Atlantic City Coin & Slot Service Company, Inc. v. IGT

14 F. Supp.2d 644 (D. N.J. 1998)
  • Opinion Date: July 10, 1998

FRANCHISES—A court makes a thorough analysis of the test for applicability of the New Jersey Franchise Practices Act.

A slot machine manufacturer employed an exclusive distributor and service company. Deciding that industry conditions now necessitated the freedom to sell directly to its customers, the manufacturer invoked its contractual right to terminate its exclusive distributor’s agreement. The distributor responded by seeking protection pursuant to the New Jersey Franchise Practices Act. Pursuant to the manufacturer’s requirement, the distributor maintained a New Jersey place of business. For nearly fifteen years the manufacturer referred to the distributor as its exclusive distributor in its own brochures, advertising, and other media such as trade magazines and newspaper articles. A trademark license was granted with respect to the sale, lease, operation, service, and repair of the manufacturer’s machine. There was also a separate license allowing the distributor to use the trademarks, copyrights, and designs on outside billboards, in media communications, and other similar and related advertising venues. The license had been periodically renewed and amended to include new trademarks and copyrights as new gaming devices were developed. In addition, the distributor’s reputation throughout New Jersey and other territories had been exclusively as a distributor of the manufacturer’s games or as the manufacturer’s agent. The evidence was overwhelming that the distributor had devoted significant effort and resources in honoring its obligations under its contract with the manufacturer and in building tangible and intangible assets for both itself and the manufacturer. By reason of the structure of the gaming industry, it appeared that it would be difficult, if not impossible, for the distributor to transfer its goodwill and reputation to other manufacturers or different product lines.

In this summary proceeding for an injunction, it was only necessary for the distributor to show: (a) a reasonable probability of ultimate success on the merits; (b) that it would be irreparably harmed; (c) that the relative harm to it would be greater than that to the manufacturer; and (d) that the public interest would be satisfied, if relevant.

The Court’s analysis focused on the “success on the merits” prong. To find a franchise under the New Jersey Franchise Practice Act, the following elements must be satisfied: (a) a “community of interest” between the franchisor and franchisee; (b) the franchisor’s grant of a “license” to the franchisee; and (c) the party’s contemplation that the franchise would maintain a “place of business in New Jersey.” With this in mind, the Court embarked on a lengthy and thorough analysis of New Jersey case law. Having already expounded, at length, many facts that closely fit all of the criteria for application of the Act, the Court had no difficulty in finding that the distributor had more than a reasonably likelihood of success. All of the other factors being similarly satisfied, the Court granted an injunction against the termination, pending trial.