Krehl v. Baskin-Robbins Ice Cream Co.

• Decision Date: 04 January 1982
• Docket Number: BASKIN-ROBBINS,No. 80-5068,80-5068
• Citation: 664 F.2d 1348
• Parties: 1982-1 Trade Cases 64,449 Norman E. KREHL, et al., Plaintiffs-Appellants, v.ICE CREAM COMPANY, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1348

664 F.2d 1348

1982-1 Trade Cases 64,449

Norman E. KREHL, et al., Plaintiffs-Appellants, v. BASKIN-ROBBINS ICE CREAM COMPANY, et al., Defendants-Appellees.

No. 80-5068.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 8, 1981.

Decided Jan. 4, 1982.

Dean Richard Calkins, Burditt & Calkins, Chicago, Ill., for plaintiffs-appellants.

Stuart L. Kadison, Los Angeles, Cal., argued for defendants-appellees; Pfaelzer, Woodard, Quinn & Rossi, Ernest A. Braun, Bartman, Braun & Halper, Robert E. Willard, Holley, Galen & Willard, Los Angeles, Cal., on brief.

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

Before ELY and REINHARDT, Circuit Judges, and CORDOVA, ^* District judge.

ELY, Circuit Judge:

In this class action antitrust suit against Baskin-Robbins Ice Cream Company (BRICO) and its area franchisors, ¹ certain franchisees ² appeal from an order of involuntary dismissal entered against them by the District Court. Because franchisees stipulated that Baskin-Robbins would be entitled to judgment absent proof of a per se violation of the antitrust laws, we have no occasion to consider the lawfulness of the challenged business practices under the so-called "rule of reason." We affirm.

I. FACTUAL BACKGROUND

BRICO, the nation's largest chain of ice cream specialty stores, operates the quintessential franchise system. See generally ABA Antitrust Section, Monograph 2, Vertical Restrictions Limiting Intrabrand Competition, 1-6 (1977). Originally a small Southern California ice cream manufacturer, BRICO ³ initially engaged in the direct franchising of retail outlets in California. In 1959, BRICO began a program of expansion through licensing independent manufacturers to produce Baskin-Robbins ice cream and establish Baskin-Robbins franchised stores. This mode of expansion was chosen because shortages of capital and personnel rendered any other method impracticable.

The distribution system employed by BRICO has essentially three tiers. At the top is BRICO itself. It manages the chain of franchised stores, selects the area franchisors, and, through a wholly owned subsidiary, ⁴ acts as the prime lessor of all Baskin-Robbins store properties.

At the second level of the system are the eight independent manufacturers licensed by BRICO to operate as area franchisors. BRICO, again through a wholly owned subsidiary, also operates at this level, acting as an area franchisor in six exclusive territories. The independent area franchisors are contractually bound to BRICO by Area Franchise Agreements. These agreements provide each area franchisor with an exclusive territory in which to manufacture Baskin-Robbins ice cream products. They also authorize the area franchisors, in conjunction with BRICO, to establish and service Baskin-Robbins franchised stores within their respective territories. Under these agreements, the area franchisors are forbidden to disclose the secret formulae and processes by which Baskin-Robbins ice cream products are manufactured.

The third level of the Baskin-Robbins system is composed of the franchised store owners. These independent businessmen are bound to both BRICO and the area franchisor by the standard form Store Franchise Agreement. Under these agreements, the franchised store may sell only Baskin-Robbins ice cream products purchased from the area franchisor in whose territory the store is located.

It is important to note that BRICO utilizes a "dual distribution" system. Under this system, BRICO operates on two distinct levels of the distributional chain. As the owner of the Baskin-Robbins trademarks and formulae, it licenses independent area franchisors to manufacture Baskin-Robbins ice cream and establish franchised stores. In this respect, BRICO's relationship to the area franchisors is vertical in nature. BRICO also operates as an area franchisor, thereby assuming a horizontal position relative to the other area franchisors.

BRICO provides extensive advertising and promotional support for both the area franchisors and the store franchisees. As part of its services to the area franchisors, BRICO sponsors quarterly Marketing, Organization, and Planning (MOAP) meetings. Attendance of these meetings is voluntary but, generally, a majority of the area franchisors are represented. At these meetings, topics of current interest are discussed, including marketing strategy, industry trends and costs. On occasion, informal discussions regarding wholesale and retail prices have taken place.

Certain franchisees of Baskin-Robbins bring this treble damage antitrust suit, alleging three separate per se violations of § 1 of the Sherman Act (15 U.S.C. § 1). First, they contend that Baskin-Robbins ice cream products are unlawfully tied to the sale of the Baskin-Robbins trademark. Second, they challenge the Baskin-Robbins "dual distribution" system as an unlawful horizontal market allocation. Finally, franchisees allege that BRICO and its area franchisors conspired to fix the wholesale prices of Baskin-Robbins ice cream products.

