Jones v. Pepsi-Cola Company

• Citation: 223 F. Supp. 650
• Decision Date: 06 November 1963
• Docket Number: Civ. No. 592L.
• Parties: Paul JONES, Receiver, Pepsi-Cola Bottling Company of Alliance, Nebraska, Plaintiff, v. PEPSI-COLA COMPANY, a corporation, Defendant.
• Court: U.S. District Court — District of Nebraska

223 F. Supp. 650

Paul JONES, Receiver, Pepsi-Cola Bottling Company of Alliance, Nebraska, Plaintiff, v. PEPSI-COLA COMPANY, a corporation, Defendant.

Civ. No. 592L.

United States District Court D. Nebraska.

November 6, 1963.

COPYRIGHT MATERIAL OMITTED

Robert R. Moran, Alliance, Neb., for plaintiff.

Phillip M. Aitken, Lincoln, Neb., for defendant.

VAN PELT, District Judge.

This is an action for equitable relief in the form of an injunction and further for a declaratory judgment under Title 28 U.S.C.A. § 2201. Relief in the form of a declaratory judgment is proper in an action of this type. See Motor Terminals v. National Car Co., 92 F.Supp. 155 (United States District Court for the District of Delaware), affirmed 182 F.2d 732, where the court said:

"A proceeding in the nature of declaratory judgment is a form of remedial procedure which is particularly appropriate where the basic issue underlying the claim of the plaintiff is the interpretation or construction of a contract." 92 F. Supp. at 161.

Under the doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, the substantive law of Nebraska is applicable. The court believes the decisions from other jurisdictions hereinafter referred to would be followed by the Nebraska Supreme Court.

The action involves two contracts designated "Exclusive Bottling Appointment" and "Exclusive Fountain Syrup Appointment", both between the Pepsi-Cola Company and the Pepsi-Cola Bottling Company of Alliance, a partnership consisting of Edward J. Essay and his mother, Martha Essay. Both contracts are dated March 17, 1948. The partnership was dissolved by decree of the District Court of Box Butte County, Nebraska, on July 24, 1961, and a receiver appointed for the purpose of winding up the business of the partnership. For reasons to be hereinafter explained, the Bottling Appointment is of primary concern to the court.

To reach a decision as to the rights of the parties under the contracts in question, it is essential to determine what type of contracts were executed. Pepsi-Cola Company owns the registered trade name and trademark "Pepsi-Cola" and manufactures the "secret syrup" used in the bottling of the soft drink "Pepsi-Cola".

The bottling agreement provides that the bottler will closely follow the instructions of the Pepsi-Cola Company in relation to the bottling of the product, will operate a clean bottling plant at Alliance, Nebraska, to serve 21 counties in Nebraska and one county in South Dakota, will not handle a beverage that could be confused with Pepsi-Cola, and sets forth how the "secret syrup" is to be mixed and bottled. It further provides that the bottler will vigorously push the sale of Pepsi in his territory and will purchase the necessary syrup for the mixing of the finished product. The agreement has a forfeiture clause in the event that the bottler discontinues bottling the product for 30 days. Clause 14 of the "Appointment" provides as follows:

"That this Appointment cannot be transferred by the Bottler to another Bottler in said territory unless the Bottler first secures the prior written approval of Pepsi-Cola and the assignee assumes in writing the duties and obligations herein contained."

Trademarks, and particularly their use, are commonly transferred either by license or by assignment. The distinction between the two methods is of vital importance to the case at bar. An assignment passes the entire interest of the assignor in the trademark to the assignee, while a license to use the mark does not pass title to the trademark. The licensor retains all interest in the trademark other than that transferred to the licensee by the license agreement. See The Coca-Cola Bottling Co. v. The Coca-Cola Co., 269 F. 796 (District Court, District of Delaware) for a discussion of an assignment and E. F. Pritchard Co. v. Consumers Brewing Co., 6 Cir., 136 F.2d 512, explaining a license of a trademark. Doud v. Hodge, 146 F. Supp. 887 (United States District Court for the Northern District of Illinois) affirmed 354 U.S. 457, 77 S.Ct. 1344, 1 L. Ed.2d 1485, upheld the validity of a license agreement other than as an incident of a transfer of a business so long as it provided supervisory control of the product or services.

