Susser v. Carvel Corp.

PETITIONER:Susser
RESPONDENT:Carvel Corp.
LOCATION:United States Post Office and Courthouse

DOCKET NO.: 355
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 381 US 125 (1965)
ARGUED: Apr 29, 1965
DECIDED: May 03, 1965

Facts of the case

Question

Audio Transcription for Oral Argument – April 29, 1965 in Susser v. Carvel Corp.

Earl Warren:

Number 355, Bernard Susser et al., Petitioners, versus Carvel Corporation et al.

Mr. Fleischmann.

Arnold Fleischmann:

Mr. Chief Justice, Associate Justice of the Supreme Court, may it please the Court.

This is a case of a tying arrangement within the context of a franchise system.

Carvel, the respondents are the franchise source of a chain of soft ice cream stores, roadside stores, stores which serve the general public.

They have licensed approximately 400 such stores, approximately 250 of which are located in the area about which we’re primarily concerned.

These stores are of interest to the independent businessman, the independent businessman who wants to be his own boss, who wants to be on his own.

When Carvel went into the franchising business, is — it undertook a very strong campaign to publicize the values and qualities of its franchise.

These values were constantly repeated in daily newspapers.

They appeared in television and we have a very brief outline of them on page 7 of our reply brief — oh, page 6 on the reply brief.

These items are the ones which we consider to be the essential ones to the value of the franchise.

They are — and this is what the independent businessman who wants to become a Carvel franchisee since they are the expert guidance which the franchisor can furnish.

They are the good location and they are the recipes and the techniques that make for success.

As a matter of fact, Carvel has very well publicized that and — one of the exhibits introduced in this case by Carvel specifically refers to it.

It is on page 427 in the lower left-hand corner, where Carvel describes the merits of its soft ice cream chain.

It’s a very small print.

Now, this is the value of this chain, the businessman has the amicus curiae put it — get a running start if he becomes a part of a franchise organization.

This is what these individuals who were looking forward to becoming successful businessmen sought when they became franchise operators.

Now, unlike some of the franchises which are occurring in this country, Carvel has envisioned the right to operate the soft ice cream stores which it wants to franchise to the individual operators.

And the expert guidance which the applicant for a franchise seeks, not only on the payment of a royalty which is the usual and customary way but also on an agreement to purchase almost all of its commissary goods and supplies and equipment which the dealer needs in this everyday operation of his business.

Thus, the applicant has no choice if he wants a Carvel franchise.

He must buy frantically all of his commissary goods from Carvel.

Now, if we look at this problem in a broad sense, we see that there is a tying arrangement between the item which is desirable, unique and attractive to the applicant, the things that make for business success.

And which are perhaps accompanied by certain things like the Carvel name and reputation, by Carvel’s way of doing business and even perhaps by the appearance of the Carvel stores in the way they have uniqueness in their qualities.

Now, these are the items which draw the franchiser — franchisee to Carvel.

And this is the element.

This is the focus of the tying arrangement.

This interpretation of the tying arrangement does not differ very substantially from the position taken by Chief Justice Lumbard in the Second Circuit.

It is almost the same.

But, I think the emphasis is placed somewhat differently.

Arnold Fleischmann:

It is also essentially the same view which was taken in a similar case, not part of this proceeding by the Federal Trade Commission examiner who heard evidence.

In both cases and the Court and the Federal Trade Commission found a tying arrangement.

And Judge Lumbard in his opinion found an illegal tying arrangement.

The concurrent — the majority opinion of Judges Friendly and Medina is actually in agreement on this point.

I think the Court as an entirety finds a tying arrangement.

The only difference on which the result comes out, the only way the result differs is that the majority refers to the fact that Carvel plaintiffs, the plaintiffs in the case below, the petitioners here, entered into a stipulation by which they agreed to limit themselves to the per se violations of the antitrust laws as far as proof was concerned.

As a matter of fact, it actually wasn’t as far as proof was concerned they said that they were going to rely on the per se violations.

It was evidently their position that this Court’s opinions and laws and also in Northern Pacific made it very clear that this was one of the most pernicious forms of tying arrangements.

This kind of tying arrangement that — which we speak here, Your Honor, is not the kind of tying arrangement which means a purchase of an initial inventory tied to a certain values in the purchase of franchise.

This is not what we’re referring to.

This is a tying arrangement for the commissary goods for the life of the franchise.

In doing this, in tying this, the commissary goods to the franchise, for the entire life of the franchise, not only is the competitive supplier excluded from the market of 400 Carvel dealers, who according to stipulated figures, buy approximately four and half million dollars worth of goods substantially more than were involved in the International Salt case.

And we feel that a substantial market is as to the result tied and controlled.

From this, I think it can be concluded that there is tremendous value in the tying item.

And the tying item as Judge Lumbard put it, consists not only of the items which I feel attract the ordinary businessman who knows nothing about patents and copyrights and trademarks and machines.

He only knows about this is an advertised — this makes for success 21 years without a business failure.

We have served the soft ice cream industry since 1934 succeed with Carvel.

And it’s almost an underwritten promise that this franchise will give success.

This is an attitude which I think overwhelms an applicant and makes it easy for him to acquiesce in this type of arrangement.

And in an acquiescing in this kind of arrangement, he not only puts himself in the position of agreeing to purchase these commissary goods for the period of his business experience with Carvel.

But, he also puts himself in the position where he must, if he ever violates the law — the rules set forth in the franchise agreement.

If he ever violates by buying from a competitor, a national biscuit company and other large companies have very anxiously solicited the business of this Carvel dealers.

If he ever violates this rule, he is in a position where he may be forced to give up his business with a loss of a substantial part of his investment.

In fact, most of his investment, depending on what the year is in which this franchise is terminated.

And as a result of that, he is not only restricted in his freedom to compete in the marketplace for — with — he is not only restricted in obtaining price concessions from suppliers, he is completely eliminated.

He is completely made a part of the Carvel organization.

True and this is Judge — what Judge Lumbard recognizes.

There is price competition on the sup — on the Carvel level.

Carvel gets the price concessions but if the Carvel dealer had available to him the opportunity of dealing with more than one supplier, there would be no problem because he too would get price concessions.

Now, if he violates this part of the franchise agreement and his agreement is terminated, or if his franchise is not renewed, he’d not only exclude it from the business area for a short period of time, he’s excluded from an area of 25 miles for a period of five years.

Arnold Fleischmann:

This is a very, very severe restriction and one which I think will cause an owner of a franchise to think twice before he will violate the franchise terms.

Now in discussing the aspects of what happens to the suppliers, we have not only to take into consideration the suppliers which supply Carvel.

But, other suppliers would do equally well and will do equally well in supplying the needs of Carvel dealers.

It should be noted that Eagle Cone Corporation which does business in the State of Pennsylvania is not permitted to sell to Carvel dealers the very same cones which it can sell to Connecticut dealers, which it can sell to Massachusetts dealers, because in Pennsylvania this is the area of the Illinois Baking Company.

Now, for a practical — in a practical sense, I — the supplier actually deals with the dealer.

It’s only in the form in which the agreement is cast that Carvel is the supplier at all, that dealer gives his order to the supplier and I note that there are different suppliers with different things, different suppliers with dairy product, different suppliers for ice cream cones.

He gets his order to these suppliers.

The suppliers deliver them to him.

They invoice him on a bill which was prepared and printed at the request of Carvel on a Carvel letterhead.

And that even in most instances collect payments from the dealer.

In other words, the dealers are in effect dealing with the supplier without having the benefits which come with price competition.

They were permitted to deal with the other suppliers who could very easily and are capable of furnishing these very same supplies as indicated by the fact that Carvel doesn’t just deal with Rakestraw and Hood, it deals with a number of other dairies in the large area.

It doesn’t just deal with Eagle Cone.

It deals with other suppliers of cones in other areas.

(Inaudible) the — and what are — what parts of the (Inaudible) not actually shown in the (Inaudible)

Arnold Fleischmann:

Carvel itself, Your Honor.

Ice cream?

Arnold Fleischmann:

No, Your Honor.

Carvel itself manufactures nothing with the exception perhaps of the ice cream freezer which have — the freezer itself which is — which comes as part of the original inventory which the dealer buys when he obtains the franchise.

This freezer and to which is usually added to if the business expense it provided for in the franchise agreement.

This is the only item which Carvel itself manufactures.

Carvel does not manufacture anything else.

It obtains all its other goods from other sources manuf — they’re manufactured from — by other suppliers or other manufacturers for Carvel.

Carvel is solely in the business of franchising and selling recipes you might say, they license the use of the techniques to the dealer and they give the — they’re specific specifications to the supplier and ask him to deliver these goods.

Well, what — what about the ice cream formulation?

Arnold Fleischmann:

This is equally through — other ice cream formulation.

William J. Brennan, Jr.:

Isn’t that a secret of something?

Arnold Fleischmann:

Well Your Honor, the — Carvel says it’s a secret and I think for the purpose of this case Your Honor, I don’t think it makes any difference whether it is or not.

And of course (Inaudible) Justice Lumbard said (Inaudible) he’s assumed it.

Arnold Fleischmann:

Yes, Your Honor, Justice Lumbard assumed it.

Arnold Fleischmann:

The Federal Trade Commission had some doubts about it but again I think it doesn’t affect the outcome.

Car —

William J. Brennan, Jr.:

(Inaudible) isn’t that rather an important contribution in addition to the original inventory, this is a continuing contribution isn’t it that Carvel make?

Arnold Fleischmann:

Well, the dealer himself when he is — when he buys the franchise, is not interested in whether Carvel’s formula is a trade secret, he’s interested in the success of the store.

William J. Brennan, Jr.:

Well, I’m just wondering, can he sell — as I understand it that formula is given to the dairy suppliers, they make the mix don’t they —

Arnold Fleischmann:

That’s right.

William J. Brennan, Jr.:

— that the dealer then buy?

The dealer I take it doesn’t know the secret, doesn’t he?

Arnold Fleischmann:

No Your Honor.

The dealer does not ordinarily know the secret.

William J. Brennan, Jr.:

Well I — if the tie in with the dairy — violative of the antitrust laws, where does he go out and buy this formula?

Arnold Fleischmann:

Your Honor, it is our view and in that respect the position of the reply brief differs from the position of the plaintiff’s initial brief.

Our point of view is that anyone who is interested in manufacturing Carvel ice cream can very readily be licensed.

Carvel has given specifications to a number of dairies.

There was evidence in the Federal Trade Commission —

William J. Brennan, Jr.:

Your answer is that Carvel could license it —

Arnold Fleischmann:

That’s correct.

William J. Brennan, Jr.:

— then any supplier that the dealer wants to buy from —

Arnold Fleischmann:

That’s right, sir.

William J. Brennan, Jr.:

— get it?

