The opinion of the court was delivered by: CALDWELL
William W. Caldwell, United States District Judge
Defendants, PepsiCo, Inc. (PepsiCo), Allegheny Pepsi-Cola Bottling Company, Inc. (Allegheny) and Confair Bottling Company, Inc. (Confair), have filed motions to dismiss the amended complaint. The Commonwealth of Pennsylvania brought this antitrust action as parens patriae, alleging violation of section 1 of the Sherman Act, 15 U.S.C. § 1, and seeking an injunction against certain practices of the defendants pursuant to the Clayton Act, 15 U.S.C. § 26. In ruling upon the motions, we must accept as true all well-pleaded allegations of the complaint and construe them liberally in the light most favorable to the plaintiff. See Labov v. Lalley, 809 F.2d 220 (3d Cir. 1987).
The amended complaint sets forth the following allegations. PepsiCo manufactures soft drink syrup and concentrate which it sells to, among other bottlers, Allegheny and Confair. The latter defendants have licensing agreements with PepsiCo which authorizes them to produce, package, and sell carbonated Pepsi-Cola soft drinks to so-called "resellers," consisting of beer and soda distributors, restaurants, taverns, bars, vending companies, grocery stores, department stores and drug stores. Allegheny and Confair have been granted exclusive geographic territories in which to sell PepsiCo products.
The complaint alleges that resellers often desire to buy and sell to each other because of price differences between the bottlers and because a bottler may even sell product to different resellers at different prices. When resales are made outside the bottler's territory, it is known as "transhipping" Pepsi-Cola Metropolitan Bottling Co. Inc. v. Checkers, Inc., 754 F.2d 10, 12 (1st Cir. 1985).
The basis of the motions to dismiss is that the defendants' arrangement is specifically protected by the Soft Drink Interbrand Competition Act (the Act), 15 U.S.C. § 3501. Conversely, plaintiff asserts that its claim is actually one for which the Act carves out an exception in section 3502. After careful consideration we conclude that the Act does immunize defendants' behavior under section 3501 and that the section 3502 exception does not apply.
The relevant statutory sections are as follows:
§ 3501. Exclusive territorial licenses to manufacture, distribute, and sell trademarked soft drink products; ultimate resale to consumers; substantial and effective competition Nothing contained in any antitrust law shall render unlawful the inclusion and enforcement in any trademark licensing contract or agreement, pursuant to which the licensee engages in the manufacture (including manufacture by a sublicensee, agent, or subcontractor), distribution, and sale of a trademarked soft drink product, of provisions granting the licensee the sole and exclusive right to manufacture, distribute, and sell such product in a defined geographic area or limiting the licensee, directly or indirectly, to the manufacture, distribution, and sale of such product only for ultimate resale to consumers within a defined geographic area: Provided, That such product is in substantial and effective competition with other products of the same general class in the relevant market or markets.
§ 3502. Price fixing agreements, horizontal restraints of trade, or group boycotts Nothing in this Act shall be construed to legalize the enforcement of provisions described in section 2 of this Act [ 15 USC § 3501] in trademark licensing contracts or agreements described in that section by means of price fixing agreements, horizontal restraints of trade, or group boycotts, if such agreements, restraints, or boycotts would otherwise be unlawful.
15 U.S.C. § 3502 (brackets added).
As detailed in defendants' brief in support of their motions, this legislation was passed after years of litigation before the Federal Trade Commission which ultimately culminated in an FTC decision that the syrup manufacturers' territorial system, a common practice in the industry for seventy-five years, violated section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1). See Coca-Cola Co. v. FTC, 207 U.S. App. D.C. 1, 642 F.2d 1387 (D.C. Cir. 1981) (per curiam) (declining to exercise appellate review of the FTC's decisions involving the Coca-Cola Co. and Pepsico and, based upon passage of the Act after the FTC decisions, remanding them to the FTC solely for dismissal of the administrative complaints).
We agree with defendants that, standing alone, section 3501 would make lawful the practices alleged in the amended complaint. The section broadly provides that the antitrust laws shall not apply to any trademark licensing agreement limiting the licensee directly or indirectly to the manufacture, distribution and sale of such product only for ultimate resale to consumers in a defined geographic area. In the instant case, this section would allow PepsiCo to limit its bottlers to sales of product to those who, in turn, would sell only to the ultimate consumer. Section 3501 would thus make lawful the practices the Commonwealth has complained about; chiefly, the refusal by both bottlers to sell to resellers -- those businesses, inside or outside the territory, which would sell not just to the consumer, but to ...