Opinion ID: 805939
Heading Depth: 2
Heading Rank: 1

Heading: Ozarka Spring Water and Ozarka Drinking Water

Text: As early as 1907 Ozarka Water Company sold water that it obtained from a spring in Arkansas. It entered into franchise agreements to allow regional dealers to bottle Ozarka spring water and sell it in specified territories. Eureka was such a regional franchisee. Arrowhead Puritas Waters, Inc. purchased Ozarka in the late 1960s. In 1971 Dave Raupe purchased Eureka, which sold only spring water. Shortly thereafter, Arrowhead concluded that Ozarka’s supply of spring water was inadequate for further expansion and informed its franchisees that it was shutting down its springs. The franchisees could, however, start distributing facsimile drinking water, which was to be made from purified water by adding mineral concentrates for taste. Arrowhead ceased bottling spring water under the Ozarka label. Eureka and Arrowhead memorialized this arrangement in a 1972 franchise agreement, under which Eureka paid royalties on each gallon of drinking water that it sold. A few years later Arrowhead and Eureka renegotiated their relationship. Their 1975 agreement (the 1975 Agreement) called for a one-time payment of $9,000 by Eureka in exchange for “a royalty-free, paid-up right and license to use the said OZARKA mark in connection with the processing, bottling, sale and -4- distribution within [Eureka’s territory] of purified water and/or drinking water made from OZARKA drinking water concentrates.” Aplt. App., Vol. 29 at 9397. Arrowhead and Eureka independently began bottling spring water in 1983. In 1987 Arrowhead was acquired by Perrier Group of America, Inc. Two years later, Perrier began packaging Ozarka-branded water in single-serve plastic bottles (PET 1 bottles). Nestle purchased Perrier in 1992 and began selling Eureka its PET spring water at below-market prices for resale to Eureka wholesale customers. (For convenience, we will now refer to the Perrier/Nestle entity as Nestle, even if the described events predate Nestle’s purchase of Perrier.) In 1997, however, Eureka discovered that Nestle had been directly shipping Ozarka PET spring water to Sam’s Club and Wal-Mart stores within Eureka’s territory. In response to Eureka’s claim that these sales violated the 1975 Agreement, Nestle agreed to pay Eureka 50 cents a case on all PET spring-water products and 30 cents a case for all bulk products (1-gallon and 2.5-gallon packages) that Nestle sold in Eureka’s territory. The parties refer to the payments as royalties or invasion fees. Nestle did not pay royalties to any other bottler in the country. From 1997 until October 15, 2007, Eureka received 67 royalty checks totaling about $2.5 million. 1 PET is apparently short for polyethylene terephthalate. -5- In late 2003 Nestle unilaterally reduced the royalty rates for both PET and bulk cases to 25 cents a case. Although Eureka continued to invoice Nestle for the difference, it was not paid. In a May 2007 meeting, William Pearson, Vice President and chief financial officer of Nestle, told Steve Raupe, Eureka’s CEO, that Nestle was losing money doing business with Eureka and that something had to change. Three months later Pearson wrote Raupe a letter stating that as of October 15, 2007, Nestle no longer would pay royalties or offer Eureka a lower price on Ozarka spring water than what Nestle charged comparable purchasers. This lawsuit followed.