431 F.

2d 183
1970 Trade Cases P 73,307

BILLY BAXTER, INC., Plaintiff-Appellant, PlaintiffAppellant,

v.
The COCA-COLA COMPANY and Cana da Dry Corporation,
Defendants-Appellees.
No. 697, Docket 34072.

United States Court of Appeals, Second Circuit.

Argued April 9, 1970.
Decided Aug. 25, 1970.

James V. Joy, Jr., New York City (Greenburg & Adler, Lucille J. Becker,
and Edward V. Egert, New York City, on the brief), for plaintiffappellant.
Allan Blumstein, New York City (Paul, Weiss, Goldberg, Rifkind,
Wharton & Garrison, and Paul R. Verkuil, New York City, on the brief
for defendant-appellee The Coca-Cola Company. Dewey, Ballantine,
Bushby, Palmer & Wood, Edward N. Sherry and Robert A. Meister, New
York City, on the brief for defendant-appellee Canada Dry Corp.), for
defendants-appellees.
Before WATERMAN and ANDERSON, Circuit Judges, and
WEINFELD, District Judge.*
ANDERSON, Circuit Judge:

Appellant Billy Baxter, Inc., is a Pennsylvania corporation organized in 1962

for the purpose of selling or otherwise granting franchises authorizing the
production and bottling of a line of non-alcoholic carbonated beverages under
the federally-registered trademark 'Billy Baxter.' The beverages, which include
club soda, quinine water, giner ale, ginger beer, sarsaparilla, root beer, and 'line
'n quine' (quinine water containing lime), have been produced and sold locally
in the Pittsburgh area by others since 1889, bearing the registered trademarks

'Red Cross' and 'Billy Baxter' since 1900 and 1921, respectively. In December
of 1962, the appellant purchased the trademarks and secret beverage recipes,
licensed the former owner to continue local production, and announced its
litention to expand the availability of Billy Baxter products to new markets by
franchising bottlers to manufacture and sell them.
2

Billy Baxter, Inc., admits that it played a circumscribed role in the subsequent
limited expansion of Billy Baxter beverage product distribution, describing its
business as 'the purchase of beverage extracts and the sale of same to franchised
bottlers, with related advertising and promotional activities.'1 From its office in
Pittsburgh, Billy Baxter, Inc., bought various flavored extracts, which had been
manufactured by others, and resold them to its franchised bottlers. The bottlers
then manufactured the beverages by mixing these extracts with carbonated
water, syrups, or other ingredients according to the specified secret formulae.
The franchisee-bottlers sold the beverages in their geographic territories,
remitting specified royalties to Billy Baxter, Inc., based on the number of cases
of their products which they sold. The appellant franchisor had no plants or
facilities other than its administrative offices in Pittsburgh and New York
(where its president practices law); and in the normal course of business it
'neither manufactured, bottled, distributed nor sold products' other than the
extracts supplied to its franchisees.2

Four bottlers were licensed as Billy Baxter franchisees between 1962 and 1964,
serving parts of Pennsylvania, Ohio, West, Virginia, New Jersey and New
York; and others also were approached and asked to test markets for the
products. But Billy Baxter operations, which required that franchisees use a
uniquely-shaped non-returnable bottle and distribute products which
traditionally 'sold at a higher-than-average cost,'3 did not flourish. The
appellant's gross income from sale of extracts and royalties, as well as
'occasional' resale of some of its francisees' bottled beverages,4 rose from some
$18,000 during its first year to $45,500 in its second; but thereafter it declined
precipitiously, with three of the four bottlers ultimately relinquishing their
franchises.

In 1966, Billy Baxter, Inc., commenced this action against the Coca-Cola
Company and Canada Dry Corporation, Delaware corporations which
manufacture various products and license bottlers to do the same, sweepingly
alleging that they have violated various parts of the Sherman, Clayton, and
Robinson-Patman Acts.5 It contended that these two firms restrained
competition in the 'non-alcoholic carbonated beverage industry' in the five
aforementioned states by agreeing to 'avoid genuine competition with each
other's primary product line.' It further charged that they 'acted in concert * * *

to exclude plaintiff from the normal channels of interstate commerce, and

through discriminatory, unfair and unlawful price concessions, discounts, gifts
and allowances directed specifically to plaintiff's customers, induced them to
exclude plaintiff's products from their places of business.' The complaint
alleged that these actions, followed by supplementary improper activities, 6
injured Billy Baxter, Inc., by causing 'lost profits' estimated at $500,000; and it
sought this amount trebled as damages.
5

Thereafter both Coca-Cola and Canada Dry served written interrogatories on

Billy Baxter, Inc.; and the appellant's answers significantly narrowed the scope
of the activities which were alleged to have caused harm to the franchisor's
business. Billy Baxter, Inc., explained that the alleged market division injured it
because Canada Dry was able to concentrate economic power in the 'mixer
market,' using 'advertising, price concessions, pricing of product and similar
practices' to maintain market domination. But it added that these activities
affected it specifically because of practices aimed at its 'customers,' listing as
known examples three Pittsburgh hotels, two distributors, and a cocktail lounge
allegedly induced to cease purchasing Billy Baxter products. In fact, none of
these was a customer of the appellant Billy Baxter, Inc. Instead, each was a
retail outlet or distributor which had purchased beverages from one of the
franchised bottlers, which in turn paid royalties to the appellant.

