Blue Bell Co. v. Frontier Refining Co. (213 F.2d 354, 1954)

MURRAH, Circuit Judge.

This is an appeal from a judgment of the District Court of Utah, in an action by the Frontier Refining Company against Blue Bell Company of Idaho and Blue Bell Company of Utah, for infringement of its trade-marks, and for unfair competition, in which Frontier sought injunctive relief and recoverable profits from the use of such trade-marks and unfair competition; and in which Blue Bell Companies cross-complained against Frontier and the Standard Oil Company of California, a Delaware corporation, the Standard Oil Company of California, a Utah corporation, Salt Lake Refining Company and the California Company (all affiliates of Standard of Delaware), claiming damages for violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 1 and 2.

On a trial of the case to the court and advisory jury, the trial court directed a verdict for the cross-defendants on the antitrust issues, held for Frontier on the trade-mark and unfair competition issues, and submitted the case to the jury on recoverable profits for infringement. The jury returned separate verdicts against the Blue Bell Companies for the profits derived from the sale of gasoline by Blue Bell of Idaho in Idaho, and Blue Bell of Utah in Utah. The order of proof was first on the issue of infringement and profits, but on appeal, Blue Bell first assails the judgment of the court on the directed verdict on the antitrust issues, and we will treat the appeal in that order. The facts pertinent to those issues may be stated as follows:

Upon its organization in 1941, the Frontier Refining Company adopted a trade-mark and immediately registered it in the states of Wyoming, Colorado, Utah, Idaho, New Mexico, Kansas, Nebraska, South Dakota and Montana, in all of which states (except Idaho) it was licensed to do business. It acquired an oil and gas refinery at Cheyenne, Wyoming, and at the time of the trial of the case had between three hundred and fifty and four hundred retail outlets in the states in which it was licensed to do business.

To facilitate the supply of gasoline to its jobbers and retail outlets over its trade territory, Frontier entered into exchange agreements with other refineries, under which it made gasoline available to its competitors in Cheyenne in exchange for gasoline delivered at the competitors’ refinery for distribution to Frontier’s dealers and jobbers in that area. For a number of years, Blue Bell of Idaho has been engaged in the wholesale and retail gasoline business in Idaho and at Logan, Utah, and since 1944 purchased gasoline from Frontier at Sinclair, Wyoming, for its outlets in Utah and Idaho. This gasoline was unbranded and was sold from Blue Bell’s pumps bearing its own brand or label. In the Spring of 1949, Frontier entered into an exchange agreement with the California Company, whereby Frontier made five million gallons of gasoline per year available to Standard at Cheyenne, Wyoming, in exchange for five million gallons of gasoline per year made available to Frontier at Salt Lake City. This agreement was made by the California Company through its parent, the Standard of Delaware, which in turn controlled the Salt Lake Refining Company, where the gasoline was to be lifted.

The exchange agreement provided for what is known in the industry as a place differential of 1«! per gallon, payable to Standard by Frontier for the gasoline lifted at Salt Lake City. This place differential was predicated upon the assumption that gasoline delivered under the agreement to Frontier at Salt Lake City was worth more than the gasoline delivered to California at Cheyenne because of the haulage factor involved in the distribution of gasoline. In other words, the exchange agreements took into consideration the cost of transporting the gasoline from the respective refineries to the points of distribution, allowing the long-haul taker a place differential. And, Frontier had other like agreements with other refineries in its trade territory.

Consistently with that trade policy, the California Company also had an exchange agreement with Carter Oil Company, under which Carter furnished California five million gallons of gasoline per year at its Billings, Montana refinery and three million gallons at its Cut Bank, Montana, refinery, in exchange for a like amount of gasoline delivered to Carter through Salt Lake Refining Company at its refinery in Salt Lake City. While the agreement did not expressly so provide, it was understood that the gasoline lifted by Carter was to be used to supply Carter’s outlets in Southeastern Idaho, and in consideration of the haulage factor thus involved, California agreed to pay Carter a per gallon differential for all gasoline lifted at Cut Bank, provided however, that if California could make Carter’s gasoline available from its pipe line terminals in Idaho, the place differential would not be payable.

Soon after the five million gallons of gasoline became available to Frontier at Salt Lake City, and in the Spring of 1949, Frontier entered into an oral arrangement with Blue Bell of Idaho, under which two hundred thousand gallons of gasoline per month were allotted to Blue Bell on Frontier’s account with Standard on the basis of 12.9^ per gallon at the Salt Lake City refinery. At the same time, it was orally agreed between the parties that this gasoline would be sold under the Frontier brand and trade-mark to Blue Bell’s jobbers and dealers in the states of Idaho and Utah; and Frontier immediately made available to Blue Bell all of its advertising material, including signs, globes, uniforms, matches and road maps. Blue Bell thereupon discontinued the use of its labels and insignias and adopted Frontier’s brands, labels and advertising, and generally held itself out in Idaho and Utah as the distributor for Frontier petroleum products.

