Thursday, March 30, 2006
1938: Pepsi-Cola Gets on the Offensive, Sues Coca-Cola
By ROGER M. GRACE
Through the early part of the 20th Century, the Coca-Cola Company sued a multitude of soft drink makers that put out competing colas. Among them was the fledgling Pepsi-Cola Company, a successor to two companies that had produced Pepsi and wound up in bankruptcy. In 1938, that new company showed remarkable spunk by taking aim with its slingshot and becoming a plaintiff in an action against the giant among the cola-makers.
Hearst’s International News Service on Aug. 6 disseminated this report, datelined New York:
“Complaining that the Coca-Cola Company seeks to ‘destroy its business,’ the Pepsi-Cola Company today had on file here suit asking an order restraining the former from interfering with Pepsi-Cola, its subsidiaries and licensees throughout the United States.
“A petition also has been filed in the U.S. Patent Office in Washington attacking the validity of the Coca-Cola trade mark, the Pepsi-Cola Company stated.
“Alleging the names ‘Coca’ and ‘Cola’ both are descriptive, the petition claims they are public property and therefore cannot be used exclusively by one concern.”
The attack in the Patent Office got nowhere—predictably. The U.S. Supreme Court had already ruled that “Coca-Cola” was not descriptive, but had gained a secondary meaning.
A key allegation in the complaint in the New York action was that Coca-Cola was harming the plaintiff by spreading the allegation that it was unlawfully marketing a beverage with the word “cola” in its name.
Well, that was true, the Coca-Cola Company asserted, cross-complaining to restrain the Pepsi-Cola Company from using “cola” in its brand name, asserting that this infringed on the Coca-Cola trademark.
During that time period, the Coca-Coca Company, in various forums, in actions against a number of rivals, was pressing its contention that it, alone, could use the word “cola” in the name of a soft drink. Ultimately, it lost, as discussed in previous columns. The Fourth U.S. Circuit Court of Appeals in 1941, the Supreme Court of Delaware in 1944, and other courts in other years, rebuffed its theory, finding that the term “cola” was generic and, when not joined with “coca,” was unprotected.
But in 1938, when Pepsi’s suit was filed in Kings County, New York, it was anyone’s guess what the final outcome would be. At that point, the marketing of anything called “Pepsi-Cola” was forbidden in Canada, under a ruling the previous July by the Exchequer Court.
(That was a ruling the Supreme Court of Canada was soon to reverse; the Coca-Cola Company would appeal to the British Privvy Council, and would lose there, also.)
On June 20, 1939, the judge presiding over the New York action made various pre-trial rulings, including disallowing a Pepsi-Cola defense to the counterclaim for trademark infringement. Pepsi responded to the counterclaim by reiterating the gist of a contention in its complaint: that “by reason of its size, position in the cola beverage industry, methods, practices and acts,” Coca-Cola was engaged in a monopoly in violation of the Sherman Anti-Trust Act and state statutes.
Kings County Supreme Court Justice Algernon Nova said, in effect, “Huh?” He wrote:
“Even if true, however, such fact may not be invoked as the basis upon which to predicate a defense to an action for the violation of a trade mark or for alleged infringement.”
Pepsi-Cola’s assertion in an action in state court in New York alleging that Coca-Cola was engaged in a monopoly fizzled then—just as its action in federal court in New York alleging that Coca-Cola was engaged in a monopoly fizzled in 2000. In the latter action, District Judge Loretta A. Preska of the Southern District of New York granted summary judgment to the Coca-Cola Company, finding that the plaintiff had not adduced evidence of a monopoly.
The manufacturer of Pepsi-Cola—known as PepsiCo, Inc. since its June 8, 1965 merger with Frito-Lay—complained of the Coca-Cola Company enforcing “loyalty” provisions in contracts with independent food service distributors. If they wanted to deliver Coca-Cola fountain syrup to theater chains, restaurant chains, and other customers, they were foreclosed from also selling the customers any products made by PepsiCo.
Preska found “[m]ost compelling” the fact that “no customer testified that Coca-Cola’s loyalty policy prevented the customer from obtaining Pepsi.”
The Second U.S. Circuit Court of Appeals on Dec. 24, 2002 affirmed Preska’s decision.
Copyright 2006, Metropolitan News Company
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