Arnold Fleischmann:

And actually there is no great difficulty in manufacturing it.

When you would think about the amount of mix that is utilized by the average Carvel dealer, Judge Dawson in his fraud opinion and the — the opinion in a fraud case which is in — part of this record on page 13 recognized the fact that the average Carvel dealer purchases 960 ten-gallon cans of mix a year which means about 9600 gallons a year.

Now you multiply this figure which the Court accepted by the average cost, net cost of the ice cream mix which is about $14 for a ten-gallon can, and you come up with a figure of about $13,000 more — a little bit more perhaps of ice cream mix that is sold by these dairy to the Carvel dealer.

If there are four or five Carvel dealers available in any one area then it will justify the average dairy to make up a special formula mix for these Carvel dealers and it will give them an opportunity of competing for the Carvel dealers’ market.

This is not true at the present time.

At this point the only dairy which is permitted to sell to the Carvel dealer is the one which is in effect acting through Carvel or for Carvel.

(Inaudible) dealer — a dairy whether (Inaudible).

Arnold Fleischmann:

I believe at this time there are about four or five, I know Coons in Baltimore is and I think that there are several in the Western area in Illinois and in Wisconsin, I believe the secret formula was not used.

Carvel had a chain of Carvel stores on — in that area.

(Inaudible)

Arnold Fleischmann:

The major ingredients Your Honor that go into — you’re referring to the ice cream formula?

(Inaudible)

Arnold Fleischmann:

Oh, the major goods which go in there are toppings, flavorings which are obtained from suppliers like Nestle and in addition to that, fruit, fresh fruit which is made — made up as part of the ice cream.

And these are by the way all utilized by the dealer in a raw form.

The dealer in this case is the manufacturer, not Carvel.

In fact Carvel has nothing to do with the production of the ice cream itself except its so-called supervisory process.

And I might note that in connection with that supervisory process, the — that Carvel is not as concerned about the quality of the ice cream as it is about the use of unauthorized goods, the use of unauthorized commissary.

And if Your Honors will look at the exhibit, it’s — (Inaudible) for a moment.

The exhibit shows the supervisor’s plot that — here that is — its page — it’s R413 in the circuit extract and it’s plaintiff’s Exhibit 76.

You can see on those little form which is entitled Carvel Store Report Products Quality Control, that for the use of an unimproved item sold the dealer may receive 80 demerits for unauthorized commissary, the dealer may get 75 demerits for unapproved paper goods, he may receive 40 demerits when on the other hand, if the freezer is improperly operated, is demerits of 5 points, if the product separates its as much as 50 points, but this is the only item which relates to quality which has any substantial portion, a substantial number of demerits.

(Inaudible)

Arnold Fleischmann:

The hygienic gas — I’m sorry Your Honors.

(Inaudible) at passing, now this Carvel (Inaudible)

Arnold Fleischmann:

Yes Your Honor, it does.

I don’t think the record —

(Inaudible)

Arnold Fleischmann:

I think a very substantial part of its initial profit comes from the sale of the freezer and the equipment.

That’s in the initial package which is sold which is —

That’s Carvel stuff?

Arnold Fleischmann:

Which is Carvel stuff and which is sold approximately at twice the value of the market now.

There’s nothing in the record on that point and I — perhaps I should not make such a statement.

The equipment is one of the substantial items in which Carvel profits.

In addition to that, Carvel profits on every sale of ice cream mix because it has a 25 cent per gallon royalty.

Now this royalty is actually the only obvious profit to the purchasing dealer, this is the only item that he is completely aware of.

This one is stated in the Carvel franchise agreement and it says that for the licensing of our name and for the permission to — that you use the name, we are going to require you to pay us 25 cents per gallon of ice cream mix.

Now this is — in addition to that, Carvel because it is the supplier, gets a profit on the sale of ice cream cones which is — as the court below found not a very large profit in the individual dealer sense but is a very substantial profit if you look at it in the overall picture.

It also draws — gets profits from the dairies but the amount of the profit that it gets from the dairies beyond that is not really indicated.

The only thing that’s clear is that the dairies have a formula by which cause or designates the price at which these ice cream mixes are to be sold to Carvel dealers.

The price is fixed by agreement between Carvel and the suppliers.

And Carvel assures itself a margin of profit.

Arnold Fleischmann:

The extent of this margin of profit is not in the record and I can’t say exactly how much it is.

But there is a profit and it’s obviously one of the elements which make this tying agreement attractive to Carvel.

William J. Brennan, Jr.:

How about the toppings profit?

Arnold Fleischmann:

There are profits in the toppings but again since the toppings come through Carvel, even though they might be shipped directly by the manufacturer, these items are usually shipped by parcel post rather than delivered by truck as cones and the mixes are.

These items are — don’t show what the markup is and obviously Carvel is in the position of —

William J. Brennan, Jr.:

What about the fresh fruits?

Arnold Fleischmann:

To the extent that Carvel dealers are permitted to buy fresh fruit on their local markets, they are of course not at all concern about it.

William J. Brennan, Jr.:

Well what — what do you mean by to the extent (Voice Overlap) —

Arnold Fleischmann:

Well, I think there are some kind — sometimes matters like bananas or something to that sort which Carvel at times permits in serving.

To the effect, and these are matters — these types of commissary goods Carvel dealers buy in the local market without Carvel.

But these are about the only items on which Carvel does not have some kind of profit.

William J. Brennan, Jr.:

Now what about the price that makes the ice cream sold by the dealer?

Arnold Fleischmann:

The price — I imagine Your Honor refers to whether or not —

William J. Brennan, Jr.:

What I have to pay for it when I go to a Carvel stand?

Arnold Fleischmann:

Well, this price is fairly standardized.

The amount of the ice cream which is to be put in a cone is clearly defined in the manual, the SOP manual which is part of the franchise agreement.

And Carvel has made it very clear to its dealers that it prefers and Carvel says it’s suggested but there is a question on that point.

The — they are in fact required to sell their ice cream cones for 10 and 20 cones — 20 cents.

There is —

William J. Brennan, Jr.:

Well, how — I thought —

Arnold Fleischmann:

(Inaudible)

William J. Brennan, Jr.:

What — how do you mean?

What is it that requires them to sell that kind of thing?

Arnold Fleischmann:

Well, Your Honor, on this point and this is a point in which the Court of Appeals did not agree with the position of the petitioners.

On this particular point the Carvel dealer is advised informally through recommendations of the supervisors and through the Board of Governors of the Dealers Association, what is proper and what is improper.

And the price fixing angle is one of moral suasion which is contradicted by self serving decorations of Carvel in the record to which Carvel will tell you that you are not required to follow our recommendations.

In fact, I think there is a cushion of the testimony of one of the petitioners in this case, Modick (ph) in the record, who in the presence of a supervisor build a huge ice cream cone.

And Carvel defendants try to point out, well, if this is possible, you can violate these rules, then isn’t it true that you are not required to follow these recommendations.

And the dealer answered at that point and now I’m paraphrasing with the (Inaudible) but the — he says, ?Well, I was very severely censored and criticize for what I did.?

And this is essentially the type of arrangement that exist in that regard.

Does the tying product a (Inaudible)

Arnold Fleischmann:

No, Your Honor, I would disagree with that and I must in that regard disagree with the Court.

The tying item, the focus of the tying of a tool is the — the part of the arrangement which makes this desire.

The trade name is part of that.

The expert guidance which the dealer seeks is part of it.

The recipe is a part of it.

The machinery on the other hand, the freezers I would say are secondary, I’d say these are tied items.

Even though they’re patented or at least they contain some patented items and they are perhaps trademark and have trademark labels on it.

I don’t think that they are the focus of this tying arrangement.

The focus of the tying arrangement is the element which makes this whole franchise desirable and attractive, unique and —

Potter Stewart:

But — if that’s the — what — basically the management know-how and the secret formula?

Arnold Fleischmann:

Yes, and the other elements which make for successes like the uniformity perhaps of the appearance of the building, the cone design on the outside of the building, the sort of thing which gives the customer who has been there —

Potter Stewart:

An identification?

Arnold Fleischmann:

— an opportunity to identify.

This is why the trade mark is part of the focus of the tying arrangement.

But on the other hand I would say the machinery is an insignificant one.

They are equally good ones but not superior ones on the market.

And the — well, not for the fact that you couldn’t get a franchise without buying the machinery, I think there’d be many dealers who would be very happy to buy the equipment elsewhere but they could not get this franchise except as part of this package.

And continuing this point which Your Honor just made, I think it follows that these unique qualities as they were called in the lowest case and these unique qualities as they were called-in in Northern Pacific are the things which exert the market power which bring about the dominance of the tying item.

This is why we take the position that this unlike any of the other cases that might have been considered under Loew’s and Northern Pacific goes much further than the tying arrangements considered in those cases.

It’s much more pernicious because here isn’t a problem of extraction.

You can’t — you — no dealer who has once signed this franchise agreement can just drop the franchise name can’t just say, ?Take away your cargo — trade name, I want to be an independent dealer.

I don’t want to buy from you anymore.?

They can’t say that because in order to terminate your relationship with Carvel you’ve got to give up your store and you’ve got to go out of business for five years and out for an area of 25 miles.

You cannot continue in the soft ice cream business if you surrender your Carvel franchise and that’s an addition to the economic losses with yourself.

This is why I think if you take away the trademark question and I recalled that Judge Lumbard in his opinion put it very well, the issue in a threshold question he says is, ?Whether the Carvel franchise embodies the tying agreement and whether that arrangement is justified.?

And the only justification in which he seems to recognize as a possibilitylooking at the exception in the White Motor case referring to standard stations is the possibility that Carvel might give specifications to other supplies and it’s for that reason that he suggests that the case be remanded.

It is our view and in that regard, perhaps I’m very bold because I disagree with the judge who was most closely to our position below.

It is our view that this is a per se violation and that it is one in the most pernicious sense.

This — if we take away the trademark is Northern Pacific.

Arnold Fleischmann:

You take the lease of this store, assume all the know-how in the tying arrangement, assume that expert guidance, assume perhaps even the individuality of the store but not the trademark, you have a very, very simple case of leasing a store with a tying of the commissary goods.

And it’s exactly the same way except for one thing, in Northern Pacific the lessee had an opportunity of dealing with the competition.

In Carvel’s franchise he does not.

In Carvel’s franchise he is completely tied.

In Northern Pacific, if a competitor came along and said ?I offer you a better rate,? the lessor had agreed that the lessee might use this other carrier who will ship this.

So even though the market was substantially closed, it wasn’t completely closed.

Here, the market is completely closed and this is why this case is of such importance not only to the petitioners here but to the franchise industry as such.

Franchising has become a very, very important part of this nation’s economy.

We are not against franchising.

