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September 5, 1973

American Motor Inns, Inc.
Holiday Inns, Inc., Appellant, and International Association of Holiday Inns, Intervenor-Defendant

Garth, Circuit Judge. (sitting by designation as United States District Judge pursuant to 28 U.S.C. § 291(c)).

The opinion of the court was delivered by: GARTH

GARTH, Cir. J. (sitting by designation as United States District Judge pursuant to 28 U.S.C. § 291(c)):

This action was commenced by American Motor Inns, Inc. ("AMI"), a Holiday Inns franchisee, on September 29, 1972 against Holiday Inns, Inc. ("HI"). The complaint alleges violations of Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2, basing jurisdiction upon 15 U.S.C. §§ 15 and 26. Plaintiff seeks treble damages, 15 U.S.C. § 15, injunctive relief, 15 U.S.C. § 26, a declaratory judgment, 28 U.S.C. § 2201, and such other relief as the court might deem necessary, 28 U.S.C. § 2202.

 The complaint alleges more particularly that HI conspired with its franchisee at the Newark Airport, Newark, New Jersey (hereinafter "Fleck") and with unnamed others to restrain and monopolize trade in the hotel-motel lodging industry in the Greater Newark Area. It is undisputed that AMI had purchased certain property in Elizabeth, New Jersey, near the Newark Airport's new passenger terminals then under construction, for the purpose of constructing a hotel-motel facility (F 59-60). *fn1" The alleged antitrust violations arise, first, from HI's refusal to approve various AMI applications to build Holiday Inns, including one at the Elizabeth site, and, second, from HI's threat to enforce a clause in AMI's franchise agreement with HI which prohibits AMI from owning, operating or otherwise being associated with a non-Holiday Inn (hereinafter the "non-Holiday Inn clause"). Thus, it is alleged that AMI has been precluded from expanding by building Holiday Inns or non-Holiday Inns in the Greater Newark Area and in other areas.

 Upon plaintiff's motion, this court on October 27, 1972 ordered that discovery proceed on an expedited basis, because of a continuing threat that the City of Elizabeth would revoke plaintiff's deed as a result of a failure to abide the deed's restriction that construction commence by December 30, 1972, a deadline subsequently extended for varying periods by the City. *fn2" On April 9, 1973, the International Association of Holiday Inns ("IAHI") was permitted to intervene as a party defendant, Fed. R. Civ. P. 24(b) (2), on the condition that the IAHI would in no way delay commencement of the trial. Also on April 9, I denied without prejudice plaintiff's motion for partial summary judgment under Section 1 of the Sherman Act, rejecting plaintiff's contention, at that point in the case, that the non-Holiday Inn clause was illegal. Cf. Poller v. Columbia Broadcasting System, 368 U.S. 464, 473, 7 L. Ed. 2d 458, 82 S. Ct. 486 (1962).

 At a pre-trial conference held May 2, 1973, the plaintiff voluntarily withdrew in its entirety its Sherman Act Section 2 claim of monopolization, leaving for determination only the Section 1 claim. In addition, the case was bifurcated; the damage issue was to be tried, if necessary, after decision on the question of liability and the propriety of injunctive and declaratory relief. Trial without jury commenced on May 9. At the close of plaintiff's case, the court denied HI's motion to dismiss the action, but in view of the evidence and plaintiff's consent, granted the intervenor-defendant IAHI's motion to dismiss as against it. *fn3"

 On AMI's motion for summary judgment and at trial, the parties injected other issues into the case. AMI challenged HI's policy of soliciting (by what shall be termed "radius letters") objections to proposed franchise sites from existing franchisees who own Holiday Inns near the proposed sites. AMI also challenged HI's ownership of company inns and HI's policy of discouraging or refusing applications for franchises in towns having company-owned Holiday Inns (hereinafter "parent company towns"). Finally, AMI alleged that the radius letter, parent company town and non-Holiday Inn policies cumulatively result in a horizontal allocation of territories, in that they insulate any given existing Holiday Inn from unwanted competition from any other Holiday Inn or from any non-Holiday Inn owned by a Holiday Inns franchisee.

