Unpublished Disposition, 855 F.2d 861 (9th Cir. 1988)

MEMORANDUM^* 

Ford Motor Company filed suit against three corporations and five individuals ("GMB") for copyright and trademark infringement, unfair competition and racketeering violations under federal and California law. Ford charged the defendants with selling automotive parts in packaging designed to counterfeit copies of Ford's trademark. The defendants counterclaimed for antitrust violations, claiming that Ford unlawfully tied purchases of Ford automobiles and replacements parts in its dealership contracts, and wrongful seizure under federal and California law.

The district court granted summary judgment for Ford on the federal and state copyright, trademark and unfair competition claims. The court permanently enjoined all the defendants from using the counterfeit packaging. After additional discovery and a hearing, the district court also granted summary judgment for Ford on the federal antitrust claim. The court dismissed GMB's state antitrust claims and the wrongful seizure claim.

The district court dismissed Ford's RICO claim. The court also dismissed Ford's state trademark and unfair competition claims after granting summary judgment on liability but before a trial on damages. After a jury trial, Ford was awarded $6,345 for copyright infringement and $307,900 on its trademark and unfair competition claims. The district court entered judgment for Ford in the amount of $622,145. The court awarded Ford costs and attorneys' fees of $347,742.68.

Both parties timely appealed.

We affirm in part and reverse and remand in part.

This court reviews the district court's dismissal of the RICO claim de novo and the district court's failure to give Ford leave to amend its complaint for abuse of discretion. Schreiber Distributing Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1396 (9th Cir. 1986).

Viewing the allegations in the light most favorable to Ford, we cannot say that Ford could prove no set of facts consistent with its allegations entitling it to relief. Sun Sav. & Loan Ass'n v. Dierdorff, 825 F.2d 187, 191 (9th Cir. 1987). We note that no acts of fraud constituting a RICO violation have been proven. However, we are unable to determine upon what basis the district court dismissed the RICO claim. If the district court dismissed on the basis that Ford had not pled a RICO violation properly, the district court abused its discretion by not allowing Ford a chance to amend its complaint. See Schreiber, 806 F.2d at 1401.

Ford has sufficiently alleged the existence of an enterprise. Naniwa and GMB East and West are an ongoing organization. Ford has alleged that the organization's counterfeiting activities are separate and apart from the organization's non-counterfeit sale of Naniwa automotive parts and packaging. See United Energy Owners Committee, Inc. v. United States Energy Management Sys., Inc., 837 F.2d 356, 361-64 (9th Cir. 1988).

Ford appears to have alleged that the defendants acted in violation of Sec. 1962(c) and Sec. 1962 generally. It established an enterprise at least for Secs. 1962(a), (b) or (d) claims. Id. at 364. If Ford failed to allege an enterprise for Sec. 1962(c) purposes, and if it could cure such a defect by alleging a different RICO section, it should have been given that opportunity.

Similarly, the district court should have given Ford a chance to amend its complaint if it dismissed the claim for lack of specificity in pleading predicate acts of mail and wire fraud. See Schreiber, 806 F.2d at 1400-01; Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir. 1987).

Ford has also alleged sufficiently a pattern of racketeering as required by this circuit. See United Energy, 837 F.2d at 360-61. Thus, we reverse and remand. Ford should be afforded an opportunity to amend its complaint.

This court reviews the district court's refusal to exercise pendent jurisdiction for abuse of discretion. L.A. Draper & Son v. Wheelabrator-Frye, Inc., 735 F.2d 414, 431 (11th Cir. 1984).

The district court dismissed Ford's state law claims of trademark infringement and unfair competition after it had granted Ford summary judgment on the merits and an injunction, but before a trial on damages. The district court abused its discretion under United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966), by dismissing these claims after a determination of liability when the claims arose from the same set of operative facts.