We are for franchising.

Franchising gives the little men an opportunity of investing his money and being on his own.

It gives a small perhaps growing concern an opportunity of utilizing the capital of these individuals and gives them an opportunity of becoming in — free independent businessmen.

And in that context, franchise means freedom and this is the original meaning of the word anyway.

William J. Brennan, Jr.:

And then as to the franchise and (Inaudible) and say this is getting to be an important part as you claim, let’s — does most of them have features of this kind, I mean —

Arnold Fleischmann:

Your Honor —

William J. Brennan, Jr.:

— the (Inaudible) Johnson franchise (Inaudible).

Arnold Fleischmann:

I don’t think so Your Honor.

I think that there are some obviously which do.

I can’t say that it is a general rule but I’m convinced that the franchise industry does not need illegal tying arrangements in order to grow and survive.

I think it’s an unnecessary thing and I don’t think that this kind of violation of the antitrust laws are to be justified.

Byron R. White:

Would you distinguish between the mix and the other articles, would you say that one is as illegal as the other?

Arnold Fleischmann:

Yes, Your Honor.

Byron R. White:

And then if you lose on the — any of them, you’re going to lose on them all.

Arnold Fleischmann:

Well, I would say this Your Honor.

The stronger ones are obviously those which are not identified with a trade secret.

But it is my view Your Honor, that the trade secret in this instance is camouflaged, it’s not a real issue.

(Voice Overlap)

Byron R. White:

Are you still — are you — carrying here and still pressing your price setting charge, I take it you are.

Arnold Fleischmann:

Your Honor, I believe that the price fixing charge is sufficiently controversial that it isn’t — is the main issue in the case.

We are pressing it but we don’t make a major issue on it.

Byron R. White:

Are you pressing the separate point of the arrangement between Carvel and the — and say, Hood?

Arnold Fleischmann:

Yes Your Honor we are, but we are looking at it somewhat differently from the way it’s stated in petitioner’s brief.

Byron R. White:

And apparently you would still permit the — as long as the dealer could go to the dairy of his choice, you’d still permit that dairy to make the same arrangement with Carvel.

Arnold Fleischmann:

Not quite Your Honor.

What I would suggest would be the profiting, would be this, Carvel may continue the supply the dealers but I think —

Byron R. White:

They’ll make the profit.

They’ll make a profit —

Arnold Fleischmann:

— and still make a profit.

But it shall be an open competition with the supplier if he wants to deal directly, and it shall be an open competition with other licensed dairies.

William J. Brennan, Jr.:

Well, what Carvel gets to it like?

Byron R. White:

Carvel gets for its license.

William J. Brennan, Jr.:

Not now, on the years you said.

Arnold Fleischmann:

Are you referring to the franchise?

William J. Brennan, Jr.:

Licensing dairy.

Arnold Fleischmann:

Oh, Your Honor, they would of course be compensated by the dealer, by the dairy which is licensed for any expense that might be incurred in supervision and in making sure that the dairy complied with Carvel’s (Voice Overlap) —

William J. Brennan, Jr.:

It can’t make a profit?

Arnold Fleischmann:

I don’t think that it’s necessary for Carvel to make a profit in that regard.

On the other hand if it had a tremendous purchasing power on that level it might still come to make a profit in competing with the other dairies into — in dealing directly with the dealers —

Byron R. White:

Well now —

Arnold Fleischmann:

I’m not cutting Carvel out in the supply.

Byron R. White:

Under the present arrangement Carvel makes a profit on the resale.

Arnold Fleischmann:

Definitely, he does.

Byron R. White:

And you —

Arnold Fleischmann:

A very substantial —

Byron R. White:

And you think that should be eliminated?

Arnold Fleischmann:

I’m not against profit Your Honor.

Byron R. White:

Well, that’s what — that’s what Mr. Justice Brennan asked you.

Arnold Fleischmann:

It isn’t that I’m against the profit.

I’m only saying that Carvel should earn its profit in a competitive market.

I’m saying that if it licenses other dairies, it may impose on these dairies in licensing certain expenses, but to the extent that these dairies in selling to Carvel charge Carvel a lower price perhaps.

Arnold Fleischmann:

Carvel may be in a position to compete in dealing directly and Carvel is getting a profit, this is the important thing.

Carvel’s profit lies in the royalties which are collected on every gallon of mix which is a substantial royalty as we point out in the brief, I believe the figured that we calculated, this mix is a $450,000.

Byron R. White:

From what percentage of the soft ice cream business is — do the Carvel stores have, let’s say in New York State?

Arnold Fleischmann:

In New York State the figures are —

Byron R. White:

What about (Voice Overlap) —

Arnold Fleischmann:

— 20% of the soft ice cream business as shown by the exhibits which Carvel defendants introduced in the case below.

And in Exhibit 10, now there, Carvel respondents and we differ.Carvel respondents insist that they are not in the soft ice cream business.

Judge Lumbard, I think Judge Dawson, everyone has conceded that this is a soft ice cream business, the Federal Trade Commission has recognized that Carvel (Voice Overlap) —

Byron R. White:

What did the Federal Trade Commission find, does it — is it about 20% or (Voice Overlap) —

Arnold Fleischmann:

Car — the Federal Trade Commission found that in the New York area it was about 37% —

Byron R. White:

(Inaudible)

Arnold Fleischmann:

— of the immediate New York City area.

Byron R. White:

That the several — that the 200 or 300 or 400 Carvel stores had sold at retail 37% of the soft ice cream —

Arnold Fleischmann:

Yes, (Inaudible)

Byron R. White:

— it sold all over the state?

Arnold Fleischmann:

In all over the state the figure would be about 20% according to the Department of Agriculture figures.

William J. Brennan, Jr.:

How many of these soft ice cream uses (Inaudible)?

Arnold Fleischmann:

I don’t know Your Honor.

William J. Brennan, Jr.:

Many?

Arnold Fleischmann:

I don’t know how many there are.

There are many soft ice cream producers but Carvel is certainly one of the stronger chains in the eastern sea border.

The 400 soft ice cream stores under one name is a very substantial group.

Byron R. White:

Well, are there some figures in the record on the percentage of the total ice cream business that Carvel has (Inaudible).

Arnold Fleischmann:

The total ice cream business, there are — there is no breakdown.

Carvel actually does not sell ice cream at all, it sales ice cream mix.

Byron R. White:

I understand.

I said the Carvel stores.

Arnold Fleischmann:

The Carvel stores have a volume according to stipulated figures of about six to eight million, that’s the retail sale.

Byron R. White:

Yes.

Arnold Fleischmann:

Now, that does not just include ice cream that includes the whole —

Byron R. White:

So there are no figures in the record as to what percentage of the ice cream business (Inaudible) that the Carvel stores sell at the (Inaudible)?

Arnold Fleischmann:

Actually what it is as far as Carvel is concerned, Carvel sales a soft ice cream mix which it manufactures and changes —

Byron R. White:

I understand that.

Arnold Fleischmann:

— and utilizes into making hard —

Byron R. White:

I understand that.

Arnold Fleischmann:

— products.

These products are not edible at the temperature —

Byron R. White:

I’m — I just — again, let me ask you.

Arnold Fleischmann:

I’m sorry.

Byron R. White:

The Carvel stores sell at retail the finished product?

Arnold Fleischmann:

Yes, Your Honor.

Byron R. White:

Now, what percentage of the total ice cream business in the State of New York are then sold?

Do the Carvel stores enjoy at retail?

Not Carvel the Carvel stores, are there any figures on that?

Arnold Fleischmann:

There are no figures Your Honor for that — in that point.

The only figures that we really have which are significant which gives us some inkling of this percentage are the figures on soft ice cream mix and Carvel’s percentage of the market in soft ice cream mix.

Byron R. White:

Well now, what the — what leverage does Carvel got on, a) franchise, b) mix, or whatever it is that gives it some power over the side products.

What is the product that — it does have the power over it that it gives it some leverage?

Arnold Fleischmann:

Well, the product is —

Byron R. White:

Whether you’ve been answering it I know —

Arnold Fleischmann:

Your Honor —

Byron R. White:

— (Inaudible) the people, now you can answer for me.

Arnold Fleischmann:

Your Honor, I don’t believe that it’s a product.

I believe it’s — this is one of the reasons why I’m not certain if this case belongs under Section 3, it may, may not.

Byron R. White:

Yes, but —

Arnold Fleischmann:

But in our view, if the tying item is the franchise together with this — the package of know-how, of guidance and supervision of many of these intangibles.

Byron R. White:

So, who — with whom does Carvel compete then in the franchises, the other people who are going around looking for locations and looking for franchisees?

Arnold Fleischmann:

In the tying item I would say perhaps that is true.

In the tying item the —

Byron R. White:

Do we have any in — you say — do we have any information in the record at all as to what Carvel’s competition is with — in this regard?

Arnold Fleischmann:

No Your Honor but —

Byron R. White:

Well, how can we tell whether it’s satis — whether Carvel’s power over in these areas is enough to make any difference?

Arnold Fleischmann:

Well Your Honor, I believe that you can assume the power of the tying item from a market, from the power in the tying product.

I think there is a significant value in the tied product.

I — there’s a significant market in the tied product which is foreclosed and that it — that the market on the dealer level is foreclosed and the market on the supplier levels are foreclosed.

Byron R. White:

So you would say that just as long as — that the position in this — in the tying product is irrelevant.

Arnold Fleischmann:

I believe that the evidence on Judge Lumbard’s analysis seems to point in the same direction.

Byron R. White:

You have to — you wouldn’t — he would use it — he would use the mark, wouldn’t he of the deal?

Arnold Fleischmann:

Well, Your Honor, he uses the mark, I don’t discard the mark.

I’m only saying that if we discard the mark we have a straight Northern Pacific case.

I’m not saying that the mark has no leverage.

I think the mark and the trade name is part of the tying item but I don’t think it’s the only significant part.

I think it’s probably one of the elements which brought the dealer, the perspective dealer to Carvel without differentiation as Chamberlain put it with regard to trademark.

There is no identification for the consumer.

And I believe Your Honor as I’ve referred to Chamberlain in a number of opinions, he takes the position that the trademark is a very significant statutory monopoly which are to be considered on the same level, if not on greater market power level and patents and copyrights.

Now, I’m only bringing that in as a side mark but that it is obviously one of the elements of the tying item.

The focus of the tying item is the franchise which collects all these various items, the know-how, the guidance, the recipes, the trade name, the attractiveness, the experience of 21 years without failure, all these things are tied in and made into a bundle and these are the items which carry the weight.

This is the focus of the franchising business.

Byron R. White:

Well do you — are you suggesting that it really doesn’t make much difference to Carvel what kind of an end product comes out the public is buying?

Arnold Fleischmann:

Well, Your Honor, I’m not saying that they have no interest in the end product.