After both the filing of the appellees' joint summary judgment motion and a
special master's report on a motion to strike certain interrogatories, in each of
which it was suggested that Billy Baxter, Inc. lacked standing to sue as a
franchisor for its own lost profits on its franchisees' sales, appellant moved to
amend both its complaint and its revealing answers to the interrogatories. It
requested permission to file an amended pleading characterizing itself as a
seller of bottled beverages purchased from its own franchised bottlers for
resale, deleting its prior reference to 'occasional' resale and describing the same
two isolated sets of transactions as 'substantial' retail sales.7 Nevertheless, the
district court found that this proposed verbal change did not alter the fact that 'at
no time was plaintiff any part of the marketing operations of its licensees.'
Conclusory statements to the contrary were found to be without factual basis;8
and summary judgment was granted because Billy Baxter, Inc. was outside the
'target area' of the alleged antitrust activities, the marketing of bottled
beverages. Billy Baxter, Inc. v. Coca-Cola Co., 47 F.R.D. 345, 349-350
(S.D.N.Y.1969). We affirm.

Section 4 of the Clayton Act, 15 U.S.C. 15, provides:

' That any person who shall be injured in his business or property by reason of

anything forbidden in the antitrust laws may sue therefor * * * and shall recover
threefold the damages by him sustained, and the cost of suit, including a
reasonable attorney's fee.'
9

The statutory requirement that treble damage suits be based on injuries which
occur 'by reason of' antitrust violations expressly restricts the right to sue under
this section. There must be a causal connection between an antitrust violation
and an injury sufficient for the trier of fact to establish that the violation was a
'material cause' of or a 'substantial factor' in the occurrence of damage.
Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 702, 82
S.Ct. 1404, 8 L.Ed.2d 777 (1962); Bigelow v. RKO Radio Pictures, 327 U.S.
251, 66 S.Ct. 574, 90 L.Ed. 952 (1946); Note, Standing to Sue for Treble
Damages Under Section 4 of the Clayton Act, 64 Colum.L.Rev. 570, 575-6
(1964). And this connection must also link a specific form of illegal act to a
plaintiff engaged in the sort of legitimate activities which the prohibition of this
type of violation was clearly intended to protect. While any antitrust violation
disrupts the competitive economy to some extent and creates entirely
foresseeable ripples of injury which may be shown to reach individual
employees, stockholders, or consumers, it has long been held that not all of
these have the requisite standing to sue for treble damages and thereby take a
leading role in the enforcement of the prohibition in question. See, e.g., Data
Digests, Inc. v. Standard & Poor's Corp., 43 F.R.D. 386 (S.D.N.Y.1967). The
private action, intended as 'an everpresent threat to deter anyone contemplating
business behavior in violation of the antitrust laws,' Perma Life Mufflers, Inc. v.
Int'l Parts Corp., 392 U.S. 134, 139, 88 S.Ct. 1981, 1984, 20 L.Ed.2d 982
(1968), can only serve as an effective deterrent if the courts are able to
administer it with some degree of certainty. Contourless rules of causation
would pose the threat of a parallel relaxation of the standard of business
behavior enforced by the allowance of treble recovery. Consequently, a
plaintiff must allege a causative link to his injury which is 'direct' rather than
'incidental' or which indicates that his business or property was in the 'target
area' of the defendant's illegal act. SCM Corp. v. Radio Corp. of America, 407
F.2d 166 (2 Cir.), cert. denied 395 U.S. 943, 89 S.Ct. 2014, 23 L.Ed.2d 461
(1969); Productive Inventions, Inc. v. Trico Products Corp., 224 F.2d 678 (2
Cir. 1955), cert. denied 350 U.S. 936, 76 S.Ct. 301, 100 L.Ed. 818 (1956).
These terms do not provide talismanic guides to decision, but they do indicate
the need to examine the form of violation alleged and the nature of its effect on
a plaintiff's own business activities. See generally Pollock, Standing to Sue,
Remoteness of Injury, and the Passing-on Defense, 32 A.B.A. Antitrust L.J. 5
(1966); Timberlake, Federal Treble Damage Antitrust Actions 4.02, 4.03
(1965).

10

In this case the only facts which Billy Baxter, Inc. alleges concern the use of
improper methods to persuade retail outlets to buy products other than those
manufactured and sold by the bottlers paying royalties to appellant.9 There is
no suggestion that any party approached the franchised bottlers and attempted
to induce them to terminate their relationship with the appellant, or that any
related steps were taken to interfere with the appellant's own franchising
business. Cf. Schwartz v. Broadcast Music, Inc., 180 F.Supp. 322
(S.D.N.Y.1959). The only 'target area' of legitimate activity indicated by the
franchisor is the marketing of bottled beverages.

11

The appellant's claim to standing is not strengthened by the argument that the
'target' was the line of Billy Baxter products rather than a specific 'area' of
economic activity in which the bottlers were engaged. Reference to the
products as a target simply points to the self-evident fact that antitrust violations
might do some damage to all the entities connected with their production and
distribution. It is still necessary to examine a given plaintiff's role in these
processes to determine whether it has the requisite relationship to the type of
wrong alleged. Billy Baxter, Inc. was not only one step removed from the link
in the production-distribution chain receiving the first impact of the alleged
misconduct, but also it cannot claim to be a firm with comprehensive
responsibilities for and identification with the beverages. Cf. Karseal Corp. v.
Richfield Oil Corp., 221 F.2d 358 (9 Cir. 1955). It manufactured no products,
and the bottlers did not act as its agents in doing so.10 The franchisor merely
licensed the information needed for the manufacture of the beverages, supplied
ingredients which still others had manufactured, and left further production
activities to its franchisees.11 It would be meaningless to state that Billy Baxter,
Inc. simply elected to carry on 'its' business by authorizing others to bottle and
sell the beverages, because the franchisor consciously structured the
production-distribution process in a way which limited its own activities in
order to gain the benefits of certain specific rights and liabilities.12 Thus the
district court did not enforce a standing rule allocating economic loss to
arbitrarily-determined vertical levels of an enterprise, but relied upon the fact
that the appellant had expressly limited itself to a level outside the economic
target area of the offense. See Snow Crest Beverages, Inc. v. Recipe Foods,
Inc., 147 F.Supp. 907, 909 (D.Mass.1956).

