Kentucky Fried Chicken Corp. v. Diversified Pkg. Corp.

• Decision Date: 23 May 1974
• Docket Number: No. 73-492-Civ-CF.,73-492-Civ-CF.
• Citation: 376 F. Supp. 1136
• Parties: KENTUCKY FRIED CHICKEN CORPORATION, a Delaware corporation, Plaintiff, v. DIVERSIFIED PACKAGING CORPORATION, a Missouri corporation, and Diversified Container Corporation, a Missouri corporation, Defendants.
• Court: U.S. District Court — Southern District of Florida

376 F. Supp. 1136

KENTUCKY FRIED CHICKEN CORPORATION, a Delaware corporation, Plaintiff, v. DIVERSIFIED PACKAGING CORPORATION, a Missouri corporation, and Diversified Container Corporation, a Missouri corporation, Defendants.

No. 73-492-Civ-CF.

United States District Court, S. D. Florida.

May 23, 1974.

William J. Dunaj of Mershon, Sawyer, Johnston, Dunwody & Cole, Miami, Fla., Robert R. Feagin, III, of Holland & Knight, Tallahassee, Fla., for plaintiff.

Burton H. Shostak, St. Louis, Mo., Edward F. O'Herin, Malden, Mo., and Lloyd A. Palans, St. Louis, Mo., John L. Britton, Friedman, Britton & Stettin, Miami, Fla., for defendants; Kramer, Chused, Kramer, Shostak & Kohn, St. Louis, Mo., of counsel.

MEMORANDUM OPINION

FULTON, Chief Judge.

This cause was tried before the Court, sitting without a jury, for five and one-half days. The Court having considered the evidence and the arguments and authorities relied upon by all parties, enters this Memorandum Opinion.

NATURE OF THE ACTION

This action was brought by the Plaintiff, Kentucky Fried Chicken Corporation ("KFC Corp."), against the Defendant, Diversified Packaging Corporation ("Packaging") and Diversified Container Corporation ("Container"), for trademark infringement, unfair competition and tortious interference with the contractual relations between KFC Corp. and its franchisees. The Defendants in their Answer asserted affirmative defenses and counterclaims based upon allegations that KFC Corp. had violated Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act through various actions, including inter alia, the imposition of a tying arrangement upon its franchisees. KFC Corp. in its reply denied these allegations and, in addition, raised the affirmative defenses of justification the Defendants' lack of standing and KFC Corp.'s actions in good faith in adopting the arrangements in question under judicial supervision in a prior suit.

As the result of amendments to the pleadings and stipulations entered pursuant to extensive pre-trial proceedings, the issues were considerably narrowed. For its part, KFC Corp. abandoned its claim of tortious interference with contractual relations and withdrew its demand for damages, thereby limiting the relief it sought to an injunction and costs. The Defendants withdrew all their counterclaims and affirmative defenses with the exception only of the counterclaim asserted by Defendant Container seeking treble damages and an injunction for tying under Section 1 of the Sherman Act and the affirmative defense asserted by both Defendants based on misuse arising from the same allegations of tying.

The Court's jurisdiction over the claims and counterclaims that remained for trial is conferred by: 15 U.S.C. § 1121 and 28 U.S.C. § 1338(a) (as to Plaintiff's claims under the Lanham Act); 28 U.S.C. § 1338(b) (as to Plaintiff's claim of unfair competition); 15 U.S.C. §§ 15, 26 and 28 U.S.C. § 1337 (as to Defendant Container's anti-trust claim). In addition, complete diversity of citizenship exists between the parties and the amount in controversy exceeds $10,000, thereby giving the Court jurisdiction as to all claims under 28 U.S.C. § 1332.

THE PARTIES AND THEIR RELATIONSHIPS

Plaintiff KFC Corp., a Delaware corporation with its principal place of business in Louisville, Kentucky, owns and operates fast-food restaurants throughout a large part of the United States, and it also franchises others to operate the same kind of restaurants in every state except Utah, Montana and Florida. These company-owned and franchised restaurants are unique in that their menus feature fried chicken prepared in accordance with a secret recipe originated by Colonel Harland Sanders, the founder of the business. By the early 1950's Colonel Sanders was selling and franchising others to sell chicken prepared according to this secret recipe to the public under trademarks and service marks now owned by Plaintiff KFC Corp., which included: "Kentucky Fried Chicken", "Colonel Sanders' Recipe", "Colonel Sanders' Recipe Kentucky Fried Chicken", a picture or drawing of the face of Colonel Sanders, and "it's finger lickin' good". Because of Plaintiff's extensive advertising and sales of products bearing the foregoing trademarks and service marks, such trademarks and service marks have become very well known to the American public.

