Seven-Up Co. v. Coca-Cola Co.

• Decision Date: 08 July 1996
• Docket Number: No. 95-10048,SEVEN-UP,COCA-COLA,95-10048
• Citation: 86 F.3d 1379
• Parties: , 1996-2 Trade Cases P 71,471, 39 U.S.P.Q.2d 1411 CO., Plaintiff-Appellant, v.CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1379

86 F.3d 1379

65 USLW 2055, 1996-2 Trade Cases P

71,471, 39 U.S.P.Q.2d 1411

SEVEN-UP CO., Plaintiff-Appellant, v. COCA-COLA CO., Defendant-Appellee.

No. 95-10048.

United States Court of Appeals, Fifth Circuit.

July 8, 1996.

Cynthia C. Hollingsworth, John Carroll Nabors, Gardere and Wynne, Dallas, TX, Harold Henson Walker, Jr., Gardere and Wynne, Houston, TX, James U. White, Jr., White, Coffey, Galt and Fite, Oklahoma City, OK, Stacy R. Obenhaus, Houston, TX, for plaintiff-appellant.

W. Thomas Haynes, Atlanta, GA, Marvin S. Sloman, Fletcher L. Yarbrough, Tod B. Edel, Rebecca Adams Cavner, Carrington, Coleman, Sloman & Blumenthal, Dallas, TX, Elizabeth Finn Johnson, Albert Carl Loebe, The Coca-Cola Company Litigation Division, Atlanta, GA, for defendant-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before GARWOOD, EMILIO M. GARZA and DENNIS, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

The Seven-Up Company sued the Coca-Cola Company under the Lanham Act, alleging that Coca-Cola had used a false and misleading promotional presentation to convince several independent bottlers to cease distributing the soft drink 7UP and to begin distributing Sprite, a Coca-Cola product. At trial, a jury found that the presentation was false and misleading, and that it was a substantial factor in causing two bottlers to switch from 7UP to Sprite. The magistrate judge, concluding that Seven-Up had failed to present sufficient evidence from which the jury could reasonably draw the causal inference, set aside the jury's damages award and granted judgment as a matter of law in favor of Coca-Cola. Seven-Up now appeals, and we affirm.

I

Coca-Cola and Seven-Up both make syrup concentrates for various carbonated soft drinks. Both companies distribute their products through independent bottling companies. These bottling companies purchase the syrup concentrates from the soft drink company, combine it with carbonated water and a sweetener, and then package the final soft drink product in bottles and cans for distribution. As a general industry practice, a bottling company will agree with a soft drink company not to distribute within a given geographical area more than one brand in any flavor category of the soft drink market. For example, the independent bottler will agree to distribute only a single brand of "cola" soft drink, such as Coca-Cola, Pepsi, or Royal Crown, within a given geographical territory. Lemon-lime soft drinks constitute the second largest selling flavor category in the soft drink market. Sprite and 7UP are both lemon-lime flavored carbonated soft drinks. Seven-Up began distributing soft drinks in the 1920's, and by the time Coca-Cola introduced Sprite in 1961, 7UP sales dominated the lemon-lime soft drink category. In the following years, Seven-Up suffered a significant decline in market share, and by 1991, Sprite and 7UP were close competitors in the lemon-lime soft drink market category.

In 1991, Coca-Cola executives began developing a sales presentation that became known as "The Future Belongs to Sprite." The presentation materials consisted of charts, graphs, and overhead projection displays comparing the relative sales and market share performance of Sprite and 7UP between 1980 and 1990. Although most of the data was national in scope, versions of the presentation were tailored to address sales statistics in an individual bottler's territory. "The Future Belongs to Sprite" had specifically been developed to target the seventy-four "cross franchise" bottlers that distributed 7UP along with Coca-Cola products other than Sprite. None of these "cross franchise" bottlers distributed Sprite in the same geographical territory as 7UP.

Coca-Cola eventually presented part or all of "The Future Belongs to Sprite" to eleven of the "cross franchise" bottlers in the course of ongoing discussions aimed at convincing them to switch from 7UP to Sprite. Of the eleven bottlers, five decided to switch their lemon-lime brand. Seven-Up subsequently filed suit under the Lanham Act, alleging that Coca-Cola had convinced the five independent bottlers to switch brands by means of false and misleading comparisons found in "The Future Belongs to Sprite." At the close of evidence, the magistrate judge ruled as a matter of law that one of the five bottlers did not switch brands on account of anything false or misleading in Coca-Cola's presentation materials. Seven-Up's claims as to the remaining four bottlers were submitted to the jury. After deliberating, the jury concluded that the presentation materials were false and misleading, and that they were a substantial factor in causing two of the bottlers to switch from 7UP to Sprite. Acting upon a motion by Coca-Cola, the magistrate judge concluded that Seven-Up had presented insufficient evidence on the issue of causation and therefore granted judgment as a matter of law in favor of Coca-Cola. ¹ Seven-Up filed a timely notice of appeal.