But I am saying this that their own practices in the enforcement indicate that their greatest interest is towards unauthorized products which are perfectly compatible with the ice cream business.

I can’t see how, for instance Coca-Cola which is a nationally known trademark could possibly adversely affect the Carvel trade name.

And the soul reason why Carvel objects to letting the dealer sell Coke — Coca-Cola, Pepsi Cola, any of these national trade marks, because they know that in permitting them to do that, they’re depriving themselves of potential profit in the tied items.

If a man comes in and buys a Coca-Cola instead of a Carvel ice cream shake, then Carvel will not get any royalty on that Coca-Cola and it has no real reason for tying that Coca-Cola into its franchise arrangement.

This is why these products are not authorized.

It’s of necessary ancillary part of this illegal tie.

Carvel authorized Carvel Cola, Carvel Root Beer, only after it had been pressured for years in — by Carvel dealers, who had illegally sometimes installed Coca-Cola machines and had been forced to remove them.

You’ll find letters in the record which re — direct Carvel dealers to remove their Coca-Cola machines.

And to these — these are the reasons why they forced them to remove them.

When Carvel decided that it wanted to install Carvel Cola and Carvel Root Beer, they made the dealer buy the equipment form Carvel, they made them sign a supplement to the franchise and they made them pay a royalty on the use of it.

Arnold Fleischmann:

And since they supply the syrup, they made a profit on it and basically Carvel Root Beer is Richardson’s Root Beer and there isn’t any differences between Richardson’s Root Beer and Carvel Root Beer and yet Richardson cannot sell root beer to Carvel stores and it could not before the arrangement was made.

Byron R. White:

What would you think if — if Carvel had a — half its dealers having to buy these tied items and the other half of these dealers didn’t have to buy them at all, this option.

But it just so happened — just assume that the both of — both sets of dealers have bought the same average amount in Carvel.

Arnold Fleischmann:

I would say this Your Honor, that under the circumstances Carvel must be selling at competitive prices and I don’t think that this would be the case.

Byron R. White:

And so — but you — there must be something that Carvel has some kind of leverage that Carvel has on its dealers to make them buy these tied items.

Arnold Fleischmann:

Well Your Honor, the leverage is determinations of franchise.

Byron R. White:

And is — and the franchise is really worth something?

Arnold Fleischmann:

Oh, the franchise is worth a great deal.

Byron R. White:

And that —

Arnold Fleischmann:

If they don’t have it —

Byron R. White:

— Carvel could be paid for it?

Arnold Fleischmann:

Well, Carvel is being paid for the franchise and it is getting —

Byron R. White:

But the —

Arnold Fleischmann:

It is getting royalty.

Byron R. White:

But without the tie, it wouldn’t be paid as much.

Arnold Fleischmann:

That is probably true and perhaps they are entitled to charge more than the initial — initially when they license somebody but they are getting profits.

As matter of fact they even get profits on the leases of the stores.

Byron R. White:

I understand (Voice Overlap) —

Arnold Fleischmann:

In many occasions they —

Byron R. White:

— they can charge royalty?

Arnold Fleischmann:

— there’s a differential there.

And they charge royalty on the — but their only profit on the tied items other than the mix is the spread on the resale price.

Arnold Fleischmann:

No Your Honor.

As I pointed out in the actual lease, ordinarily Carvel leases a store to the Carvel dealer.

The rental itself is in many instances inflated by a considerable sum.

So that for instance the Carvel, they may take $150 or $200 to the landlord from which the property is leased and it will charge the dealer $300, $200, but there’s a — an item in there.

And these differ from store to store.

And where the Carvel dealer has actually own the land in which the store is built, Carvel insists on a conditional reassignment.

They would — they want an — to be in a position of being a lessor so that they can takeover the business when the franchise is terminated.

In other words, not only will a violation to the franchise can cause the loss of — the right of the dealer to do business under Carvel name, it will cause them to lose the entire business and it cause them to be excluded completely from a 25-mile area in the soft ice cream business for a period of five years, these are very substantial remedies that Carvel has.

Arnold Fleischmann:

Now, I would like to just for a moment touch on —

(Inaudible)

Arnold Fleischmann:

Well, Your Honor, they aren’t.

(Inaudible)

Arnold Fleischmann:

Well Your Honor, if they were quality arrangements, it would perhaps be a little different but under the context of this case, they are not.

Arthur J. Goldberg:

Well, they — an ordinary claim (Inaudible)

Arnold Fleischmann:

Well.

(Inaudible)

Arnold Fleischmann:

Well, Your Honor, if you will look at the commissary goods by themselves, they do bear a semblance to a supply — an exclusive dealing or requirements contract.

However, if you take these commissary goods and you tie them in with the franchise, and the power of Carvel to terminate the dealer, to throw them off the land, to confiscate its machinery, to eliminate him from the business then I think you have as pernicious a situation as you had in Northern Pacific.

(Inaudible)

Arnold Fleischmann:

Your Honor —

(Inaudible)

Arnold Fleischmann:

Your Honor I believe the entire Court finds that there is a tying arrangement.

Perhaps the definition of the tying arrangement of Judges Lumbard differs from that of Judges Friendly and Medina.

(Inaudible)

Arnold Fleischmann:

Well, Your Honor, I believe that Judge Lumbard specifically says that there is a per se violation.

The only argument which he leaves open is the argument which respondents make that there is a little opening left as a result of the Standard Stations case.

And this little opening says that if in order to safeguard the trade name, the reputation of the name, it is necessary to tie then if it is impossible to furnish specifications but it’s impractical to furnish specifications then under those circumstances it is possible that it might be justified.

But this Court except for the dicta in the Standard Stations case has never held a per — held that a per se violation, a tying arrangement could be justified.

I think that the best that we can say is that there are some circumstances in beginning industry like in the Jerrold’s case or in situation of that kind that there maybe the possibility for it.

But here, we have a situation which by the very fact that Carvel was able to supply specifications to Rakestraw and to Eagle and to Hood, and to Illinois Baking Company, and as a matter of fact the cones are standard items in the market, they’re not specifically Carvel cones even though Carvel like to call them that.

These items can be specified, all these items can be specified and if there are special secret formulas involved the proposed supplier who is interested by National Biscuit Company which requested the right to supply Carvel dealers.

And which was faced with a letter (Inaudible) with litigation.

If these suppliers wanted to serve Carvel, they can ask for the specification and then be permitted to deal with the dealers directly.

And if there is any supervision on the part of Carvel involved and perhaps there is, slightly greater problem of supervision then this problem of supervision I think can be readily resolved.

There are many reputable manufacturers in the field and this is why we feel that the supplier defendants a part of this case Your Honor.

Carvel is not manufacturing its own right.

Without the defendants, without the supplier defendants there would be no tying arrangement.

Their agreements with the supplier defendants are — were made knowing that the suppliers would supply this market of 400 dealers.

Arnold Fleischmann:

And they were made by the suppliers in order to make it possible for Carvel to enforce its conduit.

It may — it may be that they claim no knowledge of these things but I think the affidavit of Mr. Kane who speaks of the fierce competition of cone industry and the uniqueness of the stable market that exist by reason of Carvel’s agreement with Eagle Cone is a clear indication of that.

I think it’s on page 115 of the record.

Now, I would very much like to reserve the remaining part of my time for rebuttal.

(Inaudible)

Thank you Your Honor.

Earl Warren:

Mr. Weisman.

Herman L. Weisman:

Mr. Chief Justice may it please the Court.

If I may, I’d like to spend a few minutes getting the basic facts into focus.

All arguments on behalf of Carvel that petitioners had failed to show any error and have ignored the substantial evidence in support of the concurrent findings below depends on a — on an accurate statement of the restrictions that are complained of and an analysis of this scope and their operation.

Now this is our brief on pages 15 and 16, the main one prints the principal restrictions.

The first one of course is from the position of the dealer as a seller.

He is required to sell only Carvel items in the franchise store and a unanimous court below has not found fault with that part of the restriction.

Potter Stewart:

What page are you on?

Herman L. Weisman:

On page 15 (Inaudible) — at the bottom.

Potter Stewart:

Of your —

Herman L. Weisman:

I’m referring to paragraph 4 of our brief.

Potter Stewart:

Thank you very much.

Herman L. Weisman:

Now, if Your Honor will turn the page, you would see paragraph 6 which is the principle restriction and the restriction is not to the entire commissary that a store might need.

There are 500 items in the exhibit that go into the so-called Commissary Department but there are only 70 from among which the dealer depending on what he wants to make and sell in his store and select the component ingredients —

(Inaudible)

Herman L. Weisman:

— on page 16 Your Honor.

William J. Brennan, Jr.:

What — what’s the other formula to (Inaudible)

Herman L. Weisman:

Well, they maybe brooms, pales, paint, other garnishments that don’t go into the final product because the restriction I’m about to point out is limited as the courts below found to the mix and every other items sold as part of the end product that is offered for consumption to the public under the Carvel name.

And that —

Hugo L. Black:

(Inaudible) is that in your brief?

Herman L. Weisman:

Page 16, it’s this quotation from the franchise that I’m calling your attention to, the actual provisions sir.

Now, so that the —

Hugo L. Black:

Well, what are the component parts of the —

Herman L. Weisman:

Well, the component parts, the principle one as to which the Court found that two-thirds of the entire sales embrace it is a product called ice cream mix which is a blend product that’s put into a machine by the dealer who has to have a license to fabricate it into a finish product.

Herman L. Weisman:

But while he does that, he adds flavor.

Carvel could sell him a flavored mix but then he have to have an inventory.

He’d be worse off so that they sell the flavor as an essential ingredient, some areas would prefer a run of chocolate and now there’s cherry.

So they sell them the essential ingredients consisting of the flavors, the toppings and the baked goods, sometimes their cones, sometimes their cups and the evidences that the flavor is arranged by specifications to be compatible.

Hugo L. Black:

Could that be bought on the open market?

Herman L. Weisman:

It could be but the —

Hugo L. Black:

Is it a general commodity, the flavorings?

Herman L. Weisman:

The flavorings are made but the —

Hugo L. Black:

I know, but are there any other?

Herman L. Weisman:

The flavorings are made to specifications of Carvel on the contracts similar to the ones printed in the record.

By and large one would think that flavorings are on the general commodity market.

However, there is an element of compatibility as the Court points out with regards to the strawberries where Carvel specified that they buy a crop site because they have stringent requirements.

Now, nobody going into business has to go after a high quality product.

Most of the time we — specially improved products, we run into common places, standards about food.

This chain happens to insist on high quality.

There is no doubt at any point of the proceeding of the confirmation of the high quality nature of these Carvel products and their protection constantly by the most detailed provisions in evidence here, with the supply contractors, the dairies.