12

Similarly, the appellant's standing is not improved by the suggestion that the
appellees, Coca-Cola Company and Canada Dry Corporation, were 'its'
competitors. The word 'competitor' is no more instructive than the word 'direct,'
if either is taken out of the context of the facts of a specific case. In its
complaint, Billy Baxter, Inc. contends that both of these firms are
manufacturers as well as franchisors of independent bottlers; and it is not clear

whether the alleged discriminatory price concessions and discounts are claimed
to have been made to promote the sale of beverages actually bottled by one of
the appellees,13 an activity in which it does not compete with the appellant, or to
benefit sales in the five specified states by their franchised bottlers. In any case,
even if the appellees violated the law to help themselves or their franchisees at
the expense of the bottlers who sold Billy Baxter products, while knowing that
this would also be an effective way of depriving a rival franchisor of royalties,
the causal link between the type of violation alleged and an appropriate
plaintiff would still be lacking in this suit. An interference with the marketing
of beverages may interrupt profitable relationships and thereby harm a party
which in effect 'markets' franchises and ingredients, but the connection is not
sufficiently compelling to support a treble damage suit.
13

The position of Billy Baxter, Inc., as a franchisor attempting to recover for this
type of antitrust violation is not significantly different from that of a patent
licensor suing for royalties lost because of injury to its patentee, SCM Corp. v.
Radio Corp. of America, supra; Productive Inventions v. Trico Products Corp.,
supra; or of a supplier of ingredients suffering from a loss caused by an antitrust
violation damaging the manufacturer and seller of a product, Volasco Prods.
Co. v. Lloyd A. Fry Roofing C., 308 F.2d 383 (6 Cir. 1962), cert. denied 372
U.S. 907, 83 S.Ct. 721, 9 L.Ed.2d 717 (1963); Snow Crest Beverages, Inc. v.
Recipe Foods, Inc., supra. Although Billy Baxter, Inc. licenses a trademark
rather than a patent and also engages in certain advertising and promotional
activities in support of this mark, we do not think this distinction suffices to
give it standing to sue for damage caused by illegal interference with the
marketing of its franchisees' products.14 See, Nationwide Auto Appraiser
Service, Inc. v. Association of Casualty & Surety Companies, 382 F.2d 925 (10
Cir. 1967).

14

Summary judgment was an appropriate remedy in this case, because the factual
questions of motive and intent were not material to the appellant's standing. No
genuine issue as to any material fact remained, because the nature of the
appellant's injuries and the appellees' alleged activities were fully developed
during two years of discovery and disclosure. Assuming the truth of appellant's
extensive material factual allegations, they were nevertheless insufficient to
show standing to sue. See SCM v. Radio Corp. of America, supra. Denial of the
motion for leave to serve an amended complaint two months after filing of the
appellees' summary judgment motion was also proper, since the verbal changes
suggested would not have cured the absence of factual support for a showing of
standing, indicated by prior judicial admissions.

15

The judgment is affirmed.

WATERMAN, Circuit Judge (dissenting):

16

I respectfully dissent from the action of my distinguished brethren in affirming

the judgment entered below.

17

They agree with the respected judge below that, even if plaintiff-appellant's
factual allegations are testimonially supportable, these allegations are not
sufficient to demonstrate that appellant had standing to complain against the
defendants.

18

I believe the plaintiff-licensor has standing to sue. I find it rather strange these
days to deny access to a court of law to a plaintiff who alleges facts that show it
has suffered compensable damage by reason of the action of others. Thus I am
constrained to believe that my brother judges have accepted an anachronistic
judicial gloss upon the phrase 'by reason of' as that phrase appears in 15 U.S.C.
15 (1964 ed.), a Code section derived from prior antitrust statutes, the Sherman
Anti-Trust Act of July 2, 1890, 80 years old, and Section 4 of the Clayton Act
of October 15, 1914, 55 years old.

19

Initial, or priming, coats of gloss were put on even before 1914, as when the
Third Circuit was adjudicating a case brought against a well-known corporation
pursuant to Section 7 of the Sherman Anti-Trust Act of 1890. The plaintiff's
action there was demurred to and the lower court's judgment sustaining the
demurrer was affirmed by the Third Circuit. In holding that this plaintiff had no
standing to sue, it was said:

20

There must exist some barrier which will effectually prevent such a multiplicity
of suits as the plaintiff's position suggests, and we believe not only that that
barrier exists, but that it is found now just where it was prior to the passage of
the Act in question. Loeb v. Eastman Kodak Co., 183 F. 704, 709 (3 Cir. 1910).

21

Should we not have in mind that those were the days when 'privity' was king
and even MacPherson v. Buick Motors, 217 N.Y. 382, 111 N.E. 1050 (1916)
had not been written? Loeb was a stockholder and creditor of a corporation
which had been ruined as a result of defendant's antitrust violations. The court
reasoned, as I have just set out, that the antitrust statute was not intended to
grant causes of action to a multiplicity of plaintiffs who could not have
maintained suits against the defendant for compensable damages prior to its
passage. It held that as the corporation was the party primarily injured and a
stockholder's interest in lost profits is derivative, the private antitrust cause of
action, as with any other derivative cause of action, lay with the corporation.