 HI and the IAHI, for their part, have sought to characterize the non-Holiday Inn clause as a legal exclusive dealing arrangement, and have also sought to present business justifications for the clause.

 Findings of Fact

 I. The Parties

 1. Defendant Holiday Inns, Inc. ("HI") is a publicly-held Tennessee corporation engaged primarily in the business of owning, operating and franchising inns, hotels and motels in interstate commerce (JX-1, para. 5),*and together with its subsidiaries and licensees, constitutes the largest hotel-motel business in the United States (JX-1, para. 10). As of December 31, 1972, there were 1,470 Holiday Inns, 1,380 located in the United States (JX-1 para. 8). The defendant and its subsidiaries directly owned or operated 297 of these inns, 281 in 152 United States cities (JX-1, para. 9). The other 1099 Holiday Inns in the United States are independently owned or operated pursuant to license agreements with defendant (JX-1, para. 9). Defendant's revenue from the franchising and operation of inns, hotels and motels totaled approximately $419,000,000 in its fiscal year 1972 (JX-1, para. 7).

 2. Plaintiff American Motors Inns, Inc. ("AMI") is a publicly-held Virginia corporation engaged primarily in the business of owning and operating inns, hotels and motels in interstate commerce under license agreements from defendant Holiday Inns (JX-1, para. 1). AMI is defendant's largest franchise, owning or operating 48 Holiday Inns. It has franchises from defendant to build another eight, and has commitments from defendant for five additional franchises (JX-1, para. 3; Tr. 137). Plaintiff's inns are located in Tennessee, North Carolina, Virginia, Maryland, Pennsylvania, Connecticut, Maine, Massachusetts and Puerto Rico (Tr. 31). AMI's revenue from operation of hotels and motels totaled approximately $44-million during its fiscal year 1972. (JX-1, para. 7).

 3. International Association of Holiday Inns ("IAHI") is a non-profit unincorporated association of licensed owners or operators of Holiday Inns, including company owned or operated Inns, in which each Inn has one vote. (JX-1, para. 6) (Tr. 808-10, 864-65). The Holiday Inns License Agreement provides, and has always provided, for the existence of the IAHI. (DX-1, 2, 3, PX-8, PX-21 para. Twelfth, Tr. 806).

 II. The Holiday Inn System

 4. The Holiday Inns System is an organization of hotels and motels, based upon registered service marks, and established to furnish the traveling public with a standardized system of food, lodging accommodations and services. (Tr. 774, 784). The Holiday Inn System has total revenues of nearly $1 billion a year. (DX-452).

 5. Since 1968 HI has not granted any licenses for exclusive territories; Holiday Inns licenses are now issued only for specific locations, though approximately 50 territorial licenses remain. (JX-1, para. 4).

 6. Except for licenses issued in 1957 and 1969, respectively, relating to Roanoke, Virginia and Baltimore, Maryland, AMI's franchises are for specific locations. With regard to Roanoke, AMI has the exclusive right to obtain Holiday Inn franchises in a territory including Roanoke and a 50 mile radius of the city. As to Baltimore, the exclusive right covers the City of Baltimore and a two mile radius beyond the city limits. (JX-1, para. 4).

  A. Holiday Reservation System

 7. Holiday Inns, Inc. has always offered free advance reservations to the traveling public. (Tr. 1535).

 8. Prior to 1965, one Holiday Inn made reservations at other Inns for guests by means of the telephone, teletype, Western Union and letters. (Tr. 1535). In 1962 HI determined to develop a more effective method of referrals because demand for reservations was exceeding the capabilities of the teletype method then in use, and because the teletype method was uneconomical in terms of personnel time and cost of operation. (Tr. 964-965).