The dairies, you can — there are 222 million gallons of ice cream mix made a year, and from that you can judge that there are thousands of suppliers of dairy products.

And you just can’t begin to protect a trade secret by releasing them on the market something to which will come through in another connection.

There is a strawberry flavor (Inaudible) the market would seek them from yours?

Herman L. Weisman:

Well, I won’t say that — a lot of things can be equal.

The question is not whether it’s better of worst.

It’s a question of what goes with the mix and what the consumer can recognize as a Carvel product.

It doesn’t necessarily always have to be better in my opinion because if it’s not better in my opinion I will go to Dairy Freeze instead of Carvel, or Mr. Softy, or Mr. Tastee Freez, all these competitive franchising organizations which are mentioned by Judge Friendly in his opinion as the real competitors of Carvel.

The mix this liquid.

Herman L. Weisman:

The mixes are blend mixture which however, in the case of this product functions for a dual purpose and there’s ample evidence here that it functions not as a soft ice cream mix.

As a matter of fact the specifications in the federal register of standards for mix, it’s a — this is governed by statute and regulations.

It’s a highly perishable product.

They don’t define soft ice cream mix.

There’s no such thing, there is an ice cream mix.

Now in that ice cream mix, depending on what you want to get in the end product by way of it’s ability, its durability, its ability to stand up, it’s eye appeal, it’s a — when you eat it and they buy it in the summertime, if it melts before you get it to the car it’s not a very pleasant thing.

Herman L. Weisman:

This is controlled by an emulsifier stabilizer.

That’s in the making of the mix?

Herman L. Weisman:

Sir?

That’s with the mix?

Herman L. Weisman:

The only thing that the dairies even do not know about is the secret emulsifier stabilizer which Carvel supplies and this is itself the product of a formula to the dairies.

The dairies then use the secret formula stabilizer and make it — make the rest of the mix in accordance with the other specifications in the Carvel formula, the nature of which I don’t know and have not been disclosed in this case.

Tom C. Clark:

But all I was trying to find out how you would (Inaudible) basic mix from you, then if I want strawberry, I’m — I get —

Herman L. Weisman:

Oh, you —

— strawberry and mix it with the mix, is that the way you do it?

Herman L. Weisman:

Yes, you get a strawberry ice cream but if you’re a Carvel dealer —

Tom C. Clark:

I’m a Carvel dealer, then —

Herman L. Weisman:

You’re a Carvel dealers.

Tom C. Clark:

And I buy nuts if I want to and I’ll put them in, I buy Carvel nuts, I buy Carvel strawberry, I mix it all up and sell it, is that right?

Herman L. Weisman:

Yes.

And you need a license for that because it comes out off a machine and the local laws continue — would continue you — would consider you a — what they call a manufacturer retailer with a license.

Tom C. Clark:

And your mach — your machine, is that a patented machine?

Herman L. Weisman:

There are some patented devices but the adverse of the clause that I pointed to on page 16, is in a later clause, paragraph 9 of the franchise agreement which says that matters that are not incorporated in the end product can be bought if they meet Carvel specification.

So that if the need arises that the business is good, it expands and you need another freezer, you don’t have to go to Carvel for the freezer, that’s not incorporated in the end product.

You’ve got to buy a freezer that will have the capacity and meet the standards.

Now the original brief says that — that’s very nice but Carvel didn’t happen to supply the standards.

That was mistaken because there is an exhibit brought to the Court, the Section M of Exhibit 8A which continues page after page to give detailed specifications not only of the equipment but of everything and including such things as the description of the kind of a label that you use which may not strike anybody as something requiring specifications.

But if you maintain the cleanliness of a place that sales perishable commodities and you buy a label that’s wrong, you’re going to lose some money by spilling your product or not handling it properly so that you augment your cleaning operations and so on.

Tom C. Clark:

You don’t sell the machine (Inaudible)

Herman L. Weisman:

We — yes — (Inaudible) no, it never sold except to a Carvel — someone who goes into the Carvel business and as I say, initially, I suppose most everybody buys from Carvel the machine with which to start the business.

But —

Tom C. Clark:

Now, is that a patented machine of —

Herman L. Weisman:

(Inaudible)

Tom C. Clark:

— the Carvel name.

Herman L. Weisman:

— the swirling mechanism in it is a patent.

The (Voice Overlap) —

Tom C. Clark:

Do you own it?

Carvel owns it?

Herman L. Weisman:

Yes, Carvel licensed — Mr. Carvel owns it and the Carvel Companies are the licensees of it.

Tom C. Clark:

And every Carvel dealer has to use a Carvel machine?

Herman L. Weisman:

No, that’s not so specified, no.

I think they — if they have several freezers it would be most unlikely if they didn’t have at least one but the Court below points out that the patented machine or indeed none of the equipment is the — what he calls the unifying clause or motivating clause for the transaction.

Now —

Hugo L. Black:

I do not understood your (Inaudible) maybe the others have, what is the precise scope that’s protected of products — are — or articles protected by a trademark?

Herman L. Weisman:

Mix — the —

Hugo L. Black:

(Voice Overlap)

Herman L. Weisman:

— mix flavors —

Hugo L. Black:

(Inaudible)

Herman L. Weisman:

Oh, the trademark.

You asked me before what went into the end product.

Hugo L. Black:

I’m asking you now, what’s protected by the trademark?

Herman L. Weisman:

The ice cream made by the use of the Carvel components.

All the products which are both hard and soft, specialty items which are sold as hard items and soft ice cream, all the end products are sold under the Carvel trademark.

Hugo L. Black:

That everything that goes into it, what about sugar?

Herman L. Weisman:

No.

Hugo L. Black:

Why would sugar not to be in it?

Herman L. Weisman:

Nobody puts sugar into it.

Hugo L. Black:

You don’t put sugar in?

Herman L. Weisman:

No, I mean sugar and such is —

Hugo L. Black:

How do you sweeten it?

Herman L. Weisman:

Its part of the formula for the making of mix and it may be cold or it may be — these are all fresh product ingredients.

But it’s the dairy that puts in whatever sweetener is used in accordance with the formula.

There is no trademark on the sweetener.

There is no trademark even on the stabilizer that I discovered —

Hugo L. Black:

(Inaudible)

What is the scope protected by the trademark?

Herman L. Weisman:

The scope of the trademark is the protection of the individual names given to the product and the finish product sold under those names, the finish product sold by the dealer.

(Inaudible) in the record here?

Herman L. Weisman:

Yes it is.

(Inaudible)

I haven’t found it as a —

Herman L. Weisman:

I don’t know what exhibit number it is but it’s — they got some fancy names to some of these products like Carvel’s Lollapalooza and Mamapalooza and stuff like that and each one is covered by a trademark.

The Court found that the trademark attached to the end product ice cream which is a Carvel ice cream, that’s the specific finding almost verbatim in the lower court and (Inaudible) above.

Hugo L. Black:

Suppose they sold something?

Every one of your products in it, every products in it, sort of the — where you use it and did you name it?

All of it wasn’t bought from you but they didn’t name it Lollapalooza, would that violate the trade right?

Herman L. Weisman:

It could be — it would do this, it would be another type, it would be a passing off situation because these stores are all uniformed and the consumer acceptance is based on going to a store that couldn’t be mistaken for anything else other than a Carvel store.

There’s only 450 square feet of space in it, it’s made and designed especially just to sell —

Hugo L. Black:

Like a Howard Johnson as I understand it.

Herman L. Weisman:

No, it’s not like that.

Hugo L. Black:

I don’t mean looks like it.

I mean it’s the same idea.

Herman L. Weisman:

No, I mean it’s not like that because a Howard Johnson is a big place where you can sit down and eat.

Hugo L. Black:

I know but that I — if they have an identity, it’s identified —

Herman L. Weisman:

Oh, yes.

Hugo L. Black:

— by looking at it.

Herman L. Weisman:

Yes, they have — yes, and I would not expect Howard Johnson to give me (Inaudible) ice cream.

Hugo L. Black:

Well, the question is, what — how far does your protection — it can on your trademark?

Herman L. Weisman:

Well, if they sign — the protection extends to a franchise dealer under this agreement, agreeing to sell only Carvel items and when he is selling something that’s not a Carvel item, the customers who are admittedly are attractive to the place because it’s a Carvel place, he is doing something wrong, he’s bullying the public.

Hugo L. Black:

Did you say Carvel items, this mean that he has to buy from Carvel or a Carvel salesman all — everything that he sells in the store?

Herman L. Weisman:

Yes, everything he sells in the store.

Hugo L. Black:

If he — if — you said (Voice Overlap) —

Herman L. Weisman:

(Inaudible) except paragraph 31 which entitles them on the Coca-Cola question.

Paragraph 31 entitles them to — it’s on page 214 of the record, no, paragraph 16, 214 of the record.

That dealer shall have the right to install one soft drink cup dispenser vending machine and one cigarette vending machine at such place or places at the outside of the store only.

As maybe approved by Carvel so that they can have an outside drink, such as Coca-Cola whatever they select but when you get into the store, what you buy there is a Carvel product.

Herman L. Weisman:

And if you don’t want a Carvel product you go to another store.

Hugo L. Black:

They couldn’t sell Coca-Cola inside the store but could outside?

Herman L. Weisman:

Could outside.

Hugo L. Black:

Does that provided the way — is that what you referred us to on page 16, is that what protects the —

Herman L. Weisman:

No, what I just read is on page 204 of the record.

We didn’t — I don’t remember that we referred to it in our brief.

Hugo L. Black:

I suppose they had something into that — sort of that broom.

Herman L. Weisman:

Well, it —

Hugo L. Black:

Do that mean —

Herman L. Weisman:

They don’t sell —

Hugo L. Black:

— Carvel broom?

Herman L. Weisman:

No, they don’t sell brooms, they use brooms and commissary — the Commissary Department has all the items that a dealer might need in the operation of his store.

Hugo L. Black:

Suppose they sell some brooms in there that were not Carvel broom?

Herman L. Weisman:

Well, even if they sell Carvel brooms it wouldn’t be right because it’s only the frozen dairy products that they’re licensed to sell.

Hugo L. Black:

They can’t sell brooms?

Herman L. Weisman:

Can’t sell brooms.

Can’t sell unauthorized can — if some of them tried to sell —

Hugo L. Black:

That’s what I had thought you meant a while ago.

Its —

Herman L. Weisman:

Yes.

Hugo L. Black:

— finally clear.

Herman L. Weisman:

Yes.

William J. Brennan, Jr.:

But are they —

Herman L. Weisman:

That some of them —

William J. Brennan, Jr.:

That they can buy brooms anywhere, they’re not — (Inaudible) Carvel —

Herman L. Weisman:

No, they don’t have to buy from Carvel.

