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Kentucky Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368, 193 U.S.P.Q. 649, 1977-1 Trade Cases P 61,339

Facts

Kentucky Fried Chicken Corporation (KFC) sued Diversified Container Corporation and another company for trademark infringement and unfair competition, claiming that the defendants used KFC's trademarks on supplies sold to franchisees without authorization. The franchise agreements required franchisees to purchase supplies from approved sources, which KFC argued was necessary for quality control. The defendants counterclaimed, alleging that these agreements constituted an illegal tying arrangement under the Sherman Act. The district court ruled in favor of KFC, finding no tying arrangement and that the defendants engaged in unfair competition.

Kentucky Fried Chicken Corporation, a franchisor of fast-food restaurants, brought this action claiming that defendants were infringing its trademarks and engaging in unfair competition by their manner of selling boxes and other supplies to Kentucky Fried franchisees.

Issue

Did the franchise agreements between KFC and its franchisees constitute an illegal tying arrangement under the Sherman Act?

Did the franchise agreements between KFC and its franchisees constitute an illegal tying arrangement under the Sherman Act?

Rule

Analysis

The court analyzed whether KFC's franchise agreements constituted a tying arrangement. It found that the agreements allowed franchisees to purchase supplies from any approved source, and KFC had never denied approval to any supplier. The court concluded that there was no coercion by KFC to force franchisees to buy from it, as they had the freedom to choose from multiple approved suppliers. Therefore, the agreements did not meet the criteria for a tying arrangement under the Sherman Act.

A tie need not be reduced to writing to come within the per se proscription. A tie claimant establishes a tie when it proves that a franchisor makes a practice of coercing franchisees into purchasing supplies or other products from the franchisor. See Response of Carolina, Inc. v. Leasco Response, Inc., 537 F.2d 1307, 1326-31 (5th Cir. 1976).

Conclusion

The court affirmed the district court's ruling that KFC's franchise agreements did not constitute an illegal tying arrangement and that the defendants engaged in unfair competition.

Affirmed.

Who won?

Kentucky Fried Chicken Corporation prevailed in this case because the court found that its franchise agreements did not constitute an illegal tying arrangement under the Sherman Act. The court determined that franchisees were not coerced into purchasing supplies from KFC, as they had the option to buy from multiple approved sources. Additionally, the court upheld the findings of unfair competition against the defendants for their unauthorized use of KFC's trademarks.

Kentucky Fried Chicken Corporation prevailed in this case because the court found that its franchise agreements did not constitute an illegal tying arrangement under the Sherman Act.

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