 9. The resulting Holidex System of computerized reservations and referrals among Holiday Inns was put into effect in 1965. That system links every Holiday Inn on the North American continent to central computers located in Memphis, Tennessee. It enables reservations to be made and confirmed quickly from one Holiday Inn to another and from a number of reservation (sales) offices to Holiday Inns. In addition, when the computer cannot confirm a reservation, it reflects any space available at the Holiday Inns nearest the desired location. (JX-1, para. 39-42). Each Holiday Inn must have a Holidex terminal in operation 24-hours a day, and may have no other reservation terminal or system. (PX-110, I-28).

 10. The costs of operating the Holidex System are borne by the Holiday Inn franchisees through installation charges for their Holidex reservation terminals, and through charges of $2.50-$3.00 per room per month. In return for these charges, Holiday Inn franchises have the right to an unlimited number of messages through the Holidex computer and may receive reservations referred through the computer from other Holiday Inns, from Holidex reservation (sales) centers in six North American cities and from Holidex terminals at a number of major corporations. (JX-1, para. 44).

 11. The national reservation-referral concept has been very important to the growth and success of the Holiday Inn System and has resulted in increased referrals within the System. (Tr. 948, 1057, 1160-1161, 1433, 1473-1474, 1477, 1538, 1575, 1597, 1823, 1878-1879).

 12. For the years 1970, 1971 and 1972, about 30-38 percent of the total occupancy of all Holiday Inns originated from reservations made through Holidex. (Tr. 949-950, 1060-1064; DX-21, 24). However, inn-to-inn reservations made through Holidex -- as opposed to reservation center-to-inn or corporation-to-inn reservations -- account for only 21.4 percent of the total occupancy. (DX-355, 359, 365, 365(a) (b), 366, 367, 368, 370).

 B. Franchising Policies

 13. The Executive Committee of HI has delegated certain responsibilities to the Franchise Application Committee, which considers franchise applications and may make final decisions on all applications which the Franchise Committee decides to deny. (Tr. 795-97, 913-1369).

 14. When a prospective franchisee (either with or without previous Holiday Inn franchises) applies for a franchise, a site inspection is performed by HI in order to obtain relevant market data, including information as to existing inns of any type in the area. (Tr. 974, 1339).

 (1) Radius Letters to Existing Franchisees

 15. It is the standard practice of the Franchise Sales Department of HI to send written notices (hereinafter referred to as "radius letters") of a franchise application to at least the three Holiday Inns nearest the proposed site, irrespective of whether or not such Holiday Inns are open (JX-1, para. 14).

 16. Franchisees who receive notice of an application have fifteen days from the date of such notice to send the Franchise Sales Department of HI written comments regarding the desirability of establishing a Holiday Inn at the proposed location. (JX-1, para. 14). However, no franchisee is under any obligation to respond to the radius letters. (Tr. 118).

 17. All responses to radius letters are reported to the Franchise Committee of HI by the Franchise Sales Department when an application for a new franchise is submitted to that committee. (Tr. 991).

 18. The overriding importance HI attaches to objections by franchisees is apparent from HI's procedures when objections are received. When the Franchise Committee concludes that a franchise application should be granted but has received an objection to the application from an existing franchisee, the decision to grant the franchise application may be made only by the Executive Committee. The fact that an objected-to application is considered by the Executive Committee indicates that the Franchise Committee has recommended approval of the application. (Tr. 914, 1369).

 19. In 1972, the Executive Committee considered objections to 75 applications for Holiday Inns franchises, which objections were received from owners of nearby Holiday Inns. Of these objected-to applications 43 (57 percent) were not granted. (DX-40). HI's franchising procedures indicate that these 43 applications would have been granted but for objections from existing franchisees.

 20. AMI has written letters to HI objecting to franchise applications submitted by other companies. In at least two instances, Charlotte, North Carolina and Gastonia, North Carolina, the basis of the objections made by AMI was that a new inn might take business away from an existing AMI inn. (Dep. J. Krish, Tr. 55 (lines 2-25)).