That’s paragraph —

William J. Brennan, Jr.:

That’s among the 430 items you mentioned earlier.

Herman L. Weisman:

Yes, those are in the 430 items that you don’t have to buy, the only thing they have to buy are the things that are incorporated in what the public gets under the Carvel name.

Now, there are — this is not a case, a tying case of clue in the usual sense of the term, there are no —

William J. Brennan, Jr.:

But what do you — what do you understand your adversary to claim is the tying product?

Herman L. Weisman:

Well, I wrote it down.

I think he said the know-how — the — including the franchise agreement, the uniformity of the product, the recipes, the insignia, the identification, to me this is a lot of grief.

Byron R. White:

How about the trademark?

The trademark?

Herman L. Weisman:

He includes the trademark.

As a tying or —

Herman L. Weisman:

As a tying element.

Now of course as a tying — if it were a — the minute — there is a concession, that this is not a two-product tying arrangement.

We are out of Clayton, we get under Section 1 of Sherman as the case in Times-Picayune in Northern Pacific I think it was decided under Section 1 and so was the Loew’s under Section 1.

There are a number of cases since Carvel was decided.

We cited in our brief in the lower circuits involving services which emphasized that the minute the tying element is other than a product, the stringent standard approved with injury to the interstate commerce required by Section 1 comes into play.

I thought you said the mix is a — did he claim the mix is a tying (Inaudible)

Herman L. Weisman:

He didn’t quite say so.

If he did, it escaped me.

William J. Brennan, Jr.:

I thought he said it was a tied product.

Herman L. Weisman:

He said that it was a tied product.

William J. Brennan, Jr.:

Yes.

Just like the all the other products, (Voice Overlap) —

Herman L. Weisman:

Just like the other products.

Now, of course you have a very interesting situation that you have the — if you presume economic follow-up in the mere existence of the — of a trademark, let’s say an automobile or a franchise agreement, then you apply the rule that are not insubstantial amount of commerce and the tied product is all that you need and every dealer in the country is subject to a treble damage action for having violated that kind of a — for having conducted business by that type of unlawful tying arrangement.

That isn’t the law at all, the way we see it.

William J. Brennan, Jr.:

(Inaudible)

Potter Stewart:

You give an example which I —

Herman L. Weisman:

Yes.

I — oh, the example I gave is that if you start with a trademark, let’s say some company car, Company X.

And you franchise a dealer and you generate a presumption as Judge Lumbard, Chief Judge Lumbard indicates that the mere existence of the trademark shows sufficient economic power to exert leverage to control competition or affect competition of the tied product and the tied product is the very thing for which the trademark exists.

As is the case of mix which is the essential product then you’ve got every single trademark product in a situation of being an unlawful tying agreement.

Now of course, I don’t think that the — that it’s appropriate or necessary.

In this case, I don’t understand why Chief Judge Lumbard ever reached the question of whether you need to generate a presumption from the existence of the Carvel trademark because even he agreed as that the across the majority in the District Court that there was no evidence of injury to interstate commerce.

Herman L. Weisman:

Indeed, the majority’s finding is that there was not even an insubstantial amount of commerce involved which is the less stringent standard under the Clayton Act.

And this was remar — this is reminiscent of course of the reminder in the Tampa decision of this Court that where the evidence isn’t sufficient to live up to the — to fulfill the less stringent standard it’s certainly won’t live up to the more stringent one.

So that — in view of the shape of this record, it doesn’t make any difference whether one presumes since there’s an admitted actions of proof of economic power or whether one doesn’t because the second condition is not present namely evidence of injury to competition and said the Court by majority not even by the less stringent rule of an insubstantial amount of commerce being involved.

Now, what strikes me is very peculiar and this has been bugging me throughout the proceeding, is the lack of live witnesses.May it please the Court, a tying arrangement to something that restricts, something that you feel and if the pinh of a tying arrangement were really in the marketplace, these people couldn’t keep their clients off the stand.

Nobody appealed.

The one fellow who appealed gave testimony about a joke he played.

He made a — I don’t know how expensive, a very expensive ice cream cone and he admitted it’s stood a foot high and begun of course immediately to melt and he was — he happened to do it when a supervisor came in and he got a lecture about it.

Now, that’s the only man that took the stand and the only evidence we have and it’s my impression that with the absence of any proof from clients or generally readily available to testify that this complaint about tying is a complaint born in a law library and not in any felt restrictions in the marketplace

And the lower court coming to this stipulation, the late Judge Dawson said as we cited in our brief, he had occasion to say, ?During the trial you can bring any witnesses you want, nobody restricted these people from trying a case in a normal way to indicate what their complaint was.?

As a matter of fact, the pleadings as we point out on pages 7 to 9 of our brief indicate that they didn’t dream about even premising a complaint.

In the nine complaints drawn between 1900 and 1959 in the fall and the spring of 1960, there is nothing about tying in the complaint.

There is something that sounds as Mr. Justice Harlan pointed out, a complaint that a total requirement agreement involves refraining without compelling the dealers to refrain from buying the products of other people.

I’d like to say a word about the argument that the new counsel, I don’t think he’ll deny that most of the answers he gave is based on a record that’s not the record in this case.

I’m in both cases, so I know.

And I thought that Mr. Rothstein, the former counsel had drawn the limit in referring to the initial decision of a trial examiner on other cases a reason for granting certiorari.

I mean he treated as it is though it was almost the equivalent of a split between the circuits about which I — you know, we said nothing.

But now, it’s another matter to introduce it here.

I thought they told you (Inaudible)

Herman L. Weisman:

The other cases were started after Judge Dawson’s decision and it’s a Section 5 case and it’s now pending on appeal from the initial decisions by — it’s an all together different record and as we point out and I shall — a very short reply brief, the examiner himself said that he acknowledges the existence of the Second Circuit decision but the record is so different that he feels the extended discussion is unnecessary.

He just not — they’re following it.

And he found the tying element to be the franchise agreement not the use of the copyright.

So I would respectfully suggest that since the trial examiner was courteous enough to ignore the persuasive cause of the circuit proposition, he might — his decision here might be a court of the same courtesy namely to ignore it.

Now, the trademark is one area which indicates a certain amount of permissive conduct on the part of the owner to make sure he controls his quality.

This is infused with the existence which cannot be against that of the secret processes, the trade processes.

Now, there is no monopoly given by the trademark law.

The trademark law is merely a signature, it’s a method of identifying the product so that the public wouldn’t be fooled as to their source and it’s obvious that they can attach as Mr. Justice Black having been made point out to the end product but they could readily — it doesn’t happened to be the case here, that’s why I answered the question that way.

You could have a trademark which attaches to some components, all components as well as the end product or to everything down the line including the wrapping paper.

But therefore to presume that this — the use of a trademark indicates sufficient economic power to exert unlawful leverage seems to me entirely inappropriate.

Now the solution is something that needs a word.

Mr. Justice Harlan suggested that Chief Judge Lumbard thought it ought to go back.

Herman L. Weisman:

Well that’s true, except he said it ought to go back for the limited purpose of giving testimony on the part of Carvel eliiting testimony which didn’t satisfy him on this record, that’s the dissent that there was enough justification for Carvel to impose these restrictions on the component parts, on the purchase of the component parts.

And he said that the per se stipulation condition the — perhaps the falsity of the evidence and that the courts relied on evidence in his estimation very meager to the effect that the publication of specifications for these ingredients in order to make sure that Carvel’s ideas would be carried out in his end product that the publication of such specifications would be unduly burdensome.

He said if Carvel is able to submit more proof than it had on that point, then the result would be the same, meaning that he would be in accord with the Second Circuit.

Now, our friends are not satisfied with sending the case back for that purpose.

They say as a matter of law that Carvel is compelled — would be compelled to publish all these specifications including those covering his trade secrets.

And I have seen nothing in the law that would lead to such a — (Inaudible) lead to such a conclusion.

Hugo L. Black:

What facts that — what — do you understand would be meant fully by publication of the (Voice Overlap) —

Herman L. Weisman:

Well, it makes them available to dairies who could bid for the business and do direct business with Carvel.

Now, there are hundreds of these dairies.

Right now, Carvel gets a batch report on each batch together with the chemical analysis and has the right of inspection.

It con — it preconditions the way it’s packaged, the amount of packaging so that the man when he gets to stop in a store, won’t put in too much and get that quantity or put too little in and cheat the public or get their quality and dissatisfy the public.

Well, how was he — how are you going to police it with hundreds of dairies making these prods — making these products?

How are you going to police 400 stores in the — and the majority opinion says agrees with the lower court and says there’s no reason for disturbing the finding that it would be an undue burden and an unfeasible cost, and uneconomic thing to require Carvel to attempt to exercise this supervision.

Meanwhile, the value of the secret formula is gone because you can keep a secret maybe when you have four or five contracts with selected dairies but you can’t keep a secret when hundreds of them are bidding and there’s nothing wrong, the Court was unanimous about the drop shipping part of the transaction.

That’s all that is.

This is a perishable commodity.

Carvel —

Hugo L. Black:

With the formula patenting?

Herman L. Weisman:

I beg your pardon?

Hugo L. Black:

Has the formula of patenting?

Herman L. Weisman:

No.

No, it’s a secret formula.

There is nothing wrong with the drop shipment feature especially when it’s a perishable commodity.

Carvel is really the buyer for resale.

He is responsible financially to the dairies.

The dairies may like that better.

I would in their place.

I look to Carvel for payment.

The dealers don’t dislike that.

The Courts point out that there hasn’t been any testimony or any showing or any complaint even by letter that they would want to buy other people’s ingredients.

Herman L. Weisman:

The trust has been in the direction that Mr. — I think Mr. Justice Clark suggested or was it Mr. Justice Brennan?

Some of them wanted to sell Christmas trees off the premises or frankfurters.

They wanted to expand the product line.

There was no complaint and the courts are unanimous about a desire to sell non-Carvel ice cream ingredients.

They didn’t follow (Inaudible)

Herman L. Weisman:

Well, as the — I think the case ought to be affirmed but they think that the specifications ought to be broadcast to the world.

And this would really destroy the quality of the business, destroy the private value of the secret formula and is not required by anything that I see in the law especially in the life of the concurrent findings that there were sufficient testimony that it would be unduly burdensome so that I feel that if any case ever came within the dictum of standard stations, I’m referring to what appears at 30 — at page 306 of the report.

The only situation, this is the dictum indeed in which the protection of goodwill may necessitate the use of time clauses.

We don’t even concede they’re time clauses, is where specifications for a substitute would be so detailed that they could not practicably be supplied.

We think this case is a total requirements case.

Hugo L. Black:

What do you mean by total requirement?

Herman L. Weisman:

Well, the dealer is obliged in consideration of getting into the franchised chain and the commitment on the part of Carvel for selling.

