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Bally Mfg. Corp. v. Js & a Group





APPEAL from the Circuit Court of Cook County; the Hon. REGINALD J. HOLZER, Judge, presiding.


Defendant, JS&A Group, Inc., brings this interlocutory appeal from an order granting plaintiff, Bally Manufacturing Corporation, a preliminary injunction restraining JS&A from publishing "false or confusing" advertisements concerning Bally or its products, services or warranties. Bally is engaged in the manufacture and sale of amusement devices such as the "Bally Arcade," a home library computer. The Bally Arcade is a system which permits users of the device to play various games through home video sets. Bally sells this product to distributors and wholesaler-retailers rather than directly to the general public. JS&A is engaged in the business of promoting and selling amusement devices, including the Bally Arcade, through mail orders. It markets its products through a catalog and advertisements.

On December 7, 1979, Bally filed a complaint for injunction alleging that on October 31, 1979, and December 3, 1979, JS&A placed two advertisements in the Wall Street Journal which contained false statements about Bally and its products, services and warranties. Bally charged that the false statements were violative of certain provisions of the Uniform Deceptive Trade Practices Act. (Ill. Rev. Stat. 1979, ch. 121 1/2, par. 312(2), (5), (7), (9) and (12).) Bally claimed irreparable injury and loss, for which it had no adequate remedy at law. Bally sought preliminary and permanent injunctive relief, and requested compensatory and punitive damages.

On December 13, 1979, the trial court issued a temporary restraining order prohibiting JS&A from "publishing or circulating false advertisements regarding plaintiff or its products * * *." Thereafter JS&A filed an answer admitting placing of the two advertisements but denying their falsity or impropriety. The trial court then conducted a hearing upon Bally's request for preliminary injunction at which the following evidence was adduced.

In 1977 JS&A purchased approximately 3,000 Bally Arcades from Bally for resale to the public. JS&A also purchased cartridges used in the operation of the devices. JS&A returned approximately 1,000 defective units to Bally. Upon receipt, Bally would replace the defective unit. Each unit was accompanied by a warranty card and owner's manual. The warranty listed the address, while the manual contained both the address and telephone number of the Bally Consumer Products Division. The "limited" warranty extended "to the original purchaser only" and provided that the unit would be free from defects in materials and workmanship for 90 days after purchase. After the 90-day period, Bally would replace all defective parts for one year with the customer incurring all labor costs.

Mary Stanke, JS&A's executive vice-president, testified that in October 1979, JS&A had 400 Bally Arcades and 3,256 cartridges in its inventory. Of the 400 devices, 60 were broken and 340 were operational. Some of the units had been returned by customers after a trial period. According to Stanke, she had read the warranty provisions set forth on each card.

On October 26, 1979, Stanke telephoned Joan Mason, a Bally manager, to determine to what extent the warranty would apply to the remaining units in JS&A's inventory. Joseph Sugarman, JS&A's president, also participated in the conversation. Both Stanke and Sugarman testified Mason informed them that all such units were covered by the warranty. Stanke testified that they explained to Mason that the 340 operational units were returned devices. On October 30, 1979, Stanke wrote Mason confirming the telephone conversation. In the letter, Stanke stated that she understood Bally would honor the warranty on the units in JS&A's warehouse, but that it would not repair any of the defective devices until JS&A settled its outstanding account, and that JS&A thus saw no alternative but to "dump" the merchandise on the retail market. Mason wrote back stating that during the telephone conversation, she had informed Sugarman that Bally would service according to the warranty, and that the warranty applied only to the original purchaser and not to any pre-owned or defective merchandise.

Meanwhile, to liquidate its inventory of units and cartridges, JS&A placed an advertisement prepared by Sugarman in certain regional editions of the October 31, 1979, Wall Street Journal. The advertisement offered to sell the inventory of Bally Arcades for $49.95 per unit and continued:

"We are liquidating our entire inventory of Bally Arcade programmable TV games * * *. Some units have slight scratches but all are fully operational. Some are new units, some were returned by customers during our 30-day trial period. Product comes with one-year limited warranty backed by Bally Corporation and four pistol grips. * * * You may also select from four cartridges regularly $20 to $25 each — but offered here at half price. * * * There are many other cartridges offered by Bally and we will supply you with Bally's address for future orders."

Sugarman testified that after publication of this advertisement, Bally's counsel complained that the advertisement contained two errors: that the warranty did not cover all of the units offered for sale and that customers could not order cartridges directly from Bally. Bally requested a retraction. Sugarman stated that he was familiar with the warranty's terms, but that based on previous experience, he did not realize it extended only to the original purchaser. He was also aware that Bally did not sell its product directly to the general public. Yet, for a year, JS&A had, with Bally's knowledge, supplied Bally's address to customers who wished to order cartridges. Sugarman agreed that the portion of the advertisement concerning the availability of cartridges from Bally could be misleading. He testified, however, that the message intended to be conveyed was that customers could obtain from Bally the name of a dealer from whom cartridges could be purchased. JS&A did not believe that the advertisement contained errors, but printed a retraction in order to avoid future problems.

Stuart Goldblatt, director of special projects at JS&A, testified that in November 1979, at Stanke's direction, he contacted Bally to ascertain its policy toward out-of-warranty merchandise. When he telephoned asking to speak to a Bally service manager, he was referred to a Mr. Schultz. Goldblatt identified himself as a consumer who owned a Bally unit which was not working properly. Schultz informed him that Bally would repair units not under warranty for $25 and tag on a 90-day limited warranty from the date of repair. Goldblatt did not identify himself as an employee of JS&A nor his purpose in seeking the information. He did not later verify the information received from Schultz.

Based on the information received by Goldblatt, Sugarman prepared an advertisement entitled "Retraction" which appeared on December 3, 1979, in the same regional editions of the Wall Street Journal as before. It read, in relevant part, as follows:


The first error in our ad was our mentioning that `We will supply you with Bally's address for future orders.' What we should have said was that `Bally can give callers the names of its dealers who will have the additional cartridges that are not ...

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