The district court set out no analysis in exercising its Gibbs discretion which would aid our review. See e.g., L.A. Draper, 735 F.2d at 428-30. Here, several of the Gibbs factors weigh heavily toward the exercise of jurisdiction. The factor of judicial economy supports the exercise of jurisdiction at this stage. Haywood v. Ball, 586 F.2d 996, 1000 (4th Cir. 1978). The liability was already assessed and the dismissal forces a separate determination of damages on the state claims although the court ordered a damages trial on the federal claim arising from the same circumstances. Federal policy also supports the exercise of pendent jurisdiction in trademark, copyright and patent cases. 28 U.S.C. § 1338(b). It is not clear that any novel question of law is presented, see L.A. Draper, 735 F.2d at 428, and the federal and state claims considerably overlap here. Mattel, Inc. v. Hyatt, 664 F.2d 757, 760-61 (9th Cir. 1981). Thus, we remand for further proceedings on Ford's state law claims.

This court reviews a claim that the trial court erred in failing to impose sanctions for abuse of discretion. United States v. Associated Convalescent Enterprises, Inc., 766 F.2d 1342, 1345 (9th Cir. 1985).

Ford claims that the defendants abused the court process by filing their counterclaims for antitrust violations and wrongful seizure. Although GMB's antitrust allegations may not constitute a legitimate defense to Ford's trademark and copyright infringement claims, GMB's claims have some merit and are not a willful abuse of the judicial process. United States v. Blodgett, 709 F.2d 608, 610 (9th Cir. 1983). Thus, we affirm the district court's refusal to award sanctions against GMB.

The district court granted summary judgment for Ford on GMB's federal antitrust counterclaim. We review a grant of summary judgment de novo, 49er Chevrolet, Inc. v. General Motors Corp., 803 F.2d 1463, 1466 (9th Cir. 1986), cert. denied, 107 S. Ct. 1606 (1987), construing the evidence in the light most favorable to GMB to determine the existence of any genuine issues of material fact.

GMB alleged that Ford unlawfully tied automobile sales to replacement parts sales in its dealership contracts; that Ford prohibited its authorized dealers from buying replacement parts from other part sellers, including GMB; and that this unlawful restraint of trade was likely substantially to lessen competition and harm GMB. The district court found that GMB had failed to allege an unlawful tying arrangement because the dealership agreement only requires Ford dealers to stock adequate replacement parts to meet warranty requirements. This finding was clearly erroneous. The district court also found that the evidence did not establish that Ford coerced the dealers into buying the replacement parts or refraining from buying competitors' parts. The court made no findings of fact about Ford's market power, the separateness of the products or any amount of commerce foreclosed. The district court's finding of no coercion was not based on consideration of appropriate factors.

We remand for a determination of the market demand for automobiles (the alleged tying product) and replacement parts (the tied product), and a determination of whether they are separate products capable of being tied. See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 16 (1984). Then, a determination should be made concerning Ford's market power in the alleged tying product and the amount of commerce foreclosed by the tie in the market for replacement parts. See United States v. Mercedes-Benz of North America, Inc. ("Mozart I "), 517 F. Supp. 1369, 1378 (N.D. Cal. 1981). The district court did not focus correctly on the conditioning or coercion analysis. The focus must be on Ford's economic power in the tying product (automobile) market to evaluate whether it has the ability to coerce its dealers to purchase parts because of the tying arrangement instead of on the merits of the competition. See Hyde, 466 U.S. at 26-29.

Further, the wording of the Ford dealership contract creates a question of material fact as to coercion. The plain language of the agreement does not support the district court's restrictive reading that it covers only warranty parts. No evidence was introduced to show that Ford or the dealers understood the agreement to cover only warranty parts. Even if the agreement covered only warranty parts, it would not automatically be exempt from tying analysis. The court should accept testimony of automobile dealers about their perceptions of coercion, and other evidence such as manufacturer representatives' visits and reports as evidence to evaluate the likelihood of forcing.

