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RAYCO MANUFACTURING COMPANY v. DUNN

January 21, 1964

RAYCO MANUFACTURING COMPANY, A CORPORATION, PLAINTIFF,
v.
JOHN F. DUNN, DEFENDANT AND COUNTER-PLAINTIFF, V. RAYCO MFG. CO., A CORPORATION, RAYCO SEAT COVER SALES CORPORATION, RAYCO AUTO SEAT COVERS, INC., ILLINOIS SEAT COVERS, INC., AND THE B.F. GOODRICH COMPANY, COUNTER-DEFENDANTS,



The opinion of the court was delivered by: Marovitz, District Judge.

Motion by counterdefendants Rayco Manufacturing Company and B.F. Goodrich Company for summary judgment as to the counterclaim, under Rule 56 of the Federal Rules of Civil Procedure.

This suit is brought by Rayco Manufacturing Company, a manufacturer of automobile seat covers and accessories, against one of its dealers, with jurisdiction based upon diversity of citizenship and the trademark and unfair competition laws of the United States, Sections 1051-1127, Title 15 U.S.C. It is alleged that plaintiff, the owner of the trademark "Rayco", entered into a written franchise agreement with the defendant, granting defendant authority to use the trademark and trade name "Rayco". Plaintiff charges that the defendant, in violation of the provisions of that contract, has sold competing products under the "Rayco" trademark, without authority to do so. It is therefore alleged in counts I through IV that defendant has traded upon plaintiff's reputation and good will, and is guilty of common law unfair competition, infringement of a registered trademark, and federal unfair competition (Sec. 1125(a), Title 15 U.S.C.).

In counts IV and V, plaintiff seeks specific performance of the franchise agreement and supplemental lease which provide for termination of the contracts upon breach thereof. In count VI, plaintiff alleges that defendant has failed to pay for merchandise ordered from plaintiff, and seeks recovery of $5,940.46. Count VII charges further breach of contract by reason of defendant's failure to "devote his entire time and effort" to promote Rayco sales. In count VIII, plaintiff prays for relief, asking that, (a) defendant be enjoined from further using the "Rayco" trademark, or trade name on goods other than those supplied by plaintiff; (b) defendant be ordered to specifically perform the supplemental reassignment contract; (c) the franchise agreement in question be cancelled; (d) defendant be ordered to pay the sums allegedly due plaintiff for merchandise; (e) the sum of $250,000 be awarded as treble the damages suffered by plaintiff as a result of defendant's alleged trademark infringement and unfair competition; (f) defendant be required to account for and pay over all profits derived from the aforementioned acts, and (g) defendants be ordered to pay over all costs, including attorney's fees and expenses.

Defendant denies all material allegations and has filed a counterclaim in six counts alleging violations of the antitrust laws, breach of contract, and libel, naming plaintiff and the B.F. Goodrich Company as counterdefendants. It is with a motion for summary judgment on this counterclaim that this court is now concerned.

In count I, counterclaimant charges that counterdefendants have been engaged in an unlawful combination to restrain competition, in violation of Section 3 of the Clayton Act, (Sec. 14, Title 15 U.S.C.) and Section 1 of the Sherman Act (Sec. 1, Title 15 U.S.C.). More specifically, it is alleged that counterdefendants have refused to sell their products except on condition that the purchaser thereof operate his retail business upon premises owned or leased by Rayco. It is further alleged that Rayco has refused to lease any interest except upon the condition that the lessee enter into a franchise agreement with Rayco, execute a reassignment agreement effective upon breach, and agree not to sell or deal in the products of a Rayco competitor.

In count II, counterclaimant alleges that Rayco breached the terms of the existing contract between them by refusing to sell and deliver any further merchandise and by terminating said contract without legal cause. This, it is charged, was done to punish him for failing to purchase exclusively from Rayco, and to serve as an example to other dealers. Counterclaimant prays for relief in the form of $180,000 in actual damages, and $100,000 in punitive damages. Counterclaimant also requests the court to declare his right to continue the use of the trademark "Rayco", and "Rayco Berwyn" at his place of business.

Count III charges that counterdefendant published throughout the United States a defamatory libel, in the form of a letter addressed to other dealers, announcing the termination of Dunn's franchise and the suit instituted against him. Counterclaimant prays for a $25,000 judgment in actual damages and $25,000 in punitive damages. Count IV, a class action for an accounting of funds collected by Rayco from dealers for advertising purposes, was dismissed on Dunn's motion and need not concern the court.