Soon after the arrangement, the managing officer of Blue Bell began complaining about price. He contended that he could buy gasoline cheaper elsewhere, and that he was not being treated equitably. Frontier refused to accede to his demands, and early in the Spring of 1950, Blue Bell began lifting gasoline at Standard’s Salt Lake refinery on Carter’s account under its exchange agreement with Standard. Upon learning that such gasoline was being distributed in the Salt Lake area, California inquired of its affiliate whether there had been any change in the Carter exchange agreement. When Carter was confronted with the information that the gasoline was being lifted on its account for distribution in the Salt Lake City area, it immediately acknowledged its mistake, and on February 27, 1950, an officer of the parent California company sent a telegram to the refinery directing it not to deliver any more gasoline on Carter’s account for distribution in Utah, but to continue delivery on Carter’s account for distribution in Southeastern Idaho. At the same time, relations between Frontier and Blue Bell having deteriorated to the point where .Blue Bell was taking only a small part of its allotment on the Frontier account, and within two hours of the Standard wire, Frontier directed the refinery not to deliver any more gasoline to Blue Bell on its account. Thereafter, Frontier delivered no more gasoline to Blue Bell and demanded the return of all of its advertising and trade-mark equipment, and that it sell or distribute no more gasoline under the Frontier brand. When Blue Bell continued to operate under the Frontier brand in Idaho, and as the Frontier Oil ■ Company in Utah, Frontier brought this suit.

In its cross-complaint, Blue Bell pleaded the exchange agreements, and then alleged that prior to February 27, 1950, Blue Bell had been underselling California in the Salt Lake City area; that Frontier and California, through its affiliated corporations, threatened to take action against Blue Bell unless it raised its price; that California and Frontier thereupon agreed not to sell Blue Bell any more gasoline through the account of Frontier or any other connection through which Blue Bell might be able to obtain gasoline, and unsuccessfully endeavored to induce Carter to enter into the agreement; that in pursuance of this agreement, Frontier and Standard simultaneously cut off Blue Bell’s supply of gasoline at the Salt Lake City refinery. The simultaneous cut-offs were alleged to have been done to enforce contracts in restraint of trade and in an attempt to monopolize trade and commerce; and in furtherance of a combination and conspiracy to restrain and monopolize trade and commerce in the sale, distribution and marketing of petroleum products among the several states.

As we summarize the complaint and the contentions of Blue Bell, they are to the effect that the exchange agreements were concertedly utilized to restrict the destination of five million gallons of gasoline, thereby enabling the conspirators to fix and maintain the price of gasoline moving in interstate commerce; eliminate competition; and divide trade territories to the public detriment and to Blue Bell’s damage.

The prohibitions of Sections 1 and 2 of the Sherman Act are aimed at all contracts, combinations or conspiracies, which by reason of their purpose or effect tend to prejudice the public interest by unreasonably restraining interstate trade and commerce, or which attempt to monopolize such interstate trade and commerce. Shotkin v. General Electric Co., 10 Cir., 171 F.2d 236, and cases cited. See also Apex Hosiery Co. v. Leader, 310 U.S. 469, 499, 60 S.Ct. 982, 84 L.Ed. 1311; Appalachian Coals, Inc., v. United States, 288 U.S. 344, 359, 53 S.Ct. 471, 77 L.Ed. 825. And, any such contract, combination or conspiracy having for its purpose or potential effect the fixing of prices of goods moving in interstate commerce; eliminating competitors from a substantial market; or which divides interstate trade territories, is unreasonable, hence illegal per se. Shotkin v. General Electric Co., supra. See also United States v. Trenton Potteries Co., 273 U.S. 392, 47 S.Ct. 377, 71 L.Ed. 700; Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 458, 60 S.Ct. 618, 84 L.Ed. 852; United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 212, 60 S.Ct. 811, 84 L.Ed. 1129; Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219; Fashion Originators’ Guild v. Federal Trade Commission, 312 U.S. 457, 668, 61 S.Ct. 703, 85 L.Ed. 949; International Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20; United States v. Addyston Pipe & Steel Co., 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136; Timken Roller Bearing Co. v. United States, 341 U.S. 593, 71 S.Ct. 971, 95 L.Ed. 1199; Associated Press v. United States, 326 U.S. 1, 15, 65 S.Ct. 1416, 89 L.Ed. 2013. But, a mere declination to sell to competitors or to supply retail outlets in a competitive market is not illegal, unless such refusals to sell or supply can be shown to be in furtherance of a contract, combination or conspiracy to unduly suppress the free flow of trade or commerce. Shotkin v. General Electric Co., supra; United States v. Bausch & Lomb Optical Co., 321 U.S. 707, 722, 64 S.Ct. 805, 88 L.Ed. 1024.

We do not understand Blue Bell to assail the exchange agreements as illegal per se. They do earnestly contend, however, that when utilized to restrict the interstate movement of five million gallons of gasoline per year, they become instrumentalities for the illegal suppression of interstate trade and commerce; that the facts and circumstances leading up to and including the simultaneous cut-offs on February 27, 1950, are entirely sufficient to establish a prima facie case of a combination and conspiracy to fix prices, eliminate competition and divide up markets; that a prima facie case having been thus established, it should have been appropriately submitted to the jury with the further instruction that if any such combination or conspiracy was found to exist, it would be unreasonable per se, and the jury should then proceed to consider and determine the amount of recoverable damages. Of course a directed verdict was not warranted unless we can say that there was no evidence from which a jury could rationally infer an illegal combination or conspiracy as alleged.

The underlying purpose and effect of the exchange agreements are too plain for doubt. In the first place, they were obviously entered into in order to facilitate competition, not to stifle it. They permitted one marketing company to do business at the back door of its competitor’s refinery by the exchange of manufactured products. The price differential based upon place of distribution or sale was nothing more than a recognition of the cost of transportation from the refinery to points of distribution. Based upon these economic realities, Frontier agreed to pay California l