Any warranty argument is more appropriately considered as a business justification defense to a tying arrangement, which Ford could present at trial or at a later summary judgment motion. See Mozart Co. v. Mercedes-Benz of North America, Inc., 833 F.2d 1342 (9th Cir. 1987) ("Mozart III "); Mozart Co. v. Mercedes-Benz of North America, Inc., ("Mozart II ") 593 F. Supp. 1506, 1520-23 (N.D. Cal. 1984); see also Metrix Warehouse v. Daimler-Benz Aktiengesellschaft, 828 F.2d 1033, 1041 n. 16 (4th Cir. 1987), cert. denied, 108 S. Ct. 1753 (1988) (rejecting Mercedes' argument in Metrix that it was entitled to judgment because it did not require dealers to stock its parts in excess of consumer demand). Similarly, without a factual inquiry, we cannot relieve Ford of liability because it claims it has an approval mechanism or that the clause is necessary to meet consumer demand. An approval mechanism must not be illusory, Mozart II, 593 F. Supp. at 1517, and a necessary clause must be the least restrictive means of satisfying legitimate business purposes. Mozart III, 833 F.2d at 1349-51; see Betaseed, Inc. v. U & I Inc., 681 F.2d 1203, 1227 (9th Cir. 1982).

Thus, we reverse the dismissal of GMB's antitrust claim and remand for consideration of the claim in light of Hyde's directives and the Mozart decisions.

V. FORD'S MONETARY RECOVERY ON THE TRADEMARK CLAIM

This court reviews the district court's calculation of trademark damages, including its increase of the jury award, and the award of attorneys' fees for abuse of discretion. Bandag, Inc. v. Al Bolser's Tire Stores, Inc., 750 F.2d 903, 917 & 921 (Fed. Cir. 1984). The Lanham Act, 15 U.S.C. § 1117 (1982), grants the trial court wide discretion in determining the appropriate relief. Maier Brewing Co. v. Fleischmann Distilling Corp., 390 F.2d 117, 121 (9th Cir.), cert. denied, 391 U.S. 966 (1968).

It is unnecessary to prove actual confusion, especially where intent and injury can be inferred. U-Haul Int'l, Inc. v. Jartran, Inc., 793 F.2d 1034, 1041 (9th Cir. 1986); Bandag, 750 F.2d at 914. We have been particularly willing to presume intent to deceive and an ability to accomplish that purpose where a defendant has knowingly infringed another's trademark. Bandag, 750 F.2d at 915; AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 354 (9th Cir. 1979). Here, substantial evidence supports the district court's findings that GMB willfully infringed Ford's trademark.

The jury award is not "duplicative." See, e.g., Playboy Enterprises, Inc. v. Baccarat Clothing Co., Inc., 692 F.2d 1272, 1274-76 (9th Cir. 1982).

Our review of the record does not convince us that the district court increased the jury verdict to penalize GMB.

The district court properly awarded Ford attorneys' fees under both the Trademark Act, id. at 1276-77, and the Copyright Act, 17 U.S.C. § 505, McCulloch v. Albert E. Price, Inc., 823 F.2d 316, 322-23 (9th Cir. 1987).

GMB is entitled to present evidence of differences in price and quality to the jury to limit the profits it owes Ford. Maier, 390 F.2d at 124. The district court erred in instructing the jury to disregard evidence of comparative product information which is relevant to establishing the damage caused by GMB's infringement.

Thus, we affirm the district court's award in large part. However, we remand for evidence of comparative price and quality differences and a subsequent recalculation of damages.

GMB claims that Ford wrongfully seized its products and packaging by making misrepresentations to the district court to obtain the ex parte order. The district court erred in rejecting the claim on the grounds of res judicata. Although the products have been returned, GMB claims that Ford is liable for damages caused by the seizure of parts and packaging pursuant to the wrongful order.

On remand, the court should consider whether Ford alleged sufficient reasons for obtaining the ex parte order pursuant to Fed. R. Civ. P. 65. The court should not consider events after the issuance of the order in determining if there was sufficient information presented to justify the ex parte action.

Thus, we remand for proper consideration of this claim.

Ford's request for costs and attorneys' fees on appeal is denied.

AFFIRMED IN PART; REVERSED AND REMANDED IN PART.