Accord, Ames v. American Telephone & Telegraph Co., 166 F. 820

(C.C.D.Mass.1909). Too, the court ruled that the same general principle
applied to a creditor of an insolvent corporation which falls victim to antitrust
violations, for creditors' interests are protectable by the trustee in bankruptcy
who may institute an antitrust action in the creditors' behalf. The court,
although appearing to recognize that Loeb had been damaged, wrote that any
injury which he received was 'indirect, remote, and consequential,' id. 183 F. at
709, and the underlying reasoning of the decision (which I hasten to point out I
am not denigrating) contemplated the existence of another person, the
corporation or the trustee, each of which had a fiduciary relationship to plaintiff
as stockholder or to plaintiff as creditor and who, directly harmed by
defendants' conduct, was capable of bringing suit and in doing so would be
protecting a stockholder's or a creditor's interest. The fiduciary, the proper party
to institute the action, then, as envisaged by the court, would act as a conduit
through which the stockholder's and creditor's damages would flow, for in the
long run a successful suit by the corporation or its representative would
presumably accrue to the benefit of its stockholders and its creditors. As to the
standing of stockholders the court appeared to fear that if both those persons
who possess truly derivative claims and the corporation, too, were allowed to
bring suit, the defendant would be subject to damages in excess of treble the
amount of the total actual damages inflicted upon the corporate entity and its
stockholders by the antitrust conduct. Id. 183 F. at 823.
22

Further development by judicial construction of 4 of the Clayton Act has led to

disqualification of employees of a corporation from suing for the consequences
they suffered in the aftermath of antitrust violations committed in the
competitive market of which their employer was a part. See, e.g., Conference of
Studio Unions v. Loew's Inc., 193 F.2d 51 (9 Cir. 1951), cert. denied, 342 U.S.
919, 72 S.Ct. 367, 96 L.Ed. 687 (1952); Westmoreland Asbestos Co. v. JohnsManville Corp., 30 F.Supp. 389 (S.D.N.Y.1939), aff'd, 113 F.2d 114 (2 Cir.
1940). But cf. Data Digests, Inc. v. Standard & Poor's Corp., 43 F.R.D. 386
(S.D.N.Y.1967). Similarly, a lessor or landlord has been denied standing to sue
for decreased rental payments due to antitrust activity affecting the business
engaged in by the lessee, regardless of 'whether the tenant (lessee) be a party to
the violation * * * or not.' Lieberthal v. North Country Lanes, Inc., 221 F.Supp.
685, 690 (S.D.N.Y.1963), aff'd, 332 F.2d 269 (2 Cir. 1964); Melrose Realty Co.
v. Loew's, Inc., 234 F.2d 518 (3 Cir.), cert. denied, 352 U.S. 890, 77 S.Ct. 128,
1 L.Ed.2d 85 (1956). Contra, in circumstances where the lessee is a party to the
antitrust violation, Congress Building Corp. v. Loew's, Inc., 246 F.2d 587 (7
Cir. 1957). Patent licensors have likewise been held ineligible to sue for loss of
royalty income because of antitrust violations directed at the licensee's
business, SCM Corp. v. Radio Corp. of Am., 407 F.2d 166 (2 Cir.), cert.

denied, 395 U.S. 943, 89 S.Ct. 2014, 23 L.Ed.2d 461 (1969); Productive
Inventions, Inc. v. Trico Products Corp., 224 F.2d 678 (2 Cir. 1955), cert.
denied, 350 U.S. 936, 76 S.Ct. 301, 100 L.Ed. 818 (1956), the case relied upon
by the court below, see 47 F.R.D. 345, 350 (S.D.N.Y.1969) and by my brothers.
In like fashion, suppliers of ingredients to customers who have fallen victim to
antitrust violations have been denied the benefit of an antitrust suit. Volasco
Prods. Co. v. Lloyd A. Fry Roofing Co., 308 F.2d 383 (6 Cir. 1962), cert.
denied, 372 U.S. 907, 83 S.Ct. 721, 9 L.Ed.2d 717 (1963); Snow Crest
Beverages, Inc. v. Recipe Foods, Inc., 147 F.Supp. 907 (D.Mass.1956). It
would seem now that even franchisors are placed in the same category.
Nationwide Auto Appraiser Service, Inc. v. Association of Casualty & Surety
Companies, 382 F.2d 925 (10 Cir. 1967).
23

There seems to have emerged from a major portion of the cases interpreting the
antitrust statutes a talismanic rule of lack-of-standing, presumably based in
some fashion upon those now famous words 'by reason of.' If the plaintiff
suffers injury from the defendant's illegal antitrust conduct, but the plaintiff is
somehow separated from the defendant by the presence of an intermediate
person who has also fallen victim to that conduct, the plaintiff's injury is given
the label of an 'indirect,' 'remote,' or 'consequential' injury. The label then
dictates the outcome of the case and the plaintiff is denied a recovery
regardless of the extent or the nature of plaintiff's loss, or of any other facts and
circumstances, and regardless of whether a fiduciary relationship existed
between plaintiff and the intermediate person. Many courts, so accepting label
disposition, have tended thereby to view the standing-to-sue requirement in
general terms and thus have denied all plaintiffs who fall into certain classes of
persons-- lessors, landlords, stockholders, corporate officers, creditors,
suppliers, franchisors, licensors-- antitrust protection by holding that when the
business and property interests of such plaintiffs are injured because of injuries
to the competitive market of persons with whom they are related or connected
the plaintiffs' position vis-a-vis the offending defendants is 'indirect.' This is not
to say, of course, that denying a plaintiff access to court by 'label disposition'
will always lead to a deplorable deprivation. Nevertheless, in deciding whether
a plaintiff has standing to pursue the federally created cause of action codified
in 15 U.S.C. 15 it seems to me that perhaps the use by courts in antitrust
opinions of inherited decisional labels may have obfuscated the positions of
some plaintiffs so as to have denied them the recoveries which fact-analysis
might have indicated they should have obtained.