In the operation of the Kentucky Fried Chicken chain of restaurants, KFC Corp. requires its company-owned and franchised stores to use certain equipment, food ingredients, packaging materials and other products that meet standards and specifications established by KFC Corp. The products involved in this suit fall within this category. Although KFC Corp. has traditionally offered a large number of these products for sale to its franchisees and company-owned stores, at all times material to the claims in this case, KFC Corp. has permitted its franchisees to buy the products from other approved sources. In addition, pursuant to the settlement of a class action filed in the District Court for the Middle District of Florida (G & K Foods, Inc. v. KFC, Inc., et al., Case No. 71-5-Civ.-Ft.M.), KFC Corp. offered to all its franchisees amendments to their franchise contracts which, inter alia, clarified the right of the franchisees to buy direct from approved sources and established procedures for franchisees to obtain approval of additional suppliers with whom they wished to deal.

Defendant Packaging is a Missouri corporation and was incorporated on June 25, 1968. Pursuant to a proposal made by its president, Mr. Sanford Gubernick, Packaging entered into a business arrangement with KFC Corp. whereby Packaging wrapped and sealed napkins and "towelettes" (wet-naps) bearing the Plaintiff's trademarks and service marks and unmarked plastic eating utensils in a clear plastic wrapper. Packaging purchased the components, other than the plastic wrapping material, from KFC Corp. and resold the complete package as a "prepack" to KFC Corp. for sale by it to its franchisees and company-owned stores. KFC Corp. also continued to sell the plastic eating utensils, napkins and towelettes as separate items to its company-owned and franchised outlets. During the course of the foregoing relationship, Packaging also obtained KFC Corp.'s permission to supply to it plastic eating utensils that bore Plaintiff's trademarks and service marks. Packaging thereafter had these items produced for it by another concern and then sold the trademarked utensils to KFC Corp., both separately and in the "prepacks".

Packaging continued supplying these utensils and prepacks to KFC Corp. until KFC Corp. accepted offers from other companies to supply these products at lower prices. After some discussions between these parties, on August 9, 1972, Packaging and Mr. Gubernik executed a release in favor of Plaintiff in exchange for the receipt of $10,000. The parties have stipulated that this release bars any and all claims that Packaging or Mr. Gubernik might have had arising prior to the date of its execution. In the fall of 1972 Packaging ceased doing business, although the corporation has never been dissolved.

On August 24, 1972, Defendant Container was formed as a Missouri corporation by Sanford Gubernik and E. John Tamblyn, Jr., each of whom received 50% of its stock. Mr. Gubernik was also named president of this new corporation. Mr. Tamblyn was, at the time of Container's incorporation, the sales manager of Folding Cartons, Inc.—one of the four companies that manufacture automatic bottom folding cartons bearing KFC Corp.'s trademarks and service marks for resale by KFC Corp. to its company-owned and franchised outlets. Mr. Tamblyn participated in negotiating an agreement between his employer and Container whereby Folding Cartons, Inc. agreed (without its President's knowledge that Tamblyn was co-owner of Container) to sell to Container automatic bottom folding cartons in the dinner, snack and "crispy chicken" sizes bearing the Plaintiff's trademarks and service marks. Container thereafter purchased these cartons bearing the Plaintiff's trademarks and service marks from Folding Cartons, Inc. and commenced advertising and selling them to franchisees of the Plaintiff and others without the authorization or consent of the Plaintiff.

In the fall of 1972 Sanford Gubernik also formed and became president of a third Missouri corporation called Portion Control Corporation ("Portion") which began doing business in the same physical business premises as Container, utilizing some of the same employees as Container Portion manufactured towelettes bearing the Plaintiff's trademarks and service marks which were then advertised for sale and sold by Container along with the automatic bottom cartons bearing KFC Corp.'s trademarks and service marks. Neither Container nor Portion ever requested or received any authorization from the Plaintiff to manufacture, advertise or sell any products bearing the Plaintiff's trademarks or service marks.

TRADEMARK INFRINGEMENT

The marks in suit, stipulated by the parties to be owned by the Plaintiff and duly registered in the United States Patent Office, consist of the following:

(a) "it's finger lickin' good"—registered as a trademark on November 5, 1963, Registration No. 759,775, and registered as a service mark on December 28, 1965 as Registration No. 801,095;

(b) "Colonel Sanders' Recipe"—registered as a trademark on September 6, 1966, as Registration No. 814,610, and registered as a service mark on March 15, 1966, as Registration No. 805,773;

(c) The portrait of Harland Sanders —registered as a trademark on July 5, 1966, as Registration No. 810,835, and registered as a service mark on March 22, 1966, as Registration No. 806,104;

(d) "Kentucky Fried Chicken"—registered as a trademark on November 14, 1967, as Registration No. 838,895, and registered as a service mark on September 13, 1966, as Registration No. 815,167;

(e) "Colonel

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