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HUDSON'S BAY CO. FUR SALES v. AMERICAN LEGEND COOP

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY


December 19, 1986

Hudson's Bay Company Fur Sales Incorporated, Plaintiff
v.
American Legend Cooperative, Defendant

The opinion of the court was delivered by: LECHNER

LECHNER, J.

 Introduction

 Plaintiff, Hudson's Bay Company Fur Sales Incorporated ("Hudson"), instituted this antitrust action against the defendant, American Legend Cooperative ("Legend"), for purported violations of sections one *fn1" and two *fn2" of the Sherman Act (the "Act"), as amended, 15 U.S.C. §§ 1 and 2 (Count I), for misuse of trademark and violation of the Lanham Trademark Act, 15 U.S.C. § 1121 (Count II) and for pendent claims of tortious interference with contractual relationships (Count III), tortious interference with prospective economic advantage (Count IV) and breach of contract (Count V). *fn3"

 Hudson and Legend are involved in interstate commerce in the marketing and sale of mink pelts produced by mink ranchers in the United States. In particular, Hudson acts as a marketing agent and broker for mink ranchers. As such it receives, warehouses, displays and conducts auction and private sales of mink pelts. Legend was created in late 1985 when the two major American mink farmer associations, Emba Mink Breeders Association ("EMBA") and Great Lakes Mink Association ("GLMA") unified. *fn4" EMBA and GLMA own various trademarks used in the marketing of mink pelts and garments. These trademarks, the most important of which is the "Blackglama" mark, were in effect transferred to Legend which polices the use of the trademarks.

 Legend, in an effort to promote sales of mink pelts produced by its members, has restricted use of the various EMBA and GLMA trademarks to those mink pelts auctioned through the Seattle Fur Exchange ("SFX"), a subsidiary of Legend. The various trademarks, previously available to a qualified pelt of any member of EMBA or GLMA who sold through an auction house which had a contract with EMBA or GLMA or both, are now available only to pelts auctioned or otherwise sold through SFX. Hudson claims this restriction violated and continues to violate the antitrust laws.

 On July 25, 1986, Hudson filed its verified complaint and an Order to Show Cause requesting, among other forms of relief, a temporary restraining order. Hudson contends: (1) Legend's trademark restriction constitutes an unlawful tying arrangement restraining trade in the American fur auction market, and (2) Legend and others have conspired to monopolize the American mink pelt industry.

 Following a hearing and thereafter a denial of the requested temporary restraining order, pre-trial discovery was conducted and completed. By agreement among the parties and the court, the matter was tried on October 8, 9, 14, 15 and 16, 1986. Hudson and Legend submitted written summations on October 23, 1986 and presented oral rebuttals on October 27, 1986. After a review of the Stipulations by the parties, the evidence presented, the proposed findings of facts and conclusions of law, the trial briefs and summations (both written and oral), I find, for the reasons stated below, Hudson has failed to prove that Legend either (1) engaged in a restraint or attempted to restrain trade in violation of section one of the Sherman Act, or (2) monopolized or attempted to monopolize the markets in which it competes in violation of section two of the Sherman Act. Hudson has failed to prove the restriction on the use of the various trademarks (owned by EMBA and GLMA and policed by Legend) constitutes an illegal tying arrangement. *fn5"

  Many of the findings of fact are substantiated with citations to Stipulations, or testimony or documentary evidence or a combination of such authority; such citations are not meant to be exhaustive concerning the finding. Some of these findings are based upon the record or inferences from the record which are not cited. Page or document citations are not set forth to support general findings. See, e.g., Smithkline Corp. v. Eli Lilly & Co., 427 F. Supp. 1089, 1094-1110 (E.D. Pa. 1976), aff'd, 575 F.2d 1056 (3d Cir.), cert. denied, 439 U.S. 838, 58 L. Ed. 2d 134, 99 S. Ct. 123 (1978); United States v. Brown Shoe Co., 179 F. Supp. 721 (E.D. Mo. 1959), aff'd, 370 U.S. 294, 8 L. Ed. 2d 510, 82 S. Ct. 1502 (1962); United States v. International Boxing Club of N.Y., 150 F. Supp. 397, 401-419 (S.D.N.Y. 1957), aff'd, 358 U.S. 242, 3 L. Ed. 2d 270, 79 S. Ct. 245 (1959).

 This opinion, including the legal discussion, constitutes my Findings of Fact and Conclusions of Law. All proposed findings of fact and conclusions of law inconsistent with those set forth herein are rejected in accordance with Rule 52 of the Federal Rules of Civil Procedure.