24

Several courts, however, have resisted the adoption of labelous rules of

standing-to-sue and have looked to some extent behind the 'indirectness' label
in an effort to preserve the basic policy considerations that give the standing-to-

sue requirement its viability. See, e.g., Sanitary Milk Producers v. Bergjans
Farm Dairy, Inc., 368 F.2d 679, 688-689 (8 Cir. 1966); South Carolina Council
of Milk Producers, Inc. v. Newton, 360 F.2d 414 (4 Cir.), cert. denied, 385 U.S.
934, 87 S.Ct. 395, 17 L.Ed.2d 215 (1966). One of these cases, decided some
years ago, Karseal Corp. v. Richfield Oil Corp., 221 F.2d 358 (9 Cir. 1955),
involved an antitrust action by a manufacturer of automobile polish which sold
its product under the trade name of 'Wax Seal' to enfranchised, but
independently owned, distributors, which in turn resold the 'Wax Seal' to
independent service stations. The defendant, a sponsor of various automobile
polishes and waxes other than 'Wax Seal', was alleged to have violated the
antitrust laws by entering into 'exclusive dealing' agreements with service
station operators thereby causing an unreasonable restraint of trade in the car
wax industry and, in particular causing restricted sales of 'Wax Seal' by
plaintiff's enfranchised distributors, thereby diminishing the distributors'
demands for 'Wax Seal' from plaintiff. The court was undaunted by the fact that
plaintiff stood in the shoes of one 'indirectly' injured and held that plaintiff was
entitled to maintain the action. In reaching this conclusion the court
characterized the issue this way:
25

'Was Karseal within the 'target area' of (defendant) Richfield's illegal practices
* * *? Assuming Karseal was 'hit' by the effect of the Richfield antitrust
violations, was Karseal 'aimed at' with enough precision to entitle it to maintain
a treble damage suit under the Clayton Act?' Id. at 362.

26

The defendants in Karseal applied illegal restraints at the level of the retail
outlets, as defendants allegedly did in this case. The independent distributors in
Karseal stood between the plaintiff and the retailers, as the bottlers stand
between Billy Baxter and the retailers in the instant case. The Karseal court
found that:

27

Primarily the operation and effect of the illegal practices was on the products
(including Karseal's wax) which were competitive to the Richfield sponsored
products. The impact was on the market. The gist of the violation was the
prevention or impeding of the sale of these competitive products. Id. at 364.
Finally, the court observed:

28

To say to a manufacturer of wax that he may have the protection of the antitrust
laws in private litigation if he hires salesmen for his product, and not have such
protection if he decides to contract with a distributor, would appear to be an
unequal application of the law and unjustified dictation as to how he operated

his business. Id. at 364-365.

29

Appellees would distinguish Karseal because in that case the plaintiff supplied
the finished product while in this case it is the plaintiff's franchisees who make
up the finished products and bottle the beverages. The majority at page 188
would distinguish Karseal by saying appellant 'cannot claim to be a firm with
comprehensive responsibilities for and identification with the beverages.' This
analysis might have merit if plaintiff had not furnished the secret formulae
extracts which served to make Billy Baxter's beverages unique and which gave
the Billy Baxter beverages their competitive edge in the soft-drink industry. I
submit, however, that Billy Baxter does have 'comprehensive responsibilities
for and identification with the beverages' sold under its brand name trademark.

30

Billy Baxter, as was Karseal, is the nerve center or the center of operations for
the production and marketing of a 'brand name' product. Billy Baxter's
franchisees, as did Karseal's franchisees, perform functions ancillary to and in
furtherance of, their franchisor's primary function and purpose, that of
providing the consumer public a different and distinct product line and of
promoting its products' good will and acceptability in a competitive market.

31

Several considerations lead me to believe that the majority is wrong in its

assessment that appellant's relationship with its bottlers is not sufficiently close
to bring it within the protection of the antitrust laws.

32

The majority points out that apart from the terms of Billy Baxter's written
agreement with its bottlers, 'the record contains no mention of the nature of the
relations of Billy Baxter, Inc. with the bottlers.' (Majority opinion, footnote 11).
Unlike the majority, however, I find that the agreement referred to is of special
significance. In relevant part the licensing agreement provides:

33

4. Licensee (bottler) shall strictly comply with the instructions, formulas and
directions of Billy Baxter, which Billy Baxter may give from time to time in
relation to the preparation, handling, bottling and distribution of Billy Baxter
beverages * * *. Licensee shall furnish Billy Baxter with as many samples of
Billy Baxter beverages as may be requested to enable Billy Baxter to test
Licensee's compliance with the instructions hereinbefore described, and
Licensee shall permit representatives of Billy Baxter, at all reasonable time, to
inspect and investigate the processes, methods and conditions of Licensee's
operation of its plant, and operation of the financial aspects of Licensee's
business * * *.

34

The majority concludes that plaintiff's reserved right to inspect is primarily

designed to guarantee 'volume control' whereby performance could be
ascertained and royalties determined. (Majority opinion, footnote 11). I think it
is a fuller statement to add that the language of the agreement allows plaintiff
to direct unqualifiedly the bottlers in their 'preparation, handling, bottling and
distribution of Billy Baxter beverages,' and that inspections are not only
designed to measure 'volume' but in addition to insure 'quality control.' Plaintiff
has an important stake in achieving and in insisting upon uniform standards of
quality among the products its bottlers produce and distribute. This is not only
very good business but is required legally. The majority fails to recognize that
inasmuch as plaintiff owns the federally registered trademark that identifies the
Billy Baxter beverages in the market, plaintiff is required to exercise reasonable
supervision and control over licensees it allows to use the trademark so as to
insure uniform standards of quality in all the Billy Baxter beverages produced
by various bottlers, for lack of reasonable 'quality control' works an
abandonment of the licensor's registration of its trademark. Lanham Act, 15
U.S.C. 1051 et seq., Dawn Donut Co. v. Hart's Food Stores, Inc., 267 F.2d 358,
367 (2 Cir. 1959).1

