Draeger Oil Co v. Uno-Ven Company

In the
United States Court of Appeals
For the Seventh Circuit
____________

No. 02-1977
DRAEGER OIL COMPANY, INC., et al.,
Plaintiffs-Appellants,
v.

UNO-VEN COMPANY, et al.,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 99-CV-317—Charles N. Clevert, Judge.
____________
ARGUED SEPTEMBER 13, 2002—DECIDED DECEMBER 26, 2002
____________

Before POSNER, DIANE P. WOOD, and EVANS, Circuit Judges.
POSNER, Circuit Judge. The Petroleum Marketing Prac-
tices Act, 15 U.S.C. §§ 2801 et seq., is a federal statute for
the protection of franchised dealers and distributors of
gasoline and other petroleum projects. The ostensible the-
ory of such statutes (ostensible because it is unclear why
the intended beneficiaries could not obtain similar pro-
tection by contractual negotiation) is that a franchised deal-
er in effect invests in the franchisor’s trademarks and as
a result creates goodwill for the franchisor which the lat-
ter might on occasion be tempted to appropriate by ter-
minating the franchisee. Brach v. Amoco Oil Co., 677 F.2d
2 No. 02-1977

1213, 1220 (7th Cir. 1982); cf. Praefke Auto Electric & Battery
Co. v. Tecumseh Products Co., 255 F.3d 460, 464-65 (7th
Cir. 2001); Fleet Wholesale Supply Co. v. Remington Arms Co.,
846 F.2d 1095, 1097 (7th Cir. 1988). To prevent such op-
portunistic behavior the Act limits the franchisor’s right
to terminate its franchisees. Limits, but of course does
not prohibit altogether. The Act authorizes termination of
a franchise on a variety of grounds, of which the one
pertinent to this case is “the occurrence of an event which
is relevant to the franchise relationship and as a result
of which termination of the franchise . . . is reasonable.” 15
U.S.C. § 2802(b)(2)(C). This suit by a class of gasoline deal-
ers complains about the cancellation of their franchise to
sell gasoline under the trademarked brand names “Union
76,” “Union,” “76,” and “Unocal” by the defendants, pri-
marily Union Oil Company of California, popularly known
as Unocal. The district court granted summary judgment
in favor of the defendants.
The facts dispositive of the appeal are simple and we’ll
simplify them even further, for example by pretending
that “Union 76” is the only brand name in issue and by
ignoring some of the corporate layers involved in the
transactions. In 1989 Unocal formed a 50-50 partnership
called Uno-Ven with Petroleos de Venezuela (PDV), a
large producer of crude. The purpose of the partnership
was to refine the crude oil into gasoline and sell it to deal-
ers in the midwest. PDV would supply the crude and
Unocal the refining and marketing assets. Unocal had a
refinery in Illinois and had franchised a number of midwest-
ern dealers. As part of the partnership agreement, Unocal
licensed Uno-Ven to use the Union 76 trademark. Uno-
Ven in turn licensed the trademark to Unocal’s former
dealers.
Eventually the partners, Unocal and PDV, had a falling
out, both because the terms of the partnership turned out
No. 02-1977 3

to be highly disadvantageous to PDV and because Unocal
decided to get out of the refining and marketing end of
the oil business and instead concentrate on exploration
and development. In partial implementation of this deci-
sion Unocal in 1996 sold all its refining and marketing
assets in the western United States to Tosco Oil Company,
together with the trademarks under which Unocal had
marketed gasoline, such as Union 76. The sale was sub-
ject to Unocal’s existing trademark licenses, including
the one it had issued to Uno-Ven for reissuance as it were
to the dealers.
The following year, Unocal and PDV dissolved Uno-Ven.
Under the terms of the dissolution, Uno-Ven was to re-
turn Union 76 and the other trademarks to Unocal. Since
Uno-Ven was going out of business, it notified the deal-
ers that their franchises were terminated, the termination
to take effect a year after the notice. PDV, which as its
share of Uno-Ven’s property upon dissolution got Unocal’s
midwestern refining and marketing assets, including
the Illinois refinery, agreed to support the trademark dur-
ing the one-year grace period. This was essential because
for a trademark to remain enforceable (that is, to avoid,
as the cases say, “abandonment”—though “forfeiture”
would be more accurate), the owner must, through moni-
toring, testing, and other means, maintain the quality
and uniformity of the trademarked product, TMT North
America, Inc. v. Magic Touch GmbH, 124 F.3d 876, 885-86 (7th
Cir. 1997); AmCan Enterprises, Inc. v. Renzi, 32 F.3d 233,
235 (7th Cir. 1994); Barcamerica International USA Trust v.
Tyfield Importers, Inc., 289 F.3d 589, 595-98 (9th Cir. 2002);
Societe Comptoir de L’Industrie Cotonniere Etablissements
Boussac v. Alexander’s Dept. Stores, Inc., 299 F.2d 33, 35
(2d Cir. 1962), “so that consumers are not deceived by
the identity of names into buying a product different from
what they reasonably expected.” AmCan Enterprises, Inc.
4 No. 02-1977