 (2) " Parent Company Towns "

 21. Defendant, as of December 31, 1972, directly or through its subsidiaries, owned or operated 281 Holiday Inns in the United States in approximately 152 different cities or towns (JX-1, para. 9). In at least half of these areas defendant owns or operates the only Holiday Inn. (Tr. 825-26). These include such major cities as Austin, Texas (PX-88, Nos. 80-81; PX-87, p. 182), Tucson, Arizona (PX-88, Nos. 40-41; PX-87, p. 34); Amarillo, Texas (PX-88, Nos. 62-65; PX-87, p. 181); Albuquerque, New Mexico (PX-88, Nos. 60-61; PX-87, p. 128); Lexington, Kentucky (PX-88, Nos. 261-63; PX-87, p. 94); Corpus Christi, Texas (PX-88, Nos. 258-60); (PX-87, p. 183); Fort Worth, Texas (PX-88, Nos. 52-55; PX-87, p. 186); Charleston, South Carolina (PX-88, Nos. 88-91; PX-87, p. 169) Honolulu, Hawaii (PX-88, Nos. 14 & 18; PX-87, p. 73); Topeka, Kansas (PX-88, Nos. 245-47; PX-87, p. 91); and Salt Lake City, Utah (PX-88, Nos. 236-37; PX-87, p. 193).

 22. I find, on the basis of deposition testimony by Kemmons Wilson, Chairman of the Board and founder of HI, introduced at trial, that there is a general practice of not granting franchises in a town having a company-owned inn:


"Q. Are you familiar with any policy whereby Holiday Inns will turn down applications because the company is operating its own Inn in those towns?


A. Yes. I mean, we generally -- if we are operating in a town -- will not sell franchises, but we have done it.


Q. There have been exceptions, but the general practice . . .


A. . . . The general practice is we don't do it . . .


Q. In a city where the company has company-owned inns first, generally speaking, it will not grant franchises?


A. That is true." (Wilson Dep., p. 63, lines 1-21).

 In weighing the evidence on this point, I attach particular significance to the fact that Wilson did not testify at trial to refute this testimony.

  23. Defendant has at the very least continually discouraged franchisees from applying for franchises in areas where defendant owned or operated the only Holiday Inn. (Tr. 57-70). For example, T. T. Beasly, Associate Director of Franchises wrote in response to an inquiry by AMI as to the availability of a franchise for Flint, Michigan:


"Thank you for your letter of January 27, 1970. The Parent Company is [sic] informed us that Flint, Michigan is what they consider a Parent Company town and that they presently have a second inn planned there.


I am sorry that we will not be able to work with you there." (PX-14; Tr. 66-68).

 The only Holiday Inn in Flint is company-owned. (PX-88, No. 196; PX-87, p. 107).

 24. Similarly, when AMI inquired as to the availability of a franchise in Knoxville, Tenn., an area contiguous to AMI's other operations, William E. Dover, Associate Franchise Director for the Central United States wrote:


"Adolph, as you know, Knoxville, Tennessee is a parent company town and having recently tried to work a franchised deal north of Knoxville, I can tell you it is a losing battle." (PX-15; Tr. 61-63).

 The company continues to own or operate the only Holiday Inns within the City of Knoxville. (PX-88, Nos. 113-116; PX-87, pp. 176-77).

 25. When AMI inquired in 1969 as to the availability of a franchise for a site in Fort Worth, Texas (Tr. 68-70), the inquiry was rebuffed by Donnelson Lake, Director of Franchise Sales :


"Unfortunately, we would be unable to work with you in this location. As you know, all of the Inns in Fort Worth are operated by the Parent Company, and they do not feel that their experience would warrant another development in the area." (PX-12).

 Defendant has since commenced construction of a new company-owned inn in Fort Worth, and continues to own or operate all the Holiday Inns in Fort Worth. (PX-88, Nos. 52-55; PX-87, p. 186; Tr. 822-23).