35

Therefore, instead of merely licensing 'information' to its licensees and then

quietly sitting back to collect royalties, plaintiff was obligated to play a
continuing role in overseeing its licensees' performance for plaintiff, as the
trademark owner, was responsible, according to federal law, to the ultimate
consumer lest the 'public * * * be unwittingly deceived,' id. at 367, and the
penalty for failure to take active steps to supervise and control its licensees
would be the loss of its registered trademark. Moreover, this affirmative duty
that a licensor owes to the public to prevent diverse standards of product quality
may well lead to a reciprocal liability for any injuries suffered by a consumer
because of a lack of effective 'quality control,' and indeed may thereby
constitute the relationship of the licensor to its licensee, depending upon the
extent of the control reserved by the licensor, to be that of a principal liable for
the acts of its agent. E.g., Nichols v. Arthur Murray, Inc., 248 Cal.App.2d 610,
56 Cal.Rptr. 728 (1967). See Note, The Franchisor as Plaintiff in Treble
Damage Actions: An Antitrust Anomaly, 49 B.U.L.Rev. 322, 335-337 (1969);
Note, Liability of a Franchisor For Acts of the Franchisee, 41 So.Cal.L.Rev.
143 (1967).

36

In short, the majority's classification of Billy Baxter, Inc. as an entity which

'consciously structured the production-distribution process in a way which
limited its own activities in order to gain the benefits of certain specific rights
and liabilities' (majority opinion page 188) ignores the Lanham Act's imposition
of affirmative duties that Act requires of licensors and which may substantially

break down whatever insulation from liability a trademark licensor might have
otherwise previously enjoyed. I therefore, find it rather anomalous to conclude
that an enterprise owning a brand-name is not sufficiently identified with and
not sufficiently responsible for the consistent quality of its brand-name
products to have standing to prosecute an antitrust cause of action and yet, on
the other side of the coin, is so sufficiently identified with these same brandname products that the Congress, so as not to have the public deceived, has
imposed affirmative responsibilities upon it to police its licensees in order to
protect the integrity of the product in the consumer market.
37

Assuming the facts plaintiff alleges in its complaint are provable I cannot think
of a more strained use of reason and of logic than to say that Billy Baxter was
not 'aimed at' by the defendants and was inadvertently hit as an 'innocent
bystander.' See Perkins v. Standard Oil Co., 395 U.S. 642, 649, 89 S.Ct. 1871,
23 L.Ed.2d 599 (1969); Karseal Corp. v. Richfield Oil Corp., supra at 363. Can
there be any doubt, again assuming the alleged facts to be provable, that the
defendants' ultimate objective was to undermine the competitive position
enjoyed by Billy Baxter trade name products in the beverage market? These
allegations do not claim that defendants' aim was to eliminate competition in
the beverage bottling industry but to eliminate the Billy Baxter brand-name
beverage products from competition with defendants' brand-name beverage
products. Here, in fact, under the allegations of this case, the bottlers are the
businessmen who are secondarily or incidentally 'hit.' This proposition may be
demonstrated by assuming that, because of defendants' conduct, the market for
Billy Baxter beverages has been eliminated. Of course the bottlers who have
been bottling those beverages are unable to continue doing so. However, it does
not necessarily follow from the demise of the Billy Baxter beverage market that
the bottlers are eliminated from the pursuit of their business of bottling
beverages. There still may exist a market for bottling, although that market may
be that of bottling some other company's beverages-- even perhaps the
beverages of these defendants. There are, however, no alternatives open to Billy
Baxter; its business is destroyed because its ability to compete has been
destroyed.

38

Billy Baxter, therefore, is the principal, and the intended, victim of the
defendants' illegal conduct, for the purpose for which defendants conspired was
to keep Billy Baxter's trade name beverages off retail shelves; the defendants
did not say to retailers, 'don't stock beverages bottled by companies A, B, or C.'
The object of the defendants' conspiracy was not to put certain bottlers out of
business; it was to scuttle Billy Baxter and the Billy Baxter trademarked
brandname in the relevant competitive market. Of course when the Billy Baxter
business was scuttled Billy Baxter's franchisees would be damaged, but this

would be so only because they happened to be bottling Billy Baxter products,

not because they were the ultimate and principal targets aimed at. It was the
plaintiff franchisor, not the plaintiff's franchisees, who was aimed at with such
deadly accuracy and precision.
39

The fact that Billy Baxter provided for a financial structure between itself and
its franchisees that contemplated the outright sale of the flavor extracts and a
royalty for every case of beverages sold rather than providing for payment to its
bottlers of a fee for bottling and distributing the beverages has no more
significance than the outrights sale of automobile polish to distributors had in
Karseal v. Richfield Oil Corp., supra. To hold otherwise would be an
unwarranted exaltation of form over substance. Billy Baxter's way of doing
business did not insulate it from loss so that its elimination from the relevant
market injured only its franchisees, for its way of doing business did not cause
any unusual allocation of risks of financial loss between it and its franchisees if
the market for Billy Baxter products should decline. The franchisees were not
contractually obligated to purchase extracts from Billy Baxter except on a
need-as-you-go basis. If the demand for Billy Baxter beverages slackened a
Billy Baxter bottler's demand for extracts would diminish in like proportion.
The ratio of commercial risk between them would be essentially the same
whether Billy Baxter acted as its own distributor and paid the bottlers for
bottling or whether it was agreed that title to the finished beverages would vest
in Billy Baxter prior to distribution to the consuming public. The only risk of
loss not assumed by Billy Baxter that the franchisees faced with respect to the
finished products was the risk of loss of inventory if the market for Billy Baxter
should collapse overnight, not a very significant factor over the long run.

40

This brings us to the point of inquiring whether this Billy Baxter case can be
meaningfully distinguished from the apparent holding in the case of Productive
Inventions, Inc. v. Trico Prods. Corp., supra, upon which my colleagues rely.
Although the court in that case recognized that:

41

No hard and fast rule can be laid down in these situations as the line between
direct and incidental damage is not always definable with clarity. * * * Id. at 68.