Count V is also in the form of a class action, brought by counterclaimant Dunn on behalf of all dealers. Counterclaimant charges that Rayco failed to honor its contractual warranties which offered full credit on returns of imperfect plastic seat covers, thereby causing damage to counterclaimant in excess of $10,000. Finally, counterclaimant alleges, in count VI, that Rayco has granted certain advertising and promotional services or allowances to other dealers without making them available to him on proportionately equal terms. For these alleged violations of Sections 2(d) and 2(e) of the Clayton Act, as amended by the Robinson-Patman Act, counterclaimant asks for recovery of the amount of his undetermined damages.

This is a motion by counterdefendants for summary judgment as to the counterclaim, under Rule 56 of the Federal Rules of Civil Procedure. Each of the counts before the court (count IV has been dismissed) will be considered separately. In approaching a summary judgment question involving 600 pages of memoranda, exhibits, and affidavits, dealing with anti-trust litigation, it would be prudent to take note of a recent Supreme Court pronouncement:

  "It may be that upon all of the evidence a jury would
  be with the respondents. But we cannot say on this
  record that `it is quite clear what the truth is.'
  Certainly there is no conclusive evidence supporting
  the respondents' theory. We look at the record on
  summary judgment in the light most favorable to
  Poller, the party opposing the motion, and conclude
  here that it should not have been granted. We believe
  that summary procedures should be used sparingly in
  complex antitrust litigation where motive and intent
  play leading roles, the proof is largely in the hands
  of the alleged conspirators, and hostile witnesses
  thicken the plot. (citing cases) It is only when the
  witnesses are present and subject to
  cross-examination that their credibility and the
  weight to be given their testimony can be appraised.
  Trial by affidavit is no

  substitute for trial by jury which so long has been
  the hallmark of `even handed justice.'" Poller v.
  Columbia Broadcasting System, 368 U.S. 464, at page
  473, 82 S.Ct. 486, at page 491, 7 L.Ed.2d 453 (1962).

The 1963 amendment to Rule 56 clearly provides that the party adverse to the motion may not rest upon his pleadings once affidavits have been introduced into a summary judgment proceeding. This court, sitting in the Seventh Circuit, need not determine whether the amendment applies to the motion at bar. The Court of Appeals has spoken in 1954 with much the same intent embodied in the amendment. In Repsold v. N.Y. Life Ins. Co. (7th Cir., 1954) 216 F.2d 479 at page 483, the court said that the district court "has the power to penetrate the allegations of fact in the pleadings and look to any evidential source to determine whether there is an issue of fact to be tried."

Count I: Under Section 7 of the Clayton Act, a civil suit may lie upon a showing that (1) the acquisition did or reasonably might substantially lessen competition or create a monopoly, and (2) the complainant suffered some special damage to his business as a direct and proximate result of the acquisition. Blaski v. Inland Steel Co. (7th Cir., 1959), 271 F.2d 853, 855; Bender v. Hearst Corp., (2nd Cir., 1959), 263 F.2d 360, 370. It is not enough that counterclaimant has suffered injury as a result of extraneous actions, such as Rayco's termination of the franchise on account of competitive purchasing. Rather, the injury must result from the lessened competition or monopoly itself. Peterson v. Borden Co., (7th Cir., 1931), 50 F.2d 644, 646; Conference of Studio Unions v. Loew's Inc. (9th Cir., 1951), 193 F.2d 51, certiorari denied 342 U.S. 919, 72 S.Ct. 367, 96 L.Ed. 687 (1952).

Counterclaimant Dunn at no point in the voluminous pleadings is able to offer evidence showing this required proximate injury. A competitor of an acquiring or acquired corporation might have standing to bring such an action, but Dunn has neither been foreclosed from selling to Rayco, nor as a customer, been foreclosed from receiving an adequate supply of merchandise. On this ground alone the Section 7 action should be dismissed. Counterdefendant's alternative argument that the acquisition of a mere 150 outlets could not constitute an illegal act, cannot be accepted. Without determination of the product market, the geographical areas involved, along with close scrutiny of the intents and purposes ...


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