Seven-Up Bottling Co. v. Seven-Up Co., SEVEN-UP

• Decision Date: 20 September 1977
• Docket Number: SEVEN-UP,No. 76-1909,76-1909
• Citation: 561 F.2d 1275,195 U.S.P.Q. 106
• Parties: , 200 U.S.P.Q. 13 BOTTLING COMPANY, etc., Appellant, v. TheCOMPANY, etc., and Seven-Up Services Incorporated, etc., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1275

561 F.2d 1275

195 U.S.P.Q. 106, 200 U.S.P.Q. 13

SEVEN-UP BOTTLING COMPANY, etc., Appellant, v. The SEVEN-UP COMPANY, etc., and Seven-Up Services Incorporated, etc., Appellees.

No. 76-1909.

United States Court of Appeals Eighth Circuit.

Submitted May 18, 1977.

Decided July 26, 1977.

Rehearing and Rehearing En Banc Denied Sept. 20, 1977.

John H. Stroh, St. Louis, Mo., argued and filed brief, for appellant.

Thomas C. Walsh, St. Louis, Mo. (argued), and Veryl L. Riddle and Lee H. Wagman, St. Louis, Mo., on brief, for appellees.

Before BRIGHT and HENLEY, Circuit Judges, and BENSON, Chief District Judge. ^*

BRIGHT, Circuit Judge.

Seven-Up Bottling Co. (Bottling), a local bottler and distributor of soft drinks in St. Louis, Missouri, brought this action against Seven-Up Company (Company) and Seven-Up Services, Inc. (Services), a wholly-owned subsidiary of the Company, alleging various claims under the Trademark Act of 1946 (Lanham Act), 15 U.S.C. §§ 1051-1127, and a pendent state law claim for unfair competition. Subject matter jurisdiction was based upon 28 U.S.C. § 1338. On defendants' motion to dismiss, the district court ¹ determined that Bottling's trademark claims all amounted to attempts by a trademark licensee to question its licensor's title to the licensor's marks and hence were barred by the rule of licensee estoppel, and concluded further that in the exercise of discretion the pendent state law claim should be dismissed. Seven-Up Bottling Co. v. Seven-Up Co., 420 F.Supp. 1246 (E.D.Mo.1976). Bottling appeals. We affirm.

The facts are fully recounted in the district court's opinion. We restate, however, the facts most relevant to this appeal. Since 1929, appellee Company has sold extracts used in flavoring soft drinks and appellant Bottling has purchased the extracts from the Company, and bottled and locally distributed a soft drink made with the extract under the trademark "Seven-Up." Appellee Services was formed in 1957 to aid distributors in production and marketing of Seven-Up.

The Company secured registrations of the trademarks "Seven-Up" and "7-Up" in 1929 and 1936, for soft drinks and the syrups and extracts used in their production. From 1929 until 1939, the Company dealt with its distributors on an informal basis, with no written distributorship agreements. In 1938, this practice ended with the initiation of a franchising policy. The Company granted franchises to local bottlers who would purchase flavor extract from the Company for production and sale of soft drinks under the trademark "Seven-Up." The Company itself did not produce finished soft drinks. Franchisees were assigned territories with "the exclusive rights within said territories to prepare such soft drinks according to the formula of Company in packages bearing the trademark 'Seven-Up'." Bottling is a party to two such agreements for territories in Missouri and Illinois, dated January 24, 1939 and January 25, 1939. These agreements contain no express term of duration.

Before 1943, the Company's licensees, such as Bottling, advertised "Seven-Up" individually in their own territories. During 1943, a national media campaign was organized by a number of licensees, including Bottling. Each licensee contributed $17.50 per gallon of flavor extract purchased from the Company to a fund administered by the Company as trustee. The Company made no contributions to this fund, but used the fund to purchase national media advertising to develop the good will of itself and its developers. This advertising fund terminated in 1950.

During 1942 and 1943, the Company applied to register the trademark "Seven-Up" along with accompanying drawings as a "collective" mark for soft drinks showing the collective mark as used on the goods "by persons duly authorized by" the Company. Those applications state that the "collective" mark was used since 1928 by persons authorized by the Company to show the Company as the single source of "extracts or other ingredients used in compounding the beverage."

Between 1954 and 1966, the Company obtained six additional registrations showing "7-Up" in various contexts, which made claims similar to those in the 1929 and 1936 registrations. There is presently an application pending for another such registration.

In 1956, Bottling and the Company entered an agreement regarding the manufacture, promotion, and sale of "pre-mix" Seven-Up. ² Bottling expended a large amount of money to develop the pre-mix business.