 26. AMI also discovered attractive sites for motor hotels in Columbus, Georgia (Tr. 57-61; 172-73), Saratoga Springs, New York (Tr. 63-65), New Orleans, Louisiana, Tulsa, Oklahoma and Chicago, Illinois. In all these cases AMI's inquiries were rejected on the grounds that the company itself was operating, and intended to continue to operate the only Holiday Inn in the area. (PX-13; PX-16; See PX-88, Nos. 1-2, 59, 127, 226-29, 119-20 and 182; PX-87, pp. 70 and 136).

 27. I find that at the time AMI inquired as to each of these cities, there was a need for additional motels in these areas. (Tr. 183-85). AMI was interested in building a motor hotel other than a Holiday Inn in these areas if it could not secure a Holiday Inn franchise, but the non-Holiday Inn clause prevented it from doing so. (Tr. 57-72).

 28. While HI has introduced evidence that some franchises have been granted near company-owned inns, (Tr. 1175-76; 1515-16; 1604-05), such testimony does not negate the existence of the practice. (Wilson Dep., pp. 62-63). The evidence therefore demonstrates that a significant number of cities are "parent company towns" in which franchisees may not compete with company-owned inns by building a Holiday Inn or a non-Holiday Inn.

 29. The number of such towns is likely to increase as defendant has embarked on "a more aggressive Company inn expansion program." (PX-84, p. 3; Tr. 833-34). In some cases, defendant has even acquired a franchisee's interest in the only Holiday Inn in a given town. (Tr. 832-33).

 30. In no company-town may a Holiday Inn franchise application be granted without the approval of Holiday Inns' Executive Committee; the Franchise Committee is without the authority to grant a franchise application. (Tr. 889). Thus, both a franchise application for a parent company town and a franchise application objected to by an existing franchisee may be approved only by the Executive Committee, and not by the Franchise Committee.

 C. Non-Holiday Inn Clause

 (1) Background of the Clause

 31. The non-Holiday Inn clause has appeared in HI's license agreements since 1953. The clause has provided:


". . . that licensee will not, directly or indirectly, own any interest in, operate, or be in any manner connected with or associated with, any inn, hotel or motel, during the period of this license, except Holiday Inns." (JX-1, para. 11).

 32. From 1953 to 1958, HI granted exclusive licenses for a designated geographic area. (Wilson Dep., p. 13, line 17 to p. 14, line 1). Those licenses prohibited the licensee from owning or operating a non-Holiday Inn within the specified licensed territory. (Tr. 788). In or about 1957 or 1958, however, the phrase "within the licensed territory" was stricken so that the licensees have since been prohibited from owning or operating a non-Holiday Inn anywhere. (Tr. 788, 2110-14).

 33. Testimony concerning defendant's original purpose in instituting the non-Holiday Inn clause relates to deletion of the phrase "within the licensed territory" from that clause and from a "best efforts" clause. (Tr. 788, 919).

 34. One Albert Pick had operated a number of hotels under his own name prior to becoming a Holiday Inns franchisee. (Tr. 848-49). After having received some five or six Holiday Inns franchises, he sought a Holiday Inns franchise in Montgomery, Alabama. (Wilson Dep., p. 39). Pick's application was rejected because there was already a franchisee in Montgomery. (Wilson Dep., p. 39). Thereafter, Pick built a motel under the Pick name in Montgomery, and elsewhere. (Wilson Dep., pp. 39-44). When a HI inspector found a brochure in a Pick Holiday Inn advertising the Pick motel in Montgomery instead of the Holiday Inn in Montgomery (Tr. 844), HI became concerned that Pick was referring business to his own Motel in Montgomery rather than to the local Holiday Inn. (Tr. 789-90, 834-61, 1226-27).

 35. Since the Pick license agreements only prohibited the ownership of non-Holiday Inns "within the licensed territory", and since the "best efforts" clause also was limited to the licensed territory (Tr. 919), HI could not invoke either clause. It simply arrived at an agreement with Pick which resulted in Pick's giving up its Holiday Inn franchises. (Tr. 859-60).