He undertakes the commitment to buy all that he requires of the essential ingredients.

That’s still the requirement.

And the legality or illegality of that is measured by the very specific criteria laid down by this Court and I think spelled out for the bar and what I consider adequate terms in Tampa.

You’ve got to fasten on a relevant market and show that the relevant market has been captured or seriously impaired.

Hugo L. Black:

Does the record show what is a minimum product that can be broken up — down to — minimum products broken down to which would preserve your secret formula and leave you with the right to sell it only?

Herman L. Weisman:

In all of the record — the record didn’t show that.

The petitioners made no attempt to go into that.

The petitioners didn’t even ask for because most of the figures they did get into the record, they got it by way of stipulations.

They didn’t ask for figures as to what the sale of the various ingredients amounted to.

I would like to draw your attention to the fact that the record contains figures, statistics about the general production and we criticized our friends reply brief because he is comparing what he calls Carvel’s soft ice cream and he permits himself the liberty of changing the heading on an exhibit which is special formula mix and it is justified because the record shows that this Carvel formula is used for the purpose of making both hard and soft ice cream.

Now he chooses to compare this with soft ice cream.

Now you can’t compare a formula which is used by the dealers to build up a substantial business on hard and soft ice cream items with soft ice cream.

If you compare it with ice cream, you get — not the fantastic percentages he’s talking about but you got a range in Massachusetts for the year he picked out in 1959 of less than one-fifth of 1% to a high in New Jersey of 3.3%, the next figure being New York at 2.89%.

And the figure in the New York market is 1% based on the exhibits in this record.

And the initial decision said that even if it were 4% for New York and Nassau County, it would still be illegal quoting some case that doesn’t apply.

And then saying even though the areas entirely intrastate, it could be a sign of an incipient growth or injury to the interstate commerce and therefore he thinks the 4% even though it’s limited to one intrastate area was enough under Section 5 but that’s another story and it will be soon decided I hope by the Commission.

Hugo L. Black:

Is it a part of your argument that the secret formula will only be protected by the use of all of your ingredients?

Herman L. Weisman:

Yes.

Hugo L. Black:

That is the second part of your argument.

Herman L. Weisman:

Yes.

If Your Honor please the stabilizing — it’s a formula which in a very short time has built a product that has attracted the consumer acceptance to the extent they’re advertised by my friend.

In his brief, he says there were three billion servings, not three billion customers but three billion servings in 21 years.

And there must be something about it.

Now —

Hugo L. Black:

But having no patents of course.

Herman L. Weisman:

Having no patent.

But this —

Hugo L. Black:

Unless the — your secret formula would be exposed in some way by them buying the product, by mixing and buying the ingredients, mixing it (Voice Overlap) —

Herman L. Weisman:

Right now —

Hugo L. Black:

What protection (Voice Overlap) —

Herman L. Weisman:

(Inaudible)

Hugo L. Black:

What protection would you have?

Herman L. Weisman:

Is that the one by — right now, it’s protected by agreement with the dairies and they have sedulously preserved that secret.

Now, a lot of competitors have been trying to get it.

The trial (Inaudible) — the trial lawyers with the Commission tried to get it on open court, they subpoenaed the secret formula.

They didn’t get it that way and the competitors haven’t been able to get it.

Hugo L. Black:

I get — I understand (Voice Overlap) —

Herman L. Weisman:

I learned from my amazement —

Hugo L. Black:

I don’t — I can’t make it clear, maybe it’s not so as clear in my mind, your certain ingredients to go in, you want to protect the secret formula.

Is there — has their finding under the Court’s part that your secret formula would be jeopardized if they were allowed to buy these ingredients which they say they ought to be allowed to buy from somebody else.

William J. Brennan, Jr.:

For example, the cone and the —

Herman L. Weisman:

Well, I —

William J. Brennan, Jr.:

— and the toppings (Voice Overlap) —

Herman L. Weisman:

I don’t think — I think — I don’t think the same — and I would give the same answer with the same cause about cones or perhaps even flavors as I would about mix.

But mix, the essential part would injure Carvel if the specifications got known.

Hugo L. Black:

I understand that’s the basic —

Herman L. Weisman:

Now, —

Hugo L. Black:

That’s what the basis you’re —

Herman L. Weisman:

And —

Hugo L. Black:

— arguing.

Herman L. Weisman:

And the publication, the —

Hugo L. Black:

But you claim you have a right, under your agreement or anything else?

Herman L. Weisman:

Yes.

Hugo L. Black:

To compel them to buy only your products, only the products from you that go into the —

Herman L. Weisman:

Yes.

Hugo L. Black:

— this final (Inaudible) — the market.

Herman L. Weisman:

If Your Honor please, the nature of this relationship has not been painted in an accurate way.

The applicant comes into Carvel and he says, “I would like to go into the ice cream business.” Well that’s fine.

He didn’t have to come to Carvel.

He could have chosen two dozens other franchises but his brief says, the minute he talks to Carvel, Carvel tells him — this is on page 2 of his reply brief, Carvel tells them that you got to buy my ingredients because he puts at most to the commissary goods which isn’t true.

See?

Hugo L. Black:

Well, what are the commissary —

Herman L. Weisman:

(Inaudible)

Hugo L. Black:

— goods?

Herman L. Weisman:

Well, the commissary goods are not the ingredients.

Those are 430 items that have — that he can buy in the open market.

He’s not compelled to buy those.

Hugo L. Black:

As a matter of fact, you say he can’t sell them in there, do you not?

Herman L. Weisman:

Well, he doesn’t buy the commissary goods for resale necessarily.

He buys them in order to operate his store.

But the things that he puts into the end product that he sells to the public as Carvel ice cream, those are the things he has to buy.

Our friends says, the minute he learns that, this applicant learns it, the franchise applicant has but one choice.

Why does he have one choice?

He could walk out and go into another ice cream business.

Hugo L. Black:

Oh, you couldn’t — he couldn’t use your building?

Herman L. Weisman:

He doesn’t have to.

That — we’re talking —

Hugo L. Black:

What happen —

Herman L. Weisman:

We’re taking about an (Inaudible) —

Hugo L. Black:

(Voice Overlap)

Herman L. Weisman:

Why does he have a right to say, ?I have a right to use your building and please I’m willing to pay you a royalty but let me buy my stuff anywhere I want??

Why does anyone have a right to do business on that basis?

He comes in for a franchise.

He can walk out.

This is a free country.

If he doesn’t want to go into the Carvel business —

Hugo L. Black:

Are you saying by that —

Herman L. Weisman:

— and go with Tastee Freez.

Hugo L. Black:

You’re saying by that are you that maybe its right since you own that building.

Herman L. Weisman:

We don’t own it.

Hugo L. Black:

You — well whatever it is, he gets it, the right to use it from you but you got a right to tell him everything he can put in there and everything he can sell, and everybody from whom he could buy.

Is that what you’re saying?

Herman L. Weisman:

He doesn’t — if Your Honor please, he doesn’t have to go into — he doesn’t have to move out of his chair unless he agrees to take this type of a building and put up these kinds of song — suppose he wants to (Voice Overlap) —

Hugo L. Black:

Now when he does that and (Voice Overlap) —

Herman L. Weisman:

Supposed he puts up the picture of his wife there.

It’s a violation of the agreement.

Hugo L. Black:

When he does that and pays for it, puts up the type of building that has —

Herman L. Weisman:

(Inaudible)

Hugo L. Black:

— has it, pays for it, what rights do you have then to control the rest of his business activities?

Herman L. Weisman:

The right given by an agreement which he signed at that time.

He didn’t — which he didn’t have to sign in any respect.

Hugo L. Black:

All you say that so far as tying is concerned, the right to buy other things and so forth, you have a legal right to do it.

As I — I don’t understand why you say —

Herman L. Weisman:

No —

Hugo L. Black:

— there’s no tying.

Of course, they get tying —

Herman L. Weisman:

Tying what — to what sir?

Hugo L. Black:

Well, it would be tying if I don’t have a building and you say I won’t rent it to you.

Hugo L. Black:

I want to tie to it in agreement and you’ve got to buy certain products from certain people at certain prices and be tied.

Herman L. Weisman:

Well, it doesn’t happen that way either sir.

We don’t have any buildings to sell.

We —

Hugo L. Black:

You have a franchise?

Herman L. Weisman:

No.

We — what we have — what we have is a blueprint and the kind of a building and if the fellow is willing as my friend pointed out, we locate a site for him and if he likes it, he takes it and the building is built and then he sells the products in accordance with his agreement, not of which he has to do unless he agrees and he knows all about what he has to do.

Hugo L. Black:

That seems to me — that’s begging the question as I see it.

But I —

Herman L. Weisman:

I don’t mean —

Hugo L. Black:

I don’t know whether you’re right or wrong.

Herman L. Weisman:

No, I don’t mean to (Voice Overlap) —

Hugo L. Black:

But it — well, it seems to me that that is a tie.

You have tied to his — purchase of that franchise, tied him down to buy products of a certain kind, from a certain branch and maybe you’re right into — maybe have rights but (Voice Overlap) —

Herman L. Weisman:

My time is up (Voice Overlap) —

Earl Warren:

(Inaudible)

Mr. Weisman, your time was not up.

I don’t know what caused that to go on, you have — I think you have 15 more minutes.

Herman L. Weisman:

No, that’s Mr. Wilson Your Honor.

Earl Warren:

Is that right.

Herman L. Weisman:

Its (Inaudible)

Earl Warren:

Oh well, I’ll give — divide your time, I don’t know.

Herman L. Weisman:

Yes.

Well, I (Voice Overlap) —

Earl Warren:

(Inaudible) to your side.

Herman L. Weisman:

I don’t mean to invade the — invade your time.

We weren’t taking about tying.

If you’re talking about tying in a technical sense of (Inaudible) — I’ll answer this question which I still say we’re not tied.

What you’re suggesting is that even as a total requirement contract, we may be unreasonably demanding —

Hugo L. Black:

I didn’t use the word reasonable, I meant the word tie.

Herman L. Weisman:

Well, we haven’t tied anything because there is no tying element.

Hugo L. Black:

Well, the franchise, if it’s a valuable franchise, he didn’t want it taken away from him and he’s agreed to do certain things and buy goods from somebody, that’s what I told tie.

Herman L. Weisman:

But it doesn’t agree (Voice Overlap) —

Hugo L. Black:

I mean that is a common word — the sense of the word.

Herman L. Weisman:

He doesn’t agree to this piecemeal sir.

It agrees to it in whole or nothing.

Hugo L. Black:

I understand that.

Herman L. Weisman:

Well, I’m sorry that we couldn’t clarify it further but I appreciate the extra few minutes —

Hugo L. Black:

Well, I think — I’m thinking, I think we just used — moved away from a word that I think fits what you’re doing, you don’t think it fits you.