42

and characterized the issue presented by the pleadings as a 'limited' one, the
court held that a patentee who has granted an exclusive license to a
manufacturer, upon a royalty basis, could not maintain a treble damage action
for recovery of damages for loss of royalties on sales that might have been
made by the licensee save for defendants' antitrust violations. Id. at 679, 680.
Relying on decisions denying relief to stockholders, employees, creditors and
landlords, the court, in sweeping language, adopted the classical 'indirect,'

'incidental,' damage formula and denied the licensor-plaintiff standing to sue.

43

Our court held this even though the court appeared to recognize, id. at 680, n. 1,
that 'direct' damages suffered by the licensee for loss of sales and 'indirect'
damages suffered by the licensor for loss of royalties on the lost sales were
different kinds of damages and appeared to recognize that under its holding
neither the licensor nor the licensee could recover for the loss of the licensor's
royalties, id. at 680.2

44

The Trico Products result is, I suggest, motivated by a judicial adherence to a

notion that inasmuch as Congress has provided that affected plaintiffs may
recover three-fold damages, i.e., may benefit by a 'windfall,' the court should
frustrate the legislation by preventing some persons damaged by proscribed
unfair competition from sharing in the 'windfall.' The argument makes sense, of
course, as long as one person is available to bring the antitrust suit, and the
extent of the damages that he may recover is allocable between him and others
similarly damaged because of the manner in which he and they are doing
business. In such a situation the policy of Congress to encourage private
antitrust actions by permitting the recovery of treble damages is not thwarted
even if only the most directly affected person is allowed to bring the suit.

45

But if the person 'most directly affected' does not have a relationship with
another affected person of the sort that will permit him to recover the other's
damages it is the defendant who reaps a 'windfall.' This 'windfall' would seem
to occur when conspiratorial defendants happen to direct antitrust activity at a
vertically non-integrated enterprise rather than at a completely integrated one.
In the latter case, a defendant guilty of antitrust conduct must pay three-fold the
actual damages it inflicts. In the former, such a defendant need only pay threefold the damages it inflicts on the first independently organized tier of the
affected industry, thereby avoiding the full measure of its illegal undertakings.
Whether particular guilty defendants will pay the full measure of what
Congress prescribed, then, turns on how the innocent parties in the affected
target enterprise chose to do business. Nothing in the congressional history of
the antitrust legislation even remotely suggests that such an anomalous standard
should be applicable in this field.

46

Of course it is apparent that a line must be drawn somewhere, as in all damage

actions, for there is always a point where proof of damages becomes too
difficult or too speculative. In the antitrust area that point is surely reached
when the one claiming to be damaged by another's antitrust activity has too
tenuous a relationship to the competitive market affected. Perhaps this
consideration justifies the line drawn in Productive Inventions v. Trico

Products-- at least our court as of now has so drawn the line-- but for the
reasons I have stated I believe the line there drawn was drawn without
examining the rationale behind the labels there relied upon, and, in any event,
that case ought not support a decision moving the line over to bar out Billy
Baxter. Billy Baxter's relationship to the relevant market is far from tenuous.
Billy Baxter is directly in the retail market where it alleges defendants'
violations occurred because it pre-sells it brand named products in the
consumer's mind and, presumably in order to protect its own interest, makes
available business advice and promotes product quality control through
inspections of its franchisees; the franchisee-bottlers, therefore, do not have the
'inalienable right to mismanage' their own businesses. See Slater, Some SocioEconomic Footnotes on Franchising, 11 B.U.Bus.Rev. 19, 21 (1964). In
contract, the licensor in Trico Products was passive in the relevant market and
left every aspect of the business to the manufacturer licensee.
47

I believe that this circuit has already reached or may have surpassed the
permissible high watermark in this area in Productive Inventions v. Trico
Products. The Supreme Court from time to time has instructed that the
protection afforded by antitrust legislation is not to be restricted by niggling
precepts or by artificial limitations. As far back as 1948 the Supreme Court in
Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219,
236, 68 S.Ct. 996, 1006, 92 L.Ed. 1328 (1948) stated:

48

The statute (Sherman Act) does not confine its protection to consumers, or to
purchasers, or to competitors, or to sellers. Nor does it immunize the outlawed
acts because they are done by any of these. * * * The Act is comprehensive in
its terms and coverage, protecting all who are made victims of the forbidden
practices by whomever they may be perpetrated. * * *

49

See statements of similar effect in Radiant Burners, Inc. v. Peoples Gas, Light
& Coke Co., 364 U.S. 656, 660, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961); Radovich
v. National Football League, 352 U.S. 445, 453-454, 77 S.Ct. 390, 1 L.Ed.2d
456 (1957). See also Perkins v. Standard Oil Company of California, 395 U.S.
642, 89 S.Ct. 1871, 23 L.Ed.2d 599 (1969).

50

I would, therefore, reverse the judgment below entered after the grant of the
summary judgment motion and would remand for further pleadings and
proceedings.

Of the Southern District of New York, sitting by designation

Response to Canada Dry interrogatories, P9

Id., P10. In P9, Billy Baxter, Inc. noted that 'on a few occasions' it purchased
bottled beverages from one or more of its franchised bottlers for resale. These
occasions were elaborated in P24, which stated:
'The Company did not sell products to customers who purchased from the
company except in two instances. For a period of approximately three months
during 1964, the company sold directly to Thoroughfare Supermarkets, Inc.
(sales volume $10,925.00) and Giant Eagle Supermarkets, Inc. (sales volume
$993.00), Pittsburgh, Pa. In addition, the company sold direct to Brussels
Casino, Inc. (in 1964, sales volume $3,340.00) and Devil's Head Cafe (in 1965,
sales volume $1,236.00), at the New York World's Fair.'