v. Renzi, supra, 32 F.3d at 235. The economic function of
a trademark is to provide the consuming public with a
concise and unequivocal signal of the trademarked prod-
uct’s source and character, Ty Inc. v. Perryman, 306 F.3d 509,
510 (7th Cir. 2002), and that function is thwarted if the
quality and uniformity of the trademarked product are
allowed to vary significantly without notice to the con-
sumer.
Unocal wanted to be out of the marketing business
altogether, and so it had no interest in licensing the deal-
ers when the year expired, as that would have required
Unocal to take over the support function. So when the
year was up the dealers were no longer able to sell gaso-
line under the Union 76 trademark and they had either
to find another oil company willing to license its trade-
mark to them (as many in fact did), or to sell their own
brand or go out of business. They do not question the
legitimacy of the dissolution of Uno-Ven; and it is hardly
to be expected that Unocal would want to support a re-
tail trademark, necessarily at some cost, after it had left
the retail business. But they argue that it was unreason-
able for Unocal as part of the dissolution of Uno-Ven to
effectuate the termination of their franchises rather than,
for example, to transfer the Union 76 trademark to PDV
for the latter to license to the dealers.
Unocal points out that not it but Uno-Ven was the
franchisor and clearly it was reasonable for Uno-Ven, which
was dissolving, to terminate the franchises. Although
some of these had been Unocal franchises before they were
Uno-Ven franchises, and Unocal could doubtless have
recaptured the trademarks in the dissolution of Uno-Ven
(PDV had no interest in them), it could not have reissued
franchises to the dealers, even if it had wanted to remain
in the marketing business, because of its deal with Tosco.
No. 02-1977 5

For remember that while its sale of the Union 76 trademark
to Tosco had been subject to Unocal’s existing franchises,
it did not entitle Unocal to issue new franchises.
The plaintiffs counter by arguing that Unocal, too, along
with Uno-Ven, was a “franchisor” of the Uno-Ven franchises
within the meaning of the PMPA by virtue of being an
affiliate of Uno-Ven. See 15 U.S.C. § 2801(15). This is
doubtful. The statute defines an affiliate as an entity that
“controls, is controlled by, or is under common control
with” another entity, and if A and B each own one half
of C (Unocal and PDV each owned one-half of Uno-Ven),
neither A nor B controls, let alone is controlled by or un-
der common control with, C. Compare Camina Services, Inc.
v. Shell Oil Co., 816 F. Supp. 1533, 1537-38 (S.D. Fla.
1992). There are no cases dealing with such a situation,
however, and let us therefore assume that Unocal was a co-
franchisor with Uno-Ven of the Uno-Ven franchisees
and that the dissolution of Uno-Ven and termination of
the franchises can be considered an act of Unocal. Then
the issue is whether Unocal acted reasonably and the
fact that its hands were tied by its previous contract with
Tosco (not alleged to have been made in bad faith) is
certainly germane, as noted in another case arising from
the dissolution of Uno-Ven. PDV Midwest Refining LLC
v. Armada Oil & Gas Co., 116 F. Supp. 2d 851, 863 and n. 17
(E.D. Mich. 2000), affirmed, 305 F.3d 498 (6th Cir. 2002);
cf. Veracka v. Shell Oil Co., 655 F.2d 445, 447-48 (1st Cir.
1981); Hutchens v. Eli Roberts Oil Co., 838 F.2d 1138, 1141-42
and n. 1 (11th Cir. 1988).
Everything considered, it is plain—too plain to create
a genuine issue of material fact and so preclude the
grant of summary judgment—that the termination of the
franchises was reasonable within the meaning of the law.
As we have pointed out, it was obviously not in Unocal’s
6 No. 02-1977

