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JOYCE BEVERAGES OF NEW YORK, INC. v. ROYAL CROWN C

January 18, 1983

JOYCE BEVERAGES OF NEW YORK, INC., Plaintiff and Counterclaim Defendant,
v.
ROYAL CROWN COLA CO., Defendant and Counterclaim Plaintiff, v. THE SEVEN-UP COMPANY, Additional Counterclaim Defendant



The opinion of the court was delivered by: POLLACK

Milton Pollack, District Judge.

 This is an application for a preliminary injunction pursuant to Rule 65 Fed. R. Civ. P. to restrain the defendant from terminating an exclusive franchise to distribute soft drinks and colas in the New York area and to restrain the defendant from naming another distributor in place of plaintiff. It is claimed that if the prospective termination does not constitute a breach of the contract between the parties, then the contract clauses upholding the contract violate Section 3 of the Clayton Act or Section 1 of the Sherman Act.

 Finding that the plaintiff has not shown any threat of irreparable damage or probability of success on the merits of the issues with respect to the contract or the antitrust issues or sufficiently serious questions going to the merits to make them a fair ground for litigation with a balance of hardships tipping decidedly toward the plaintiff, preliminary injunctive relief will be denied.

 The Parties.

 Defendant Royal Crown Cola Co. (Royal Crown) is principally engaged in the licensing of its trademarks and the sale of secret soft drink concentrates to its independent bottlers. Under license from Royal Crown, the bottler uses the secret concentrates to produce finished soft drink products, which the bottler then promotes and distributes. Royal Crown products include ROYAL CROWN COLA, DIET- RITE COLA, RC-100, and DECAFFEINATED RC.

 In the calendar year ending December 31, 1981, combined sales of the Royal Crown cola brands accounted for approximately 5 per cent of United States cola sales.

 Plaintiff, Joyce Beverages of New York, Inc. (Joyce), manufactures and sells soft drinks under license from several trademark licensors, including Royal Crown. In addition to the Royal Crown cola products, Joyce distributes 7-UP lemon-lime soft drinks, DIET 7-UP, A&W root beer, SUGAR-FREE A&W, PERRIER carbonated water, NESTEA iced tea, HAWAIIAN PUNCH and Royal Crown's NEHI fruit flavored soft drinks.

 Since its origin in the last century, the United States soft drink industry has utilized the franchise system of distribution. Trademark licensors supply certain secret ingredients under license to local-independent bottlers, who produce, promote and distribute the finished soft drink products in designated territories. The market is highly competitive. The local bottlers engage in intense price and nonprice competition with one another.

 The Franchises.

 Under its license and franchise agreements with Royal Crown, Joyce received long-term (and in some cases potentially perpetual) exclusive rights to manufacture and sell the Royal Crown cola products within defined territories in the States of New York, New Jersey and Connecticut. The Royal Crown products involved herein are distributed pursuant to three separate contracts which cover ROYAL CROWN COLA, DIET-RITE COLA and RC-100 and DECAFFEINATED RC. All of Joyce's license and franchise agreements with other soft drink trademark licensors restrict Joyce's ability to bottle other brands of directly competing soft drinks. Thus, for example, Joyce's 7-UP franchise agreement expressly precludes it from bottling or distributing any other lemon, lime or lemon-lime soft drinks.

 In its ROYAL CROWN and DIET-RITE license and franchise agreements, the bottler is required to use his "best efforts" to be devoted to building, maintaining and expanding the sales of those drinks, in a measure "satisfactory" to Royal Crown. These agreements were prepared and signed many years ago.

 The bottler's agreements for DECAFFEINATED RC and RC-100 are up-dated versions of Royal Crown's license and franchise agreements and contain "exclusive efforts" clauses which expressly preclude the bottler from distributing any "substantially or reasonably similar" soft drinks and which provide that "any cola shall be deemed substantially or reasonably similar to any . . . cola [and] any diet cola to any . . . diet cola . . . ." The "best efforts" clause in these agreements provides that Joyce "shall devote its best efforts to the sale and promotion of sales of the beverages within and only within the territory . . . so as to achieve maximum distribution and sale for the beverages within the territory."

 Controversy Regarding The Contracts.

 Joyce is planning to commence the distribution of a decaffeinated cola product named LIKE, manufactured by the Seven-Up Company, which will be distributed for the first time in this area beginning not later than February 7, 1983. The history of this venture is as follows:

 In early 1982, Joyce informed Royal Crown that the Seven-Up Company was planning to introduce a new cola beverage, known as LIKE. Royal Crown promptly informed Joyce that if Seven-Up offered Joyce a franchise agreement for this new cola product, Joyce would have to choose between LIKE and the Royal Crown colas. Seven-Up began introducing LIKE in test markets in the summer of 1982 and in its attempt to franchise bottlers, Seven-Up announced that it would "prefer an exclusive arrangement," meaning that its bottlers were not to carry any other cola beverages. Joyce's affiliated operations in Washington, D.C., and Chicago, Illinois, signed LIKE franchise agreements on July 22, 1982. Under those agreements the Chicago and Washington operations are expressly precluded from bottling any other cola in their respective territories.

 In July 1982, Seven-Up and Joyce discussed the LIKE franchise for the New York Metropolitan Area. Seven-Up initially proposed that Joyce take on LIKE under the same cola exclusivity terms appearing in the Chicago and Washington, D.C., agreements, thus requiring Joyce to drop the Royal Crown colas in exchange for the LIKE franchise in the New York area. Joyce did not accept this proposal.

 On October 28, 1982, Seven-Up advised Joyce that it would be offered a "new approach" to the LIKE franchise agreement and that if Joyce did not reach a decision regarding this new approach by the Thanksgiving holiday, Seven-Up would "look for alternatives" beyond Joyce.

 In November 1982, Seven-Up offered Joyce the LIKE franchise on a partial "co-existence" basis. Under this Seven-Up would permit Joyce to continue to bottle and distribute other colas for which it already had licenses while holding the LIKE franchise. However, if Joyce discontinued any of those cola beverages at any time, the discontinued colas would become subject to Seven-Up's general prohibition precluding Joyce from packaging and selling colas other than LIKE. This LIKE franchise agreement covered the same territories included within Joyce's Royal Crown license and franchise agreements. Learning of this proposal, Royal Crown, on November 2, 1982, told Joyce that "so long as our franchise agreements are in effect, you are obligated to employ your best efforts to market the franchised Royal Crown Cola Co. products," and called a meeting of representatives of the companies. At the meeting, which was held on November 8th, Royal Crown reiterated its view that the promotion and distribution of LIKE would constitute a breach of the Royal Crown cola licenses, and it reaffirmed its position a week later in a letter stating "In the event that you decide to bottle and distribute LIKE, your license and franchise agreements for Royal Crown's cola products must be terminated so that we may license a bottler willing and able to compete vigorously against all other cola products."

 On November 22, 1982, before the Thanksgiving holiday deadline, Joyce signed a LIKE franchise agreement for the New York Metropolitan Area. Nonetheless, on November 30, 1982, the President of Joyce informed Royal Crown that Joyce had made no decision concerning the LIKE franchise agreement. However, on the next day, that President finally admitted that his company had signed the LIKE franchise agreement during the ...


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