But the question in my mind is whether when that is done, it violates the law.

Herman L. Weisman:

Well, I’m —

Hugo L. Black:

(Inaudible) to do it.

Herman L. Weisman:

I’m hopeful that you find that the briefs don’t move away from the right words and that we’re right on the board.

Earl Warren:

Mr. Wilson.

Herman L. Weisman:

May it please the Court.

I appear for the respondent H.P. Hood & Sons.

These actions were originally —

Earl Warren:

Who — for whom did you say?

John A. Wilson:

H.P. Hood & Sons.

Earl Warren:

Oh!

William J. Brennan, Jr.:

That’s the dairy —

John A. Wilson:

That’s a dairy — one of the dairies.

The petitioners originally or brought these actions ori — primarily against Carvel.

But they have included also a group of supplier, dependents of whom Hood is one.

A group which we submit is clearly peripheral in the Carvel franchise operation.

Now what succinctly does Hood — this quality diary product company do?

Hood manufacturers and sells to Carvel under supply contract a special type and kind of ice cream mix such as it manufacturers for no one else.

This mix is prepared according to a secret recipe or formula which was originated by Carvel and which Carvel furnishes to Hood.

Carvel also furnishes to Hood what are called the stabilizer and the emulsifier used in the making of this mix.

Now it is significant that the petitioners in their brief had made no mention of the fact so far as I could discern that the ice cream mix under Carvel’s special is made under the special secret formula of Carvel that Carvel furnishes to Hood the stabilizer and emulsifier and that systematically Carvel inspects Hood’s plant to ensure the high-quality and (Inaudible) — sanitary quality of the entire manufacturing operations.

John A. Wilson:

It would seem at least as though this rather glaring omission pointed rather strongly to the extreme vulnerability of the petitioners’ case against Hood.

Now just a word of a culinary nature about this matter of mix, what is it?

It’s a fluid, white in color.

I’m told by the culinary experts to properly describe as bland —

William J. Brennan, Jr.:

What?

John A. Wilson:

It — bland, B-L-A-N-D which I take to be neutral and susceptible of hyping up with certain sauces and toppings and everything.

Byron R. White:

(Inaudible) what you make (Inaudible)

John A. Wilson:

No, Hood manufactures the mix.

William J. Brennan, Jr.:

(Inaudible) manufactures this bland or whatever it is.

John A. Wilson:

It manufactures the mix and I’m describing the nature of this mix.

It is fluid.

William J. Brennan, Jr.:

Well, is it milk or what?

John A. Wilson:

It is white in color.

It has an emulsifier and a stabilizer in it and other than that, this is a secret formula which even I do not posses and wouldn’t understand (Voice Overlap) —

William J. Brennan, Jr.:

Yes, but its — well — (Inaudible) — what do you do, sink the milk and add something to it?

John A. Wilson:

It contains — it contains —

William J. Brennan, Jr.:

(Inaudible)

(Inaudible)

William J. Brennan, Jr.:

Yes, I think —

John A. Wilson:

Well, that — that’s about it.

It’s what the record says, a mix — this mix is.

And it has to be held in refrigeration.

William J. Brennan, Jr.:

Well Mr. Wilson?

John A. Wilson:

Yes?

William J. Brennan, Jr.:

It has to start to milk, doesn’t it?

John A. Wilson:

Yes.

I think —

William J. Brennan, Jr.:

And something is added to the milk (Voice Overlap) —

John A. Wilson:

I think some sort of —

William J. Brennan, Jr.:

Well, whatever it is, where do you get what you add to the milk?

John A. Wilson:

We get —

William J. Brennan, Jr.:

For whom (Voice Overlap) —

John A. Wilson:

— the emulsifier and the stabilizer —

William J. Brennan, Jr.:

What’s an emulsifier?

Is that something a — is that something —

John A. Wilson:

It has something to do with the in (Inaudible) — I think to — ensuring the firmness of the fluid product.

William J. Brennan, Jr.:

Oh, but I mean that’s an ingredient, that’s not a machine.

John A. Wilson:

That’s a — no, that’s an ingredient.

William J. Brennan, Jr.:

Alright.

John A. Wilson:

(Inaudible)

William J. Brennan, Jr.:

And where do you — where does Hood get that?

John A. Wilson:

It gets it directly from Carvel.

William J. Brennan, Jr.:

Carvel, alright.

And what else do you get from Carvel?

John A. Wilson:

Those are the only two things so far as I know.

William J. Brennan, Jr.:

The stabilizer is also an ingredient, is that it?

John A. Wilson:

The stabilizer is an ingredient and so is the emulsifier.

William J. Brennan, Jr.:

And those things are added to milk, is that it?

John A. Wilson:

The milk and maybe something else, I really don’t know

It is a secret.

Or you — do you add whatever is (Inaudible)

John A. Wilson:

Yes, whatever the secret formula is, it doesn’t appear in the record and I personally haven’t been let in on this (Voice Overlap) —

William J. Brennan, Jr.:

Now, is this frozen into bricks or something?

John A. Wilson:

No, it’s fluid.

And it has to be kept in sealed cans and it’s subject to deterioration.

It cannot be readily warehoused.

And that I think is a significant fact.

And the point (Inaudible)

William J. Brennan, Jr.:

And delivered to the (Inaudible) —

(Inaudible)

William J. Brennan, Jr.:

— in cans and cans of fluid, is that it?

John A. Wilson:

That’s right.

William J. Brennan, Jr.:

I see.

John A. Wilson:

Now —

Hugo L. Black:

Then you make the ice cream there?

John A. Wilson:

No, we do not make the ice cream.

I’m going to explain the process in just a moment Your Honor.

We make only the mix.

This mix which is delivered in 10-gallon cans and the description of it so far as I’m able to give it to you, perhaps my friend is more expert in that matter but it is a secret formula and that is what could — delivers to the operators according to the instructions of Carvel in 10-gallon cans.

William J. Brennan, Jr.:

Now, what’s the secret?

The proportions of the mix of milk and emulsifiers and stabilizers or is it the secret, the stabilizer, the emulsifier?

John A. Wilson:

Your Honor, I —

William J. Brennan, Jr.:

(Voice Overlap)

John A. Wilson:

I cannot tell you because in truth and in fact is it a secret.

William J. Brennan, Jr.:

That’s the secret.

John A. Wilson:

Yes.

It was originated by Carvel and it’s only in imitable ways and delivered to Hood and Hood makes that by the — with the addition of two ingredients namely the stabilizer and the emulsifier supplied directly by Carvel.

William O. Douglas:

You don’t put any flavor in it, do you?

John A. Wilson:

No, we do not.

Now, this mix as I’ve indicated is a perishable product.

It is therefore delivered by Hood on instructions of Carvel directly to certain Carvel retail ice cream stores, these roadside stores that we see.

Stores located so far as Hood is concerned only in the States of Massachusetts and Connecticut, that’s all.

Now, this direct delivery is necessary to avoid warehousing with consequent delay which would lead to the deterioration of the product with possible damage, I think almost certain damage to the public health.

Now, may I say in passing that the Court should not draw the erroneous conclusion that Hood does a considerable volume of business with Carvel.

The Court might possibly do so from the statement which appears in the petitioner’s brief that Carvel has about 400 franchise stores and delivers and has these stores in 9 or 10 states and that Carvel so the petitioners state in their brief sells to store operators more than two million gallons of mix annually.

For the total business (Inaudible) which Hood actually does with Carvel is in fact very small.

Hood delivers not to 400 retail stores in 9 or 10 states but only to stores in the two states of Massachusetts and Connecticut and to an average of about approximately 32 stores per year.

And Hood deliver — the — now, I would like to make this very clear that the sole issue pertaining to Hood is whether these supply contracts under which it supplies the mix, whether these supply contracts, evidence, practices or agreements which constitute per se violations of antitrust laws.

I think it must be clearly understood that the petitioners here concede that there is no combination between the supplier defendants and between the supplier defendants in Carvel.

That is there is no sort of conspiratorial round robin in which all participate.

John A. Wilson:

They admit that they charge only that Carvel is violating the antitrust laws by a series of agreements going out from Carvel separately like the spokes of a wheel to each of the supplier defendants.

Now, very briely what do these Carvel supply contracts — Carvel-Hood supply contracts provide?

Hood agrees to manufacture and sell to Carvel all the Carvel mix required by Carvel stores located in Massachusetts and Connecticut.

Carvel agrees to purchase from Hood all of such requirements.Hood also agrees to manufacture the Carvel mix according to this special secret mix formula furnished to Hood by Carvel, originated by Carvel and it agrees not to disclose that formula to any unauthorized person.

And Hood agrees to deliver only Carvel mix to Carvel stores and no other mix and no other ice cream preparation to those stores.

Now at the trial, the following facts were established by Hood without contradiction of any kind, they maybe taken as established beyond any peradventure of a doubt.

They were established not only by stipulation with the plaintiffs but by the uncontroverted live testimony of Hood’s witness, Walter Simons.

These facts in summary are these, that Hood was not a party to and had no knowledge whatsoever of Carvel’s franchise agreements or any other contracts which Carvel had with the store operators.

That Hood never saw and had no knowledge of what has been called the standard operating procedure manual and that had — Hood had nothing whatsoever to do with the manner in which these stores or any of them were operated.

And that Carvel process the mix according to Carvel’s secret formula which differs from all other ice cream mixes manufactured by Hood.

These were the established facts.

And in addition, these facts were established beyond any question that Hood did not participate in the determination of the prices at which Carvel sold ice — its ice cream mix to the store operators or in the determination of the prices to the public of any of Carvel’s dairy products made with this ice cream mix as a component.

Now we submit that the Carvel-Hood supply contracts involved neither per se violations or antitrust law nor indeed any other violations of antitrust law.

They cannot possibly be said to be pernicious in their effects upon competition or lacking in the so-called redeeming virtues or in any sense to be unreasonable so that their consequent illegality must be presumed.

Hood’s proof affirmatively established — establishes that the contracts are reasonable and proper for the protection not only of the legitimate proprietary interests of Carvel but also of the store operators themselves.

And further and more important, they are necessary for the protection of the interests of the consuming public.

And there is no proof whatsoever that they have any adverse effect upon competition and certainly, certainly not a pernicious effect.

Earl Warren:

Very well.

John A. Wilson:

Oh, pardon.

Earl Warren:

Your time —

John A. Wilson:

I didn’t —

Earl Warren:

Your time is up.

John A. Wilson:

Is that 15 minutes?

Earl Warren:

Yes.

Very well.

Arnold Fleischmann:

Yes.

May it please —

Herman L. Weisman:

I think your time was up too.

Arnold Fleischmann:

Thank you Your Honors.