interest to franchise the dealers, because it wanted to get
out of the marketing end of the oil business and because
franchising them would have broken its contract with
Tosco. The plaintiffs’ main argument is that in disposing
of its marketing assets consequent upon the dissolution
Unocal should have transferred the trademarks to PDV,
which then presumably would have transferred them to
the dealers. Unocal, according to the dealers, told PDV that
the trademarks were not for sale. Maybe so—and the
likeliest reason is that their sale to PDV might have been
a breach of Unocal’s contract with Tosco—but in any
event there is no indication that PDV wanted them. PDV
is a crude oil producer. It took the refining and marketing
assets of Uno-Ven off Unocal’s hands, as it were, but
handed them over to its own marketing subsidiary, Citgo,
see International Oil, Chemical & Atomic Workers, Local
7-517 v. Uno-Ven Co., 170 F.3d 779, 780 (7th Cir. 1999), and
there is no evidence that it would have wanted to market
the gasoline produced by the former Uno-Ven under a
competing label, namely Union 76.
Not only did PDV have no interest, so far as appears,
in the Union 76 trademark; there is no indication that any
oil company did or does have a serious interest. Bear in
mind that when Uno-Ven terminated the franchises,
Tosco obtained, by the terms of its contract with Unocal,
the right to use the trademark anywhere in the country,
including the midwest. It could have licensed the Union
76 mark to the members of the plaintiff class; it had some
discussions with some of them; but in the end it issued no
licenses in the midwest. Presumably it thought the license
value of the mark in the region less than the cost of sup-
porting it.
With both Unocal and Tosco in effect having abandoned
the Union 76 mark in the territory served by these dealers,
No. 02-1977 7

another oil company could have sought a license from
Tosco and could probably have obtained it cheaply, given
Tosco’s lack of interest in using the mark in the midwest.
None did. Some of the dealers obtained licenses from oil
companies selling under other marks, but none obtained
a license from an oil company that wanted to license the
Union 76 mark. Conceivably, another oil company could
have used the Union 76 mark even without a license
from Tosco, see Dawn Donut Co. v. Hart’s Food Stores, Inc.,
267 F.2d 358, 364-65 (2d Cir. 1959); 2 McCarthy on Trademarks
§ 17:22, p. 17-44 (2002), though not without legal risk;
subsequent use of a federally registered trademark that
is still in use by the registrant elsewhere is a minefield,
because registration creates a presumption that the regis-
trant is entitled to use the registered mark throughout the
nation. See 15 U.S.C. § 1057(b); Coach House Restaurant,
Inc. v. Coach & Six Restaurants, Inc., 934 F.2d 1551, 1562
(11th Cir. 1991); 3 McCarthy on Trademarks, supra, § 20:17,
p. 20-41; see also 2 id., § 17:22, p. 17-45; 4 id., § 26:32, pp. 26-
51 to 26-53; Indianapolis Colts, Inc. v. Metropolitan Balti-
more Football Club Limited Partnership, 34 F.3d 410, 412-
13 (7th Cir. 1994); Dawn Donut Co. v. Hart’s Food Stores, Inc.,
supra, 267 F.2d at 362, 365. In any event, no one took that
route either.
It is reasonable as a matter of law for a business to
abandon a property that has no value to it, and if the
abandonment is lawful it has no duty (unless it has volun-
tarily assumed one) to compensate suppliers or custom-
ers who may be harmed by its decisions. That is all that
happened here when Unocal withdrew from the refinery
and marketing business.
8 No. 02-1977

A true Copy:
Teste:

_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit

USCA-02-C-0072—12-26-02