At the close of franchisees' case in chief, Baskin-Robbins moved to dismiss the action, pursuant to Rule 41(b) of the Federal Rules of Civil Procedure. The District Court, sitting without a jury, granted the motion, holding, inter alia, that: 1) The tie-in claim failed because franchisees did not establish that the Baskin-Robbins trademark was a separate product from Baskin-Robbins ice cream; 2) the horizontal market allocation claim failed because franchisees did not establish the requisite concerted activity among competitors; and 3) the wholesale price fixing claim failed for lack of proof of a purpose or effect to fix prices. ⁵ This appeal, premised on 28 U.S.C. § 1291, ensued.

II. ANALYSIS

A. Standard of Review

Our first step in resolving the important issues presented by this appeal is a determination of the applicable standard of review. Rule 52(a) of the Federal Rules of Civil Procedure provides that the findings of fact made by the District Court, sitting without a jury, are not to be disturbed on appeal unless "clearly erroneous." ⁶

Franchisees argue, however, that where the case rests primarily upon documentary evidence rather than live testimony, a more exacting inquiry by the appellate court is warranted. Because this case is based in large part on documentary evidence, franchisees contend the appropriate standard is one of de novo review.

In support of this contention, franchisees cite James Burrough, Ltd. v. Sign of the Beefeater, Inc., 540 F.2d 266 (7th Cir. 1976). In that case, the Seventh Circuit held, that where the issue is likelihood of confusion in a trademark infringement case, the appellate court "is as capable as ... the district court of determining" the ultimate legal issue based on an undisputed factual record and, therefore, de novo review is proper. Id. at 273. While we employ a similar rule in trademark infringement cases, see J. B. Williams Co. v. Le Conte Cosmetics, Inc., 523 F.2d 187, 190-91 (9th Cir. 1975), cert. denied, 424 U.S. 913, 96 S.Ct. 1110, 47 L.Ed.2d 317 (1976), we have repeatedly made clear that the propriety of de novo review "depends on the circumstances of each particular case." Id. at 190. The ultimate criterion is whether the controlling facts are in dispute. Id. If the material facts are in dispute, the "clearly erroneous" standard applies even to findings based entirely on written or documentary evidence. See United States v. Mountain States Construction Co., 588 F.2d 259, 264 & n.5 (9th Cir. 1978); Lundgren v. Freeman, 307 F.2d 104, 113-15 (9th Cir. 1962). Here, the facts were hotly disputed by the parties at trial and competing inferences were forcefully pressed upon the District Court. ⁷ Under these circumstances, we conclude that the "clearly erroneous" standard governs the findings of the District Court in this case.

B. The Tie-in Claim

It is well settled that there can be no unlawful tying arrangement absent proof that there are, in fact, two separate products, the sale of one (i.e., the tying product) being conditioned upon the purchase of the other (i. e., the tied product). ⁸ Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 613-14, 73 S.Ct. 872, 883, 97 L.Ed. 1277 (1953); Siegel v. Chicken Delight, Inc., 448 F.2d 43, 47 (9th Cir. 1971). Franchisees argue that Baskin-Robbins' policy of conditioning the grant of a franchise upon the purchase of ice cream exclusively from Baskin-Robbins constitutes an unlawful tying arrangement. According to franchisees, the tying product is the Baskin-Robbins trademark and the tied product is the ice cream they are compelled to purchase. ⁹

The critical issue here is whether the Baskin-Robbins trademark may be properly treated as an item separate from the ice cream it purportedly represents. We conclude, as did the District Court, that it may not.

In support of their tie-in claim, franchisees rely heavily on Siegel v. Chicken Delight, Inc., 448 F.2d 43 (9th Cir. 1971). They contend that Chicken Delight established, as a matter of law, that a trademark is invariably a separate item whenever the product it represents is distributed through a franchise system. A careful reading of Chicken Delight, however, precludes such an interpretation and discloses that it stands only for the unremarkable proposition that, under certain circumstances, a trademark may be sufficiently unrelated to the alleged tied product to warrant treatment as a separate item.

In Chicken Delight, we were confronted with a situation where the franchisor conditioned the grant of a franchise on the purchase of a catalogue of miscellaneous items used in the franchised business. These products were neither manufactured by the franchisor nor were they of a special design uniquely suited to the franchised business. Rather, they were commonplace paper products and packaging goods, readily available in the competitive market place. In...