 36. After the Pick incident both the non-Holiday Inn clause and the "best efforts" clause were broadened so as to remove the "licensed territory" limitation. (Tr. 788-90; 862-63; 919). According to William B. Walton, President of HI, the sole reason for changing the non-Holiday Inn clause was to prevent someone like Pick from referring customers to his own inn at another location rather than to a Holiday Inn. (Tr. 789-90). Yet, I find that the obligation to refer business to other Holiday Inns was and is contained in the "best efforts clause", not in the non-Holiday Inn clause. (Tr. 858-59; 874).

 37. On the other hand, with regard to the purpose behind the 1958 change, Wilson focused on the fact that Pick had operated his own independent motels in competition with existing Holiday Inns. In answering questions, Wilson testified:


"A. Well, they were operating some Holiday Inns and they built this Albert Pick motel in Montgomery, and they also applied to us, I believe, for a franchise in St. Louis, and we told them the same thing.


"In both cases they went right down the street.


"The same thing is true today. If anybody was allowed to build any kind of hotel rather than a Holiday Inn, your own friend could go across the street and build a Ramada Inn or something else, and its just something that should never happen.


"Q. Do you recall what the actual experience was in Montgomery? What happened when they operated the Albert Pick Motel? Did it compete with Holiday Inn right down the street?


"A. Of course.


"Q. And the same thing in St. Louis?


"A. Of course." (Wilson Dep., p. 44 lines 6-23).

 (2) Enforcement of the clause

 38. It is defendant's policy to enforce the non-Holiday Inn clause, as set forth in Holiday Inns' Executive Committee Meeting minutes dated November 7, 1966:


" Resolved, that if a franchise holder violates his franchise agreement with Holiday Inns of America, Inc., by retaining competitive interests in other motels or hotels he shall be given six months to dispose of such competitive interests, at the expiration of which time the franchise will automatically be terminated if this has not been accomplished." (JX-1, para. 12).

 39. The franchisees, all of whom are members of IAHI, have been dissatisfied with what they consider to be HI's failure to enforce the non-Holiday Inn clause stringently. (Tr. 1153-54; 1692; 2080-81). As a result, they have sought to have the Executive Committee of IAHI "put more pressure" on HI to enforce the clause. (Tr. 2082-83).

 (3) Alternatives to the non-Holiday Inn clause

 40. There are provisions, wholly apart from the non-Holiday Inn clause, in HI's license agreements which prohibit a Holiday Inn from referring business to a non-Holiday Inn. For example, "Licensee does further covenant and agree . . . to use every reasonable means to encourage use of 'Holiday Inns' on a national basis by the traveling public." (PX-8, para. 2(i).). Walton testified that this "best efforts" clause has always been in HI's license agreement and requires a licensee to refer business to other Holiday Inn motels. (Tr. 858-59).


"Q. . . . Are you aware of any provision in the contract which prohibits a licensee from referring business to a motel or hotel other than a Holiday Inn motel or hotel?


"A. There is a provision that provides that you would promote the Holiday Inn system on a nationwide basis. In my opinion, that would mean that you would send your referral business to Holiday Inns.


"Q. Now that is a separate provision from what you call the no-conflict-of-interest provision, is that correct?


"A. That is correct." (Tr. 858-59; see 874).

 HI's Senior Vice President, Robert T. Ashman (Tr. 1058) and franchisees Earl Jones (Tr. 1632-35) and Julius Eldridge (Tr. 2087) similarly testified that this "best efforts" clause requires franchisees to refer business to other Holiday Inns.

 41. Assuming that a licensee were willing to breach the "best efforts" clause in his license agreements, the sole way the franchisee could refer guests to a non-Holiday Inn would be through use of the telephone and the teletype (Tr. 1690-92), since Holidex only operates with respect to Holiday Inn rooms. (Tr. 1784). The record establishes that such methods are so slow, costly and inefficient that they are impractical. (JX-1, para. 40; Tr. 1535-38). As long as an inn did not have other computerized reservation equipment on its premises (which could be easily determined by HI during its regular inspections (Tr. 2021-23)) an inn could not operate an effective referral system. (Tr. 1628-29).

