of the Sherman Anti-Trust Act, 15 U.S.C. §§ 1 and 2.1 By way of counterclaim, S&H seeks injunctive relief against the plaintiff on the basis of unfair competition.
The plaintiff, Eastex Aviation, Inc., is a fixed-base operator at Gregg County Airport in Longview, Texas. Among the goods and services it offers to its customers are aviation gasoline, oil, parts, and accessories, flight instructions, charter flights, airplane rentals, and mechanical services. The defendant Gregg County Aviation, Inc., is also a fixed-base operator at Gregg County Airport, doing business in competition with the plaintiff. Defendant Royce Barnwell is the owner and president of Gregg County Aviation, Inc. At all times relevant to this suit, Gregg County Aviation has been a licensee of defendant S&H, and has dispensed S&H Green Stamps to its customers. The plaintiff, finding that the stamps were giving its competitor a marketing advantage, especially with respect to the sale of gasoline and oil products to corporate aircraft, requested licensing from S&H. It was refused on the grounds that S&H policy forbade the licensing of two similar businesses in such close geographical proximity. The plaintiff then entered into an agreement with another trading-stamp company to dispense its stamps, but this venture was unsuccessful, in part because the other company maintained no redemption center for its trading stamps in the Longview area. The plaintiff also attempted to compensate for its inability to offer stamps by giving its customers a cash discount equivalent to or greater than the cash value of the stamps that might be awarded for their purchases. This marketing ploy also failed, however, mostly because the corporate-owned aircraft that constitute the bulk of the fixed-base operator's business are often piloted by personnel who charge gasoline and oil purchases to the corporation and keep the trading stamps for themselves.
The plaintiff then commenced an activity characterized by the defendants as "pirating" or "bootlegging"—i. e., the purchase of Green Stamps from retailers who had received them from S&H under a license but who were willing to resell them.2 S&H became aware of the plaintiff's activities and managed to trace the source of its initial supply of "pirated" stamps by noting the serial numbers thereon. S&H then informed the plaintiff's supplier that it was in violation of its licensing agreement, which prohibited disposition of the stamps in any manner except in accordance with its provisions. On threat of losing its license to deal in Green Stamps, the supplier agreed to stop supplying the plaintiff with the stamps. This sequence of events was then repeated with another licensee who was initially willing to supply the plaintiff; that source also disappeared as a result of S&H's actions.
S&H occupies the predominant market position in the Longview area, insofar as trading stamps are concerned. No other trading stamp company maintains a redemption center in the near vicinity of Longview or offers S&H serious competition in this territory.
The plaintiff now requests that this court issue an injunction forbidding S&H to refuse to license it as a distributor of S&H Green Stamps or, in the alternative, an injunction forbidding S&H to interfere with such of its licensees as may wish to resell their supplies of stamps to the plaintiff. S&H has counterclaimed for an injunction forbidding the plaintiff to purchase Green Stamps from S&H licensees.
When S&H agrees to permit a retailer to dispense Green Stamps, their various obligations are set out in a "licensing agreement." S&H's obligations are to provide the retailer with the stamps and other materials and to redeem the books of stamps presented by the retailer's customers for merchandise. S&H sells Green Stamps to these merchants for a price of about $2.65 per 1000 stamps.3 The merchants ordinarily present their customers with one stamp for every ten-cent purchase, and 1200 stamps fill one book of stamps; thus, the customer must purchase $120.00 worth of goods to fill each book. The completed books of stamps may be redeemed at "redemption centers" for merchandise, at the rate of approximately $3.00 worth of merchandise per book.
In addition to the stamps, S&H is obligated to provide the retailer with empty stamp collecting books, catalogues of redemption merchandise, and advertising materials, including signs indicating that the merchant is a dispenser of Green Stamps. The agreement sometimes allows the parties to indicate a certain geographical area within which S&H agrees not to license any other retailer in a business primarily of the same type as the business of the licensee (except for those already doing business with S&H). The retailer must obligate himself to advertise the fact that he dispenses Green Stamps; to offer Green Stamps to all of his cash customers at the rate of one per ten-cent purchase; and to refrain from procuring, issuing, or disposing of the stamps in any manner except for the manner provided in the agreement. Finally, both parties stipulate that "property in and title to" the stamps (as well as the books and signs) remains in S&H, even while the stamps are possessed by the retailer or a consumer. The same stipulation appears on the materials supplied to consumers.
S&H pursues its policy of limiting the number of merchants whom it will license in certain geographical areas in order to offer to consumers a clear choice between establishments that offer Green Stamps and establishments that do not. In particular, S&H will sometimes refuse to license a certain retailer on the grounds that a nearby retailer in a similar type of business is already licensed to dispense Green Stamps.4 S&H contends that this policy is necessary to preserve the value of a Green Stamp license to a retailer. It claims that, were it to make the stamps available to any merchant who requested them, all merchants soon would be stamp dispensers, none would gain a competitive advantage by offering the stamps to customers, and eventually all merchants would cease to use them. S&H's restrictions upon resale or retailer-to-retailer transfer of Green Stamps are apparently directed toward the same purpose.
The court is presented with three questions:
(1) Whether the plaintiff is entitled under the antitrust laws to an injunction forbidding S&H to refuse to license the plaintiff as a distributor of Green Stamps;
(2) Whether the plaintiff is entitled under the antitrust laws to an injunction forbidding S&H to interfere with such of its licensees as may wish to resell their supplies of stamps to the plaintiff; and
(3) Whether under its counterclaim alleging unfair competition S&H is entitled to an injunction forbidding the plaintiff to purchase Green Stamps from S&H licensees.
The plaintiff contends that by refusing to license it as a distributor of S&H Green Stamps, S&H has committed a violation of Section One of the Sherman Act. As authority for this proposition, the plaintiff relies primarily upon the Supreme Court's decision in United States v. Arnold, Schwinn & Co., 388 U. S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967). That opinion affords the plaintiff no comfort, however, because of the following language appearing in it:
. . . a manufacturer of a product other and equivalent brands of which are readily available on the market may select his customers, and for this purpose he may "franchise" certain dealers to whom, alone, he will sell his goods.
Nor may the case at bar be compared successfully with cases in which a number of suppliers have conspired or agreed to refuse to deal with a retailer. See, e. g., Klor's v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959). Here, there is only the unilateral action of S&H, one of several national purveyors of trading stamps, in refusing to do business with the plaintiff. The naming of Gregg County Aviation, Inc., and its president as co-defendants does not create a conspiracy that qualifies as a Sherman Act violation. Were the court to accept the plaintiff's contention in this respect, it would be, in effect, declaring illegal the market devices of franchising and licensing. The Sherman Act does not provide, nor has it been interpreted to mean, that every manufacturer or purveyor of goods must supply every retailer that wishes to carry its products. United States v. Colgate & Co., 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992 (1919).
Plaintiff's second contention, that S&H's attempts to prevent or dissuade its licensees from selling or otherwise disposing of their supplies of Green Stamps to the plaintiff constitutes a violation of Section One of the Sherman Act, is principally based upon United States v. Arnold, Schwinn & Co., supra. The defendant claims that...
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