 I. Findings of Fact

 A. The Parties and Entities Involved

 1. Hudson is a corporation organized under the laws of New York, with its place of business presently at Carlstadt, New Jersey. [Stipulation 1.]

 2. Hudson is a wholly owned subsidiary of the Hudson's Bay Company, a Canadian corporation. The Hudson's Bay Company is a general merchandising corporation, which owns and operates several major department stores, has a major interest in a real estate development organization and in oil and gas interests and had annual revenues during 1985 of approximately U.S. $ 4 billion. [Stipulations 2 and 3.]

 3. Hudson acts as agent and broker for the sale of fur pelts and conducts auction sales of fur pelts. In the course of its business, Hudson, inter alia, receives, warehouses, sorts, grades, displays and conducts auction sales (and private sales) of mink pelts. [Stipulation 8.]

 4. On October 9, 1985 Legend was incorporated and organized under the laws of Wisconsin, and has its place of business in Seattle, Washington. [Stipulations 14 and 15.] Legend is an association of mink producers engaged in interstate and foreign commerce of its members' mink products. [Trans. 10/14 at 196:12 - 197:25.]

 5. Legend came into being through the unification of EMBA, a corporation, organized under the laws of Wisconsin, with its place of business in Seattle, Washington, and GLMA, a non-stock, not-for-profit corporation, organized under the laws of Wisconsin, with its place of business in Seattle, Washington. Only domestic mink ranchers who sell at least 1200 pelts *fn6" through an auction house or agency that has a contract with Legend can become voting members of Legend. [Trans. 10/14 at 97:3-11; 98:23 - 100:13; D-27; Stipulation 16.] Nonvoting membership in Legend is available to non-domestic fur producers. [D-27.]

 6. SFX is a Washington corporation with its principal place of business in Seattle, Washington and is wholly owned and controlled by Legend. SFX is in the business of collecting and auctioning fur pelts. SFX was privately owned until 1973, when it was acquired by EMBA. [Stipulations 26 and 27.]

 7. Hudson and SFX derive their income primarily from a brokerage commission paid by the seller/rancher and a percentage fee paid by the buyer. [Stipulation 54.]

 8. SFX competes with Hudson in the business of collecting and auctioning mink pelts and other fur pelts in the United States. For the last several years, only Hudson, SFX and Elbeco Marketing Co., Inc. ("Elbeco") have conducted auctions of mink pelts in the United States.

 9. Elbeco is a corporation of the State of New Jersey with its principal place of business in North Bergen, New Jersey. Elbeco is in the business of auctioning fur pelts, including mink pelts. [Stipulation 19.]

 10. Amerimink is an association of mink farmers, incorporated under the laws of Washington, with its place of business in Bothell, Washington. [Stipulation 18.]

 11. Since 1970 and through the 1986 auction season, Elbeco has been the exclusive agent for the sale of mink pelts produced by the members of Amerimink that are sold under the Amerimink trademark. [Stipulations 20 and 22.]

 B. Unification of EMBA and GLMA

 12. The unification of EMBA and GLMA, which was completed on October 9, 1985 [Stipulation 15], had been a goal of the two associations since at least 1970. Unification was considered desirable because, inter alia, it would combine promotional and marketing efforts of the two associations. Despite numerous proposals and many meetings, EMBA and GLMA were unsuccessful in reaching agreement on a unification plan until 1985. [Stipulations 61 and 62.]

 13. In early 1984, EMBA engaged Management Design Association ("MDA"), a management consulting firm, to undertake a marketing review and analysis. EMBA was familiar with the work of MDA and MDA's president, Thomas P. Haass ("Haass"), since MDA had been engaged by SFX in 1978 to redesign its information systems. [Stipulations 63 and 64.] MDA was thereafter retained by the EMBA Board of Directors to conduct a management review of SFX and to report its findings to the EMBA Board concerning the quality of SFX management. [Stipulation 65.]

 14. When EMBA determined in early 1984 that a general marketing study was appropriate, representatives of EMBA contacted Haass and asked him to conduct a marketing review and prepare an overview of the marketing issues facing EMBA. [Stipulation 66.] Pursuant to this engagement, Haass prepared a paper entitled "EMBA Marketing and Association Review", dated October 10, 1984 (the "Review"). [Stipulation 67; P-1.] Haass presented the Review at a joint meeting of the GLMA and EMBA Boards on October 10, 1984. [Stipulation 69.]