 42. In addition to the "best efforts" clause, all license agreements issued by HI from 1958 through 1971 have the following addendum:


"The owner or lessee of any Holiday Inn built or operated under this License Agreement shall not be an associate or associate member or affiliated in any manner with any organization, company or group, the primary purpose of which, either express or implied, is to set a standard for motels or hotels and/or to request or require its members to refer business to other members of that organization, company or group." (PX-8, para. 14; Tr. 2110-11).

 This clause, is far less restrictive than the non-Holiday Inn clause, because it says the "same thing" as the "best efforts" clause (Tr. 864) without prohibiting franchisees from owning or operating non-Holiday Inns.

 43. Defendant hypothesizes that if a franchisee were able to own a non-Holiday Inn near his Holiday Inn he would be able to accept reservations through Holidex, and then steer the unsuspecting customer to his non-Holiday Inn. (Tr. 1490-91; 1589-91; 1881-82). However, this practice would constitute a violation of the existing "best efforts" clause (Tr. 1639-41), and the misled customer would almost certainly complain to Holiday Inns. (Tr. 1636). Even this situation could occur only if the franchisee built a non-Holiday Inn in close geographical proximity to his existing Holiday Inn. (Tr. 1637-38). Such an abuse could be prevented by adoption of a narrower proscription than the non-Holiday Inn clause, such as that found in the Howard Johnson License Agreement. (PX-107, P 7).

 44. HI suggests that the "best efforts" clause might be difficult to enforce. (Tr. 1150). However, a violation of the non-Holiday Inn clause itself is "awfully hard to prove" (Lake Dep., p. 79, line 4 to p. 80, line 8; Tr. 1693-98). Moreover, the easiest violation to uncover would be an effort by a Holiday Inns franchisee to steer a guest toward a non-Holiday Inn, since such a customer would most likely complain directly to HI. (Tr. 1636). In sum, I find the record not to establish the "best efforts" clause any more difficult to enforce than the non-Holiday Inn clause.

  45. HI has also suggested that Holidex could be used to determine attractive locations for non-Holiday Inns. (Tr. 1495, 1592). The record demonstrates, however, that no one would build an inn in a given locale based upon information received solely from a Holidex check (Tr. 1630), since Holidex would only reveal whether an inn were reporting full, not whether or not an inn were in fact full. (Tr. 1630-31). Nor would Holidex show the percentage occupancy (Tr. 1631). Anyone could acquire this same information simply by telephoning defendant's central sales reservation offices (Tr. 1631-32) or by calling the inn directly. (Tr. 1667).

  46. Sheraton Inns, Inc. (Tr. 416-18), Hilton Inns, Inc. (Tr. 319-20) and Howard Johnson Motor Lodges (Tr. 368-69) all have computerized reservation systems, but none has a provision as broadly restrictive of competition as defendant's non-Holiday Inn clause. (PX-99; PX-100; PX-107).

  47. Hilton's license provides that a licensee will not operate a non-Hilton inn "without the prior written consent of [Hilton], which consent agrees not to unreasonably withhold." (PX-100, P 8). In every case Hilton has granted its consent, so that there are a number of Hilton licensees operating both Hilton and non-Hilton Inns. (Tr. 320; 346-56).

   48. Howard Johnson only prohibits a licensee from owning a non-Howard Johnson inn "within a radius of 25 miles" of the licensed inn. Even then, such an inn could be built with Howard Johnson's consent, "which shall not be unreasonably withheld." (PX-107, P 7).

  49. Sheraton has no restriction on its franchisees' operation of non-Sheraton inns, although the licensee has an affirmative contractual duty to refer guests to other Sheraton Inns. (PX-99, P 7(k)).

