Exclusive use of trademark in designated trading area

No. 14. Exclusive use of trademark in designated trading area. In an advisory opinion announced today the Federal Trade Commission disapproved a contemplated license agreement modification which would give a licensee the exclusive right within a designated trading area to use the licensor s trademark in connection with the licensee s sale of produce purchased from third-party growers.

As the request for an advisory opinion was presented, the requesting licensor, a state agency, owns a registered trademark or certification mark which it licenses through one (1) year nonexclusive agreements with wholesale distributors for use connection with their sale of repackaged produce purchased from third-party growers. The purpose of the mark is to advertise and encourage greater use of a particular product, and to protect its original identity.

As a condition for the renewal of a license agreement, the licensor is requiring that the requesting licensee submit his operations to continuous inspection by a designated inspection agency. The requesting licensee indicated that it wi1 be necessary to remodel his plant facilities, and that the initia1 capital investment and expense of a resident inspector wi1 be considerable. In return for this added expense, the licensee requested that the licensor revise the present license agreement to give him the exclusive right within a designated trading area to use the trademark in connection with his sale of certain produce. It was said that the proposed exclusive license is intended to prevent use of the trademark by competitors in the described trading area in connection with their repackaging and sale of similar produce. Unlike the ordinary trademark owned by a single producer and ADVISORY OPINION DIGESTS 1203 applied solely to his goods, the mark here involved is a certification mark owned by a state agency. Such a mark is intended to identify goods produced by many competing growers. Since it is intended that the public take the certification mark as a representation that the only bona fide produce of that type is the produce sold under this mark, restriction of its use to the requesting licensee could result in giving him an unfair competitive advantage over other wholesale distributors who are in fact sellng the same produce but who do not have the right to use the certification mark. The result cou1d be to impose an unreasonable restraint, not upon intrabrand competition (as would be the case with the usual exclusive trademark license), but upon competition between competing brands of the produce involved. The fact that the right to use the certification mark is conditioned upon utilzation of the inspection procedure required by the licensor is no justification for insulating the requesting licensee s company from the competition of other repackers of similar produce.

The Federa1 Trade Commission advised that it is of the opinion that the proposed exclusive license agreement would probably be in violation of Section 5 of the Federal Trade Commission Act. (File 1\0. 663 7012, released Mar. 5, 1966.

Ko. 15. Proposed trade association resolution by wholesalers suggesting pricing and business poJicies to their suppJiers. A trade association composed of wholesalers of rebuilt products has requested an advisory opinion from the Commission as to the lega1ity of a proposed Resolution suggesting certain conduct to the trade association of rebuilders who supp1y the wholesa1ers. The Resolution would provide, among other things, that rebuilders should give wholesalers 120 days notice in writing of any change in the allowance to be granted for used products turned in for rebuilding purposes; that during this period the wh01esalers should receive credit at the old rate on such return products; and that the rebuilders should incorporate a 30 percent gross profit for the wholesalers when establishing prices for the used products in view of the fact that the wh01esalers give an allowance to the retailers who turn in the used product for rebuilding purposes. The association added that there was no agreement not to do business with those rebuilders who declined to follow the practices contained in the Resolution. The Commission advised that it cou1d not give approval to the adoption of the Resolution. Though the Resolution may be ,

1204 FEDERAL TRADE CO IMISSION DECISIONS

motivated by a purpose to remove evils affecting the industry, it appears to go further than is reasonably necessary to accomplish such result. Even if it were accompanied by disc1aimers there is implicit in the Resolution too grave a danger that it wi1 serve as a device whereby the concerted power of the members of the association is brought to bear to coerce the members of the rebui1ders' trade association to conform their pricing policies to the restrictive standards of the Resolution, or at the very least as an invitation to enter into agreements among themselves to do so. (File No. 663 7036, released Mar. 8, 1966.