 15. The Review recognized the importance of the Blackglama trademark [Stipulation 70], stated that "'Quality' is the only selling advantage of American produced mink" [Stipulation 71; P-1], suggested unification of EMBA and GLMA [Stipulation 72; P-1] and recommended (1) the unified association be "headed by a full time professional leader"; (2) that "[a] new marketing approach should be designed that positions American mink as the best in the world"; and (3) that "the Association must take a more active role in working with the auction houses." [Stipulation 73; P-1.]

 16. Following Haass' presentation of the Review, the Boards of Directors of EMBA and GLMA passed resolutions authorizing Haass to assist in bringing the two associations together and another resolution appointing a Unification Task Force. [Stipulation 74.]

 17. A reorganization proposal prepared by the Unification Task Force was first presented to the GLMA and EMBA Boards of Directors for reaction in February, 1985 at a meeting in Chicago, Illinois. That proposal cited as one goal of unification to "make better use of the only three assets the American mink farmer has: -- a quality product -- the Blackglama trademark [and] -- an association owned auction house [SFX]." [Stipulation 76; P-1.] There was concern about the viability of SFX (P-1; P-7; Trans. 10/14 at 137:15 - 138:11) and also a recognition that SFX was being underutilized as a means of competing with Hudson's auction house. [P-1; P-2.]

 18. In September, 1985, an Information Statement describing the proposed unification of EMBA and GLMA was circulated, which advised members that the associations had notified Hudson and SFX of their intention to terminate existing auction agreements, to merge into Legend, and to enter into new agreements negotiated by Legend with Hudson and SFX.

 19. Information was disseminated to the members of GLMA and EMBA to explain the proposal and to advocate its adoption. On May 24, 1985, the Board of Directors of EMBA adopted a resolution approving the Unification Agreement and the execution of such an Agreement on behalf of EMBA. In October, 1985, the Board of Directors of GLMA voted to approve the proposed unification with EMBA. At their annual meetings in October, 1985, the members of both EMBA and GLMA voted to approve the unification of the two associations [Stipulations 77 through 80]; EMBA and GLMA entered into the Agreement and Plan of Unification ("Unification Agreement"), dated as of July 18, 1985. [Stipulation 81.] Haass became Chief Executive Officer of Legend on December 1, 1985. [Stipulation 85.]

 C. Composition and Operating Structure of Legend, EMBA and GLMA

 20. Legend carries out a variety of functions on behalf of its members. Among other activities, Legend: (1) negotiates and enters into marketing agreements for the sale of members' mink pelts; (2) promotes and markets mink pelts produced by members and mink garments produced from members' mink; (3) attends and participates in trade shows and meetings around the world; (4) attends and supervises the sale of members' mink at auction houses; (5) supervises and funds legal activities, and cooperates with EMBA and GLMA to enforce trademark rights; (6) monitors and reports on sales of mink pelts worldwide; (7) distributes newsletters to members; and (8) maintains membership lists and reviews membership requests from non-members. [Trans. 10/14 at 89:17 - 90:16; 196:12 - 197:25.]

 21. Legend's members are assessed in common for the marketing services provided by Legend. Legend assists in marketing its members' fur products and polices their trademarks. These costs are defrayed by assessment deductions from the sales of its members' mink pelts.

 22. Legend's Board of Directors is elected by and is composed of members of Legend who are mink ranchers. [Trans. 10/14 at 98:23 - 99:12.] No Legend member has more than one vote within the cooperative. [Trans. 10/14 at 99-100.] The Legend by-laws provide for the removal of any or all of the directors at an annual meeting or special meeting which can be called for that purpose by 20% of Legend's voting members. [Stipulation 17.]

 23. GLMA and EMBA market the mink products of their members in interstate and foreign commerce.

 24. Only domestic mink ranchers can become voting members of EMBA and GLMA. The Board of Directors of GLMA and EMBA is elected by and is composed of members of GLMA and EMBA. No member of GLMA or EMBA has more than one vote within the cooperative. Non-voting membership in GLMA and EMBA is available to non-domestic fur producers.

 D. Trademarks

 25. EMBA and GLMA each own various trademarks used in the marketing and sale of their members' fur pelts. [Stipulations 42, 44.] Ownership of the trademarks remained with EMBA and GLMA following unification. [Stipulation 165.]