Affidavit of William F. Adler, president of Billy Baxter, Inc., July 17, 1968, p.
2

See note 2, supra

The original complaint alleged a single count for violation of the Sherman Act,
15 U.S.C. 1-7, 15; the Clayton Act, 15 U.S.C. 12-27; and the Robinson-Patman
Act, 15 U.S.C. 13, 15. The proposed amended complaint would have alleged
four counts, the only one of which based on antitrust violation cited the Clayton
Act, 15 U.S.C. 12, 22, 26; the Sherman Act, 15 U.S.C. 1, 2; and the RobinsonPatman Act, 15 U.S.C. 13

The complaint alleged that damage from the antitrust violations forced Billy
Baxter, Inc. to try to sell its business, and that appellee Coca-Cola Co.
interfered with this attempt. In its proposed amended complaint, the appellant
characterized this and related claims as incidental to its basic claim of antitrust
violations. The district court held that because the alleged attempt to sell the
franchising business concerned a sale of stock, any claim based on interference
would be vested in the Billy Baxter, Inc., stockholders rather than in the
company. This holding has not been contested on appeal
The complaint also alleged that appellee Canada Dry Corp. obstructed a
proposed marketing program with a named dairy company; but since answers
to the interrogatories disclosed that the program was actually that of Red Raven
Corp., the franchised bottler which had owned the Billy Baxter trademark
before 1962, the district court considered these allegations in conjunction with
the antitrust standing arguments, infra.

See note 2, supra

The district court also took note of the fact that Billy Baxter, Inc. had stated in
its articles of incorporation that its corporate purpose was to sell or grant
franchises authorizing others to bottle and sell trademarked beverages. The
appellees contended below that the Pennsylvania Constitution and New York's
Business Corporation Law 1301(a) therefore prohibited Billy Baxter, Inc. from
engaging in the business of manufacturing or selling the beverages themselves,
and that the appellant never qualified to do business at all in New Jersey, Ohio
or West Virginia. Billy Baxter, Inc. v. Coca-Cola Co., 47 F.R.D. 345, 349
(S.D.N.Y.1969)

The appellant stated in its answers to interrogatories that details of specific

concessions, discounts, gifts, or allowances to the named retail beverage
outlets, or to other beverage purchasers, were largely known only to the guilty
appellees; but it did not contend that other types of conduct were involved

10

The bottlers' franchise agreements specified that they were not made agents or
representatives of the franchisor 'for any purpose whosoever.'

11

The appellant did reserve the right to inspect the processes and conditions at the
bottlers' plants, and especially to have access to the bottlers' auditing systems
and financial records. The franchise agreement stated that the 'volume control,'
guaranteed by these inspection rights, was the franchisor's 'primary means of
appraising licensee's performance of this agreement,' since it determined the
size of royalties owed. Apart from the language of this agreement, the record
contains no mention of the nature of the relations of Billy Baxter, Inc. with the
bottlers

12

For example, Billy Baxter, Inc. apparently did not qualify to do business itself
in three of the states in which beverages using its trademark were marketed. See
note 8, supra

13

The concessions and discounts alleged are attributed entirely to appellee

Canada Dry Corp. The appellant contends that the Coca-Cola Co. is a
participant in antitrust violations because of the alleged market division

14

The appellant stated that it kept no separate records of advertising related to

particular products, and its expenditures for various types of advertising and
promotion on behalf of its trademark also were not itemized. The franchisor
noted that an unspecified part of this advertising expense represented the cost
of material supplied to the bottlers for use in their own local advertising

The legislative scheme may be briefly described. Section 5 of the Lanham Act,
15 U.S.C. 1055 provides:

Where a registered mark or a mark sought to be registered is or may be used

legitimately by related companies, such use shall inure to the benefit of the
registrant or applicant for registration, and such use shall not affect the validity
of such mark or of its registration, provided such mark is not used in such
manner as to deceive the public.
The concept of control is introduced by the Act's definition of 'related
company.' 15 U.S.C. 1127:
The term 'related company' means any person who legitimately controls or is
controlled by the registrant or applicant for registration in respect to the nature
and quality of the goods or services in connection with which the mark is used.
This court in Dawn Donut set forth the necessity for this policy of the Lanham
Act:
Without the requirement of control, the right of a trademark owner to license
his mark separately from the business in connection with which it has been used
would create the danger that products bearing the same trademark might be of
diverse qualities (citing cases). If the licensor is not compelled to take some
reasonable steps to prevent misuses of his trademark in the hands of others the
public will be deprived of its most effective protection against misleading uses
of a trademark. The public is hardly in a position to uncover deceptive uses of a
trademark before they occur and will be at best slow to detect them after they
happen. Thus, unless the licensor exercises supervision and control over the
operations of its licensees the risk that the public will be unwittingly deceived
will be increased and this is precisely what the Act is in part designed to
prevent. See Sen. Report No. 1333, 79th Cong., 2d Sess. (1946). Clearly, the
only effective way to protect the public where a trademark is used by licensees
is to place on the licensor the affirmative duty of policing in a reasonable
manner the activities of his licensees. 267 F.2d at 367.
2

This result appears to have been reached without having considered the reasons
the early courts found dispositive based upon a justified fear that persons in
privity with each other would recover for the same damages. As is said in 69
Harv.L.Rev. 575, 576 (1956) the result in Productive Inventions v. Trico
Products permitted a defendant to escape a liability it should have been
accountable for:
Since the licensee was not obligated to pay the royalties to the plaintiff unless
the patented articles were sold, the royalties could not be recovered by the
licensee in a suit for damages based on the lost sales; they were a cost which
the licensee had not incurred and which would have reduced its profit margin
had the sales been made. The plaintiff has no remedy other than a suit under the

antitrust laws. Thus, the defendant is permitted to escape liability for much of
the harm caused by its unlawful conduct.