Since 1961, Bottling has manufactured and sold "post-mix" or soda fountain syrup "Seven-Up." In 1961, Bottling was offered a contract by Company covering the promotion and sale of the syrup but which would have reserved to the Company the right to make and sell syrup in Bottling's territory or to designate others to do so. Bottling rejected this offer, contending that the attempted reservation of rights would permit the Company to compete unfairly with Bottling, and would infringe beneficial rights to exclusive use of "Seven-Up" trademarks which Bottling claimed under the "collective" trademark registrations of 1942 and 1943. Accordingly, Bottling purchased syrup from Services until later in 1961 when the parties negotiated a contract with language which Bottling claims protects its exclusive right to produce and distribute "Seven-Up" in its territory.

In 1958, Company and Services arranged for "Seven-Up" to be produced in cans. Bottling began to purchase canned "Seven-Up" from Services in 1959. These purchases continued on an informal basis until January 1968, when Bottling and the Company executed a written contract allowing Bottling to purchase "Seven-Up" in cans from sources designated by the Company as "approved packagers." More recently, the Company required Bottling to purchase "Seven-Up" in cans from Services, at prices usually higher than those of "approved packagers." Bottling sought permission from the Company to can and distribute "Seven-Up" in its territory, but in 1974 the Company refused this request except on condition that Bottling (1) agree that the Company reserves the right to manufacture finished "Seven-Up" soft drink in Bottling's territory; (2) surrender its 1939 contract with the Company; and (3) accept a new contract with a limited term of years. Company insisted on similar conditions before it would allow Bottling to package "Seven-Up" in plastic containers. This action followed.

Bottling contends, basically, that the Company never actually manufactured soft drinks or syrups before 1929 or 1936 and that the registrations of those years were therefore procured through fraud on the patent office and are invalid and void. Bottling further contends that the "collective" marks registered in 1942 and 1943 are valid and prevent the Company and Services from using the trademark "Seven-Up" on any form of finished soft drinks or syrups, because these registrations reflect use of the marks on finished soft drinks by a collective group of authorized persons (Company's licensees, including Bottling) rather than Company or Services itself. Bottling further contends that all registrations secured after 1943 are invalid for the same reasons as the 1929 and 1936 registrations, and also because they are inconsistent with the "collective" registrations.

Bottling claims that the Company and Services have attempted to compete unfairly with Bottling through appropriation of Bottling's good will and infringement upon Bottling's rights under the collective marks, and asks the court to grant (1) an injunction against the Company and Services prohibiting them from manufacturing or selling syrup or soft drink under the name "Seven-Up" in Bottling's territory; (2) an order prohibiting the Company from competing in any manner in Bottling's territory with regard to "Seven-Up"; (3) an order directing the Company and Services to recognize Bottling's right to can "Seven-Up" in its designated territory; and (4) cancellation of all the Company's trademarks except the 1942 and 1943 "collective" registrations, as well as denial of the currently pending registration application.

Bottling's trademark claims hinge on its contention that the 1939 agreements between the parties were exclusive licenses to use within a specific territory "collective" trademarks owned by the Company and subsequently registered in 1942 and 1943. See 15 U.S.C. § 1127. The Court of Appeals for the Second Circuit has described such marks as follows:

A collective mark is owned, and may be registered, by the group or association of which it is a symbol, but not by a user thereof, and it indicates to the public that members of the association produced the merchandise bearing the mark. The association which owns the mark may not use it on merchandise, if it produces any, as may its members. Since the common law required affixation and user for the acquisition of a trademark it is clear that there would be no basis in that law for a collective mark, and indeed such marks were denied registration under the Trade-Mark Act of 1905. However, a 1938 amendment to the Act of 1905 provided for the registration of collective marks and the Lanham Act included a similar provision. (Huber Baking Company v. Stroehmann Brothers Company, 252 F.2d 945, 952 (2d Cir.), cert. denied 358 U.S. 829, 79 S.Ct. 50, 3 L.Ed.2d 69 (1958) (footnotes omitted).)

As the passage from Huber Baking indicates, if Bottling's construction of the agreements between the parties as exclusive licenses of collective trademarks is correct, the Company would be prohibited from using the marks on finished soft drinks in competition with Bottling, and Bottling would have the exclusive right to use the marks within its territory on any form of finished soft drink. See also Pacific Supply Cooperative v. Farmers Union Central Exchange, Inc., 318 F.2d 894, 906-09 (9th Cir. 1963), cert. denied, 375 U.S. 965, 84 S.Ct. 483, 11 L.Ed.2d 414 (1964). ³

The district court held that...