 26. GLMA owns the Blackglama and GLMA trademarks identifying dark mink of the highest quality produced by its members. *fn7" [Stipulation 42.] Of the total number of mink pelts produced in the United States approximately one-third are dark mink; of these only about one-third qualify for the Blackglama trademark. [Trans. 10/8 at 103:16-25.]

 27. Since 1968, GLMA has expended millions of dollars advertising and promoting mink pelts and garments under the Blackglama trademark. [Stipulation 40.]

 28. As a result of the substantial sales and advertising of mink pelts and garments under the Blackglama trademark, Blackglama has become well and favorably known to the public and trade identifying and distinguishing the source of GLMA's product [Stipulation 39] and identifying ranch mink pelts of the highest quality and darkest color produced by GLMA members. [Stipulations 41-43.]

 29. EMBA owns or owned certain trademarks including: Tourmaline, Obsidian, Morning Light, Lutetia, Jasmine, Arcturus, Argenta, Autumn Haze, Azurene, Cerulean, Diadem, Lunaraine, and EMBA. The Autumn Haze and EMBA trademarks have acquired an excellent reputation. [Stipulations 44 and 45.] Autumn Haze, for example, is used only in connection with EMBA's highest grade mutation mink pelts of natural brown color, and distinguishes these pelts as having been graded and selected under the supervision of Legend. [Stipulation 46.]

 30. GLMA and EMBA have spent considerable amounts of money promoting and policing their trademarks. [Stipulation 47.] The member ranchers bear the entire cost of promoting the EMBA and GLMA trademarks through an assessment on auction sales of members' pelts. Over the last ten years, the rancher members of EMBA and GLMA have invested three to four million dollars to promote these marks. [Trans. 10/14 at 198:1-8.] Hudson does not pay to promote or advertise the marks owned by GLMA and EMBA. [Trans. 10/8 at 93:6-10.] Legend has budgeted $ 300,000.00 for advertising in 1986. [Trans. 10/14 at 198:1-8.]

 31. Other trademarks, not owned by either EMBA or GLMA, have acquired value in the marketplace and are currently used in conjunction with the sale of both dark and mutation mink pelts at Hudson and at other auction houses. [Stipulation 166.] Other dark mink pelts sold under the trademarks Black Willow, Black Mist, Black Shadow, Black Jewel, and Black Diamond compete with mink pelts sold under the Blackglama trademark. These trademarks are privately owned by individual mink ranchers who sell pelts at Hudson's or at other auction houses. [Stipulation 167.] Additional trademarks include Amerimink and UMPA. Pelts with trademarks which do not belong to either GLMA or EMBA have obtained higher prices at auctions than Blackglama labeled pelts. [Trans. 10/9 at 142:18-21.]

 32. Many department stores, furriers and clothing designers do not use industrywide trademarks to market their fur products but rely on privately developed trade names. [Trans. 10/9 at 145:24 - 146:8.]

 33. Trademarks are not the only way ranchers identify their pelts for marketing. Ranch identification in many instances is of equal importance as a guide to buyers of pelts. [Trans. 10/9 at 165:15-25.] Hudson has offered pelts for sale by ranch name. [D-65 and 66.]

 34. Six or seven years ago, Hudson's parent company developed a trademark or label for its finest fur sold at its London auction house. That trademark is still used to market furs. [Trans. 10/8 at 67:12 - 70:5.]

 35. Hudson is free to develop mink pelt trademarks, as its parent company has successfully done. Hudson in fact is developing a mark to compete with Blackglama and other marks owned by EMBA and GLMA. [Trans. 10/9 at 139:14-23.]

 36. Legend establishes quality standards and guidelines for the designation of trademarks to be used in conjunction with the sale of its members' mink pelts. Among other things, Legend, together with EMBA and GLMA, ensures that a pelt sold under a trademark owned by EMBA or GLMA meets the following conditions: (1) the mink pelt was produced by a rancher who is a Legend member; (2) the mink pelt has been graded by a qualified grader acceptable to Legend; (3) the mink pelt equals or surpasses in quality specimen pelts designated by Legend guidelines; and (4) the mink pelt is correctly classified according to Legend's instructions.

 37. EMBA and GLMA each have committees to police the use of members' pelts and to enforce all of their trademark rights.

 38. Neither Hudson nor any fur auction house has ever been licensed to use trademarks owned by EMBA and GLMA. Hudson has been authorized by contract to offer for sale mink pelts produced by EMBA, GLMA or Legend members which carry such a trademark.