  50. Although HI claims that the purpose of the non-Holiday Inn clause was and is to preserve the integrity and utility of the national reservation-referral system, I find that in operation that clause has had a much broader effect. That effect is the intended one of reducing and preventing competition among Holiday Inns franchisees and between franchised inns and company-owned inns. I find that if HI sought solely to protect its reservation-referral system, such protection was and is available through other provisions of its contract (e.g. best efforts clause), and was and is available through less restrictive provisions of the type utilized by other national hostelers.

  III. Relevant Competitive Market

  51. Defendant HI together with its subsidiaries and licensees constitutes the largest hotel-motel business in the United States (JX-1, P 10), more than three times the size of its nearest competitor. (PX-83, p. 19; PX-84, p. 24; PX-85).

  52. Licensed Holiday Inns compete among each other and with Holiday Inns owned or operated by defendant for the custom of the traveling public. (PX-87; Tr. 73, 1176-77, 1505, 1515-17, 1604-05, 1730).

  53. In 1967 there were 44,903 hotels, motels and motor hotels within the United States as enumerated by the 1967 Census of Business. (DX-29, Table 24). As of June 30, 1967 there were 719 Holiday Inns licensed by, and 139 Holiday Inns owned or operated by, HI in the United States and elsewhere. (DX-28). Therefore, as of 1967 approximately 1.6% of the total number of hotels, motels and motor hotels within the United States were franchised Holiday Inns, and approximately 1.9% were Holiday Inns.

  54. At the end of 1971 there were 7,430 motor-hotels in the United States with 803,734 rooms (DX-33, Table I). A motor-hotel is defined as "a property with transient lodging facilities, built or completely modernized since 1945, open year-round (or in some instances more than half the year) and containing at least 50 guest units, plus adequate on-premises free parking." (DX-33, p. 2).

  55. Over 50-room-motels might be considered a relevant market for the purposes of this case. For example, Krisch testified that a motel of under 50 rooms could not offer the facilities that Holiday Inns' customers expect such as proper parking, cocktail lounge, swimming pools, etc. (Tr. 72). Evidence has been introduced by HI that its franchisees rely upon these amenities being available at other Holiday Inns as part of the incentive to refer guests to those inns. (e.g., Tr. 1496; 1593; 1885). In addition, a review of the Directory of Holiday Inns establishes that of the 1,470 Holiday Inns, only four have less than 50 rooms. (PX-87).

  56. As of December 31, 1971 there were 1,290 Holiday Inns in the continental United States. (PX-84, p. 13). HI together with its franchisees constituted approximately 17% of the over 50-room motor-hotel properties in the United States (PX-84; DX-33) and, in terms of number of rooms, constituted 24.7%. (PX-97; DX-33, p. 4, Table). As of December 31, 1971 there were 1,026 franchised Inns in the United States (PX-84; pp. 3, 5, 11-12) which constituted approximately 14% of the over 50-room motor hotel properties and approximately 18.3% of the number of rooms. (DX-33; PX-97). 57. The following compares data from Hospitality (Dec. 1972), a lodging industry magazine, on the 29 largest motel-hotel chains and referral groups in the United States, as of 1972: No. of Properties Chain or Referral Group ("RG") 1972 Admiral Benbow Inns 16 Best Eastern Motels (RG) 250 Best Western Motels (RG) 1,050 Downtowner Motor Inns 98 Referral Group ("RG") 1972 Dunfey Family Hotels 18 Econo-Travel Motor Hotel Corp. 357 Friendship Inns 915 Heritage Management 12 Hilton Hotels Corp. 95 Holiday Inns 1,407 Howard Johnson's 444 Hyatt House Hotels 63 Imperial 400 103 Loews Hotels 12 Marriott Hotels 24 Motel 6 91 Pick Hotels 28 Quality Inns 396 Ramada Inns 472 Red Carpet Innsand Master Hosts 236 Regal 8 15 Rodeway Inns 104 Royal Inns 61 Sheraton Hotels and Motor Inns 228 Sonesta Hotels 10 Superior Motels 430 Travelodge 456 Treadway Inns Corp. 40 Western International Hotels 54 Total 7,485 (DX-38; DX-A-54)


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