II

We must first address whether the Seven-Up Company properly stated a claim for false advertising or promotion under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). ² The Lanham Act was enacted "to protect persons engaged in such commerce against unfair competition." 15 U.S.C. § 1127. Section 43(a) of the Lanham Act provides in relevant part that:

Any person who ... in commercial advertising or promotion, misrepresents the nature characteristics, qualities, or geographic origin of his or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is likely to be damaged by such act.

15 U.S.C. § 1125(a)(1)(B) (emphasis added). ³ This section provides protection against a "myriad of deceptive commercial practices," including false advertising or promotion. Resource Developers v. Statue of Liberty-Ellis Island Found., 926 F.2d 134, 139 (2d Cir.1991). Section 43(a) of the Lanham Act has been characterized as a remedial statute that should be broadly construed. See Gordon & Breach Science Publishers v. American Inst. of Physics, 859 F.Supp. 1521, 1532 (S.D.N.Y.1994) (citing cases).

Some courts have suggested that Congress passed the Lanham Act in order to protect consumers generally. See, e.g., Wojnarowicz v. American Family Ass'n, 745 F.Supp. 130, 141 (S.D.N.Y.1990). ⁴ However, most courts that have addressed the issue agree that in light of the pro-competitive purpose language found in § 45, "consumers fall outside the range of 'reasonable interests' contemplated as protected by the false advertising prong of Section 43(a) of the Lanham Act." Serbin v. Ziebart Intern. Corp., 11 F.3d 1163, 1177 (3d Cir.1993). ⁵ These courts have interpreted the primarily pro-competitive purpose of § 43(a) to mean that "[s]uit may be brought only by a commercial plaintiff who can prove that its interests have been harmed by a competitor's false advertising." Gordon & Breach, 859 F.Supp. at 1533 (citing cases); see also Serbin, 11 F.3d at 1177 (holding that only commercial plaintiffs or consumers with some discernible competitive injury have standing to sue under the Act).

There is no dispute in this case that Seven-Up is a commercial plaintiff who alleges an injury caused by a competitor. Rather, in determining whether Seven-Up has properly stated a claim under the Lanham Act, our focus is solely on the issue of whether the Coca-Cola presentation falls within the meaning of "commercial advertisement or promotion" under the Act. The Lanham Act does not define either "advertising" or "promotion." Nor is the Act's legislative history helpful regarding this issue; it addresses only the requirement that the advertising or promotion be "commercial" in nature. ⁶

Courts have noted that we should give the terms "advertising" and "promotion" their "plain and ordinary meanings." American Needle & Novelty, Inc. v. Drew Pearson Marketing, Inc., 820 F.Supp. 1072, 1077 (N.D.Ill.1993); see also Alfred Dunhill Ltd. v. Interstate Cigar Co., 499 F.2d 232, 236 (2d Cir.1974) ("[N]otwithstanding that § 43(a) applies to a broad range of misrepresentations, it does not have boundless application ... but is limited to false advertising as that term is generally understood.") (internal quotation marks omitted). The courts are also in agreement, however, that "the Act's reach is broader than merely the 'classic advertising campaign.' " Gordon & Breach, 859 F.Supp. at 1534 (citing cases). In Gordon & Breach, the court summed up the principles found in the case law and the Act's legislative history as follows:

In order for representations to constitute "commercial advertising or promotion" under Section 43(a)(1)(B), they must be: (1) commercial speech; (2) by a defendant who is in commercial competition with plaintiff; (3) for the purpose of influencing consumers to buy defendant's goods or services. While the representations need not be made in a "classical advertising campaign," but may consist instead of more informal types of "promotion," the representations (4) must be disseminated sufficiently to the relevant purchasing public to constitute "advertising" or "promotion" within that industry.

859 F.Supp. at 1535-36. We find this summary of the requirements for establishing "commercial advertising or promotion" under § 43(a) of the Lanham Act to be both accurate and sound.

In applying these criteria to our case, the issues we must address are (1) whether Coca-Cola's presentation was made "for the purpose of influencing consumers to buy defendant's goods" and (2) whether the presentation was "disseminated sufficiently to the relevant purchasing public" within the soft drink industry. In other words, we need to determine whether the "cross franchise" bottlers may be considered "consumers" and "the relevant purchasing public" for purposes of § 43(a). Assuming they may, we must then determine whether the Coca-Cola presentation was disseminated sufficiently...