In determining the nature of the transfer in the case at bar, the contract executed will be compared with the contracts in both an assignment and a license agreement of similar trademarks. In the Coca-Cola Bottling Co. case, supra, 269 F. at page 811, the transfer of the trademark was held by the court to be an assignment or "* * * an absolute and unlimited right of user in the complainant to the exclusion of all others, including the Georgia corporation, its successors and assigns, the assignor of the trademark in the territory in question." The agreement itself provided for the establishment of a bottling plant by the bottler, that the bottler was to prepare the finished product, a 90-day forfeiture clause in the event of failure to produce the finished product in sufficient quantities, and a clause "granting" sole and exclusive use of the name and trademarks in the described territory. Of major importance was the fact that the territory involved the entire United States except for some eight states. The court held that the value of the assets, some $20,000,000.00, established as a result of the contract, was relevant to show that the contract was not subject to the will of any one party. It further held that the contract was in reality the purchase and sale of a potential business and the right to establish an actual business with property rights passing therewith. The agreement for the purchase and sale of syrup was held to be not of more importance than the other provisions relative to the use of the trademark and the entire agreement was held to be perpetual.

A contract such as the one in The Coca-Cola Bottling Co. case, supra, is to be compared with the contract in Ard Dr. Pepper Bottling Co. v. Dr. Pepper Co., 5 Cir., 202 F.2d 372, which was held to be a license agreement. The case involved the cancellation for cause by the Dr. Pepper Co. of its contract with the bottler. The contract provided for the price and terms of sale of the syrup, that the bottler would accept Dr. Pepper as its leading drink, that it would use approved equipment, that the bottler would promote the business and allow inspection. It further provided for advertisement, the maintenance of the plant, that the agreement would not be assigned, and contained a provision allowing cancellation upon 90 days notice by the bottler and for cause by Dr. Pepper Co. The court held such an agreement to be a license agreement and properly terminated for cause.

Similarly, in Brosious v. Pepsi-Cola Co., 3 Cir., 155 F.2d 99, the court indicated that a contract much similar to the one involved in the case at bar was a license agreement. The contract provided for the exclusive distributing of the product, that the bottler would push vigorously the sale of the product, and a provision made the contract assignable upon the approval of the parties. The court said, 155 F.2d on page 101:

"It is not asserted that Pepsi-Cola is without the unqualified right to make a contract whereby it sells its product to be distributed under reasonable conditions calculated to protect the good reputation of its product which is sold under a trademarked name."

The contract involved in the case at bar concerns but a few counties in Western Nebraska and South Dakota as compared with the greater part of the United States in The Coca-Cola Bottling Co. case, supra. Furthermore, while the amount involved is substantial, some $240,000.00 according to testimony in the record, it does not approach the $20,000,000.00 involved in the Coca-Cola case. The Pepsi-Cola Company has retained rights to terminate the contract for cause in the event the bottling company did not operate a clean plant or properly bottle the product. Upon considering these elements in the contract before the court, the court concludes that the contract was a license agreement between the parties for the use of the trademark "Pepsi-Cola" in territory set forth therein.

The court concludes that this license agreement was of perpetual duration. It is first to be noted that parties may contract in respect to trademarks, subject only to the law of corporations, with the law of contracts generally applying to these agreements. See Huber Baking Co. v. Stroehmann Bros. Co., 2 Cir., 252 F.2d 945 and Maola Ice Cream Co. v. Maola Milk & Ice Cream Co., 238 N.C. 317, 77 S.E.2d 910. The court reaches the conclusion that the contracts were perpetual upon consideration of the facts that the Pepsi-Cola Bottling Company of Alliance made substantial investments in bottles and equipment indicating that the parties did not intend for the contract to be subject to the whim of one party and that within the contract itself there was no length of time specified for the contract to be in effect.

A similar contract for the bottling of Coca-Cola was held to be perpetual in E. L. Husting Co. v. Coca Cola Co., 205 Wis. 356, 237 N.W. 85, 238 N.W. 626, 84 A. L.R. 22, in which an attempt was made by the supplier of syrup to cancel a contract with the bottler. The contract involved therein contained many provisions similar to the contract in question. It also had no fixed term but was indefinite in duration. The court held that if the contract were to be terminated it would be impossible for the bottler to replace himself in the market because of the "* * * character of the product and the manner of its vending * * *." Thus the court granted an injunction against the "* * * breach of the expressed or implied negative covenant which is always present in this type of contract." Citations omitted. The injunction prohibited the supplier, Western Bottling Co., from supplying syrup to any other bottler in the territory. Mere money damages were held to be...