licensee can use 43(a) to protect exclusive territory

Brown Bottling Gp. v. Imperial Trading Co., 2022 WL 667780, No. 3:19-CV-142-HTW-LGI (S.D. Miss. Mar. 4, 2022)

Brown Bottling alleged that it had the exclusive bottling, distribution, and sale rights for Pepsi & Dr. Pepper soft drinks in an exclusive geographic territory encompassing much of central and southern Mississippi, as well as two counties in Alabama. Defendants are “various wholesale distribution companies that trade in a variety of goods” that have been selling the soft drinks to retailers within Brown Bottling’s exclusive territory.

Today I learned about the Soft Drink Interbrand Competition Act, 15 U.S.C. § 3501, which provides:

Nothing contained in any antitrust law shall render unlawful the inclusion and enforcement in any trademark licensing contract or agreement, pursuant to which the licensee engages in the manufacture (including manufacture by a sublicensee, agent, or subcontractor), distribution, and sale of a trademarked soft drink product, of provisions granting the licensee the sole and exclusive right to manufacture, distribute, and sell such product in a defined geographic area or limiting the licensee, directly or indirectly, to the manufacture, distribution, and sale of such product only for ultimate resale to consumers within a defined geographic area: Provided, That such product is in substantial and effective competition with other products of the same general class in the relevant market or markets.

But this doesn’t seem to provide a private right of action; Brown Bottling argued that its references to the Soft Drink Act in its complaint were just providing pertinent history/context for the unfair competition/tortious interference claims.

Tortious interference: At this point, Brown Bottling successfully alleged wrongful interference, specifically, that by transhipping products into its exclusive region via unauthorized channels, defendants sold “materially different, non-genuine, sub-par and outdated” products, consequently damaging Brown Bottling’s reputation within its exclusive territory. And it successfully alleged knowledge of its rights due to the C&Ds it sent, along with damages (though the court didn’t mention specifics).

Lanham Act violations: §43(a) claims can be asserted by a non-trademark owner. (That … doesn’t seem like the core problem here, as long as the Pepsi is actually Pepsi.) As the licensee, Brown Bottling had “standing to bring false affiliation claims under Section 43(a).” Then the court recited the elements of false advertising under §43(a)(1)(B), and then it identified the multifactor confusion test as the relevant test, so your guess is as good as mine about what provision is at issue. But it’s probably §43(a)(1)(A), given that the court thought it relevant that, “when a defendant uses a plaintiff’s exact marks ... courts within this Circuit have determined that a thorough analysis of the digits of confusion is unnecessary and a presumption of confusion exists.” But actual confusion isn’t required if the public believes that “the mark’s owner sponsored or otherwise approved the use of the trademark.” [Is it actually Pepsi? Then they did!]

Brown Bottling alleged that defendants failed sufficiently to exercise quality control over the trademarked products sold to local retailers and consumers; that because the products look similar, Brown Bottling’s customers have no way of readily detecting the differences with regard to the quality and composition of the products they purchased; and that defendants sold materially different, non-genuine, sub-par, and outdated products to unwitting retailers and consumers. [Does Pepsi really want Brown Bottling disparaging other regions’ Pepsi?] The court concluded—without addressing first sale or whether retailers could be confused about who they were buying Pepsi from—that this stated a viable claim for false association.