 39. While American mink ranchers are free to sell their pelts without an EMBA or GLMA trademark wherever they wish [Trans. 10/14 at 90:23 - 91:11], the availability of EMBA and GLMA trademarks is now restricted to pelts sold through SFX.

 E. The Industry

 40. The number of American mink ranchers is declining.

 41. American ranch mink is produced on approximately 1150 mink ranches in the United States and is known by the trade to be generally of a high quality in terms of pelt color and lustre. American ranch mink is produced for the fur trade as either standard dark mink or mutation mink of various colors. [Stipulations 36 and 37.]

 42. Mink pelts are not homogeneous or fungible but are diverse in color, quality, size and other characteristics. [Stipulation 48.]

 43. Because mink pelts are diverse in color, quality, size and other characteristics, they cannot be bought or sold sight unseen; rather, they are sold at auction or in private sales. Value is assigned to mink pelts based primarily upon an inspection preliminary to sale to the trade through widely announced auctions conducted by auction houses.

 44. When EMBA and GLMA unified, nearly 80% of the mink ranchers in the United States became members of Legend. All members of Legend are members of EMBA and GLMA. [Stipulation 11.] The balance of American mink ranchers belong to Amerimink; in late 1986 Amerimink merged with Legend.

 45. Prior to the formation of Legend, EMBA had traditionally represented ranchers who bred mutation mink of various color types, and GLMA had traditionally represented ranchers who bred standard dark mink. Ranchers who bred both types of mink could belong to either or both EMBA and GLMA. The Amerimink ranchers produce both types of mink. [Stipulation 38.]

 46. There are currently three companies conducting fur auctions in the United States, Hudson, SFX and Elbeco. The number and identity of these companies have not changed since 1982. [Stipulation 56.]

 47. The fur auction houses receive pelts from ranchers, grade them as to color, size and quality, and sort them into lots to achieve uniformity of color and character in each lot. [Stipulation 49.]

 48. Barriers to entry into the fur auction business are low; entry into the business requires only a facility to conduct the auction, a source of financing, and personnel.

 49. Since Elbeco had contracted to handle and auction only Amerimink mink, Legend members could not ship to Elbeco.

 50. Ranchers customarily ship their pelts to auction houses in November and December to be ready for the first auction sales of the year in January. The January auction sales are traditionally the largest sales of the year. Many ranchers offer a substantial portion of their annual pelt crop in the January auction sales. [Stipulation 60.]

 51. The auction dates for mink pelts are fixed in accordance with the time cycle for mink ranching and by agreement between the rancher organizations and the auction houses. Such dates are widely disseminated to avoid overlap with other auctions around the world.

 52. The New York metropolitan area is where the largest number of fur buyers, fur garment manufacturers and fur brokers in the United States are found. [Stipulations 135 through 138.] It has significant advantages over Seattle from both an industry and geographic point of view.

 53. The rancher organizations have traditionally entered into agreements with competing auction houses, detailing the general terms by which association members ship their pelts to the auction house of their choice for grading, sorting and sale for the individual accounts of the ranchers. These agreements have also governed the use of trademarks.

 54. Prior to June, 1986, mink ranchers shipped their pelts to an auction house (with which the rancher organizations had agreements concerning marketing of fur pelts) for grading, marking and sale under appropriate trademarks. Prior to June, 1986, rancher members of EMBA, GLMA and Legend were free to use, and did use, the trademarks of their rancher associations on their mink pelts at either SFX or Hudson. Subsequent to June, 1986, although the members of Legend are free to sell their pelts through any agency or auction house they so choose, the availability of the Blackglama and other trademarks at issue is restricted to pelts sold through SFX. *fn8"

 F. The Relevant Market

 55. The relevant product markets are mink produced worldwide and auction houses operating worldwide.

 56. Geographically, the mink business spans the globe. [P-1; P-2; P-3; P-7; P-25; P-99; D-5; D-30; Trans. 10/8 at 136:4-18.]

 57. Mink is raised in, among other places, the United States, Canada, Norway, Denmark, Finland, the Soviet Union and The Peoples' Republic of China. [Stipulation 30.] 58. Worldwide production increased from approximately twenty-five million pelts in 1981 to approximately thirty-five million mink pelts in 1985. Mink pelt production in 1985 was approximately as follows: United States = 4.1 million pelts Canada = 1.4 million pelts Scandinavia = 14-16 million pelts Soviet Union = 11 million pelts China = 2-3 million pelts

19861219

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