Tosco Corporation is an independent refiner and marketer of petroleum products. In 1994, Tosco purchased from BP Exploration & Oil, Inc. (“BP”) all service stations owned by BP in Northern California, along with a license to use the “BP” trademark in California. The license for the trademark expires on August 1, 2006, and Tosco pays BP royalties for the use of the marks. In accordance with the sale, BP terminated all franchises, and Tosco subsequently offered the terminated franchisees a new franchise agreement to sell petroleum products under the “BP” trademark. The new franchise agreements were scheduled to expire on April 15, 1998.
On March 31, 1997, Tosco purchased the 76 Products Company from Union Oil Company of California, which included approximately 900 service stations in California and the right to use the “Union 76” and “76” trademarks in perpetuity.
In 1997, Tosco decided that it would be most effective to sell products at the service stations under only one brand and chose to sell under the “Union 76” trademark because use of that mark required no royalty payments. In December 1997, Tosco offered all of its BP franchisees renewal of the franchise agreement on condition that they sell fuel under the “Union 76” mark.
Plaintiffs are service station dealers who refused to agree to the change in marks, preferring to retain the “BP” mark. Tosco notified plaintiffs that their franchises would not be renewed for failure to agree to a change in a provision of the franchise agreement.
Plaintiffs brought this action, contending that under the Petroleum Marketing Practices Act (PMPA) Tosco could not condition renewal of a franchise agreement on the franchisee’s consent to “rebrand” the product. The relevant portion of the PMPA states that such conditional agreements are lawful, as long as the “changes or additions are the result of determinations made by the franchisor in good faith and in the normal course of business” and not for the purpose of preventing renewal of the franchise.
What factors should the court consider in resolving this dispute?