A $15 million antitrust judgment against the manufacturer of Volkswagens in West Germany and three of its subsidiaries in the United States is before the Supreme Court.
The justices will announce after the end of the current recess Feb. 21 whether to grant VW's petition for review of the decision concerning air conditioners.
Unless the decision is reversed, "The threat of potentially enormous treble-damage judgement will lie heavy on the $20 billion franchise industry, and will discourage the acquisition and rehabilitation of failing or faltering firms," VW contends in the petition.
But Heatransfer Corp., which brought the suit, said - that the $15 million judgment was based on "long-established legal principles, with an abundance of factual support."
To compete in the air-conditioner market in the 1960s, VW had to challenge domestic auto manufacturers who offered factory-installed units for their water-cooled engines. Most VWs had air-cooled engines, which are more difficult to harness to air conditioners because they don't have radiators.
In 1963, VW designated Delanair Engineering Co. as its approved supplier of air conditioners - meaning that it would buy large quantities for sale to franchise dealers, and that the dealers would make their best efforts to sell Delanairs rather than rival makes.
The Delanairs were complicated, sometimes poorly made, and trouble-prone, particularly because the condensers - two of them under the rear of each car - were close to the road surface and consequently highly vulnerable to damage.
In trial testimony, one VW dealer said that about two days were needed to install a Delanair, "and, you know, the things would get down the road - three or four hundred miles down the road - and everything would fall off of it in the middle of the road."
In 1969, Heatransfer began to market a unit that was relatively easy to install; it housed all major components in the rear of a vehicle.
VW refused to approve the units, but Intercontinental Motors of San Antonio, Tex., bought 1,800 of them, and sold more than any other distributor.
VW had projected sales of 13,000 Delanairs in a three-month period, but actually sold 1,678. The faltering manufacturer then was acquired by VW and re-named Volkswagen Products Corp. ('PC). VW also acquired Intercontinental.
A strong sales turn-around followed. Within a year, Intercontinental was selling two VPC units for each Heatransfer unit - a reversal of the previous sales pattern. In 1974, beset by such marketing proglems here and abroad, Heatransfer decided to liquidate and then to sue.
After an eight-week trial in federal court in Houston, a special six-member jury decided that VW should pay Heatransfer $5 million, which was trebled under the antitrust laws and supplemented by attorneys' fees of $350,000.
In June, the Fifth U.S. Circuit Court of Appeals upheld the judgment. In doing so, the appeals court adopted "expansive and erroneous rules of liability and damages," VW argues.
In the litigation, one key issue was whether VW had an illegal "tying" arrangement - specifically whether it used economic power to force franchised affiliates to buy VW-approved air conditioners.
The appeals court agreed with the jury that VW and its subsidiaries had used tying to restrain trade illegally, had impeded competition improperly by arranging for installation of VW-approved units at ports of entry and, by acquiring Delanair, had severely limited chances for approval of any rival unit, even if VW hadn't forbidden distributors and dealers to buy nonapproved makes.