Antitrust Claims Arising Out Of Franchise Or Dealership Termination

Mandatory treble damages, costs, and attorneys’ fees provide
powerful incentives for a terminated franchisee or dealer to assert federal
antitrust claims against the franchisor or supplier who terminated it.1 The
specter of such damages not only raises the financial stakes of
termination litigation, but also opens the door to many complicated
factual and economic issues, which can in turn further increase litigation
expenses (e.g., by necessitating the retention of expert witnesses).
Franchisees and dealers face a difficult battle establishing antitrust
liability, however, particularly in the wake of recent developments in
federal antitrust law, and an understanding of the federal antitrust laws
that may be applicable to franchisee or dealer termination cases is critical
for those counseling parties subject to such litigation.2/
Terminated franchisees or dealers seeking recovery under the federal
antitrust laws are most likely to base their claims on Section 1 of the
Sherman Act3 (which prohibits contracts, combinations, or conspiracies
that unreasonably restrain trade), Section 2 of the Sherman Act,4 (which
prohibits monopolization, attempts to monopolize, and conspiracies to
monopolize), and the Robinson-Patman Act,5 (which prohibits price
discrimination).6 Before each of these statutes and their potential
1. 15 U.S.C. § 15.
2. This chapter provides an overview of the antitrust issues that typically
arise in termination disputes. See also ABA SECTION OF ANTITRUST
ANTITRUST LAW DEVELOPMENTS (6th ed. 2007) for a more in-depth
discussion of antitrust claims and defenses.
3. 15 U.S.C. § 1.
4. 15 U.S.C. § 2.
5. 15 U.S.C. § 13.
6. A terminated franchisee or dealer also may bring suit under the applicable
state antitrust statute. Although many state antitrust statutes closely
Franchise and Dealership Termination Handbook
applicability to termination suits are discussed in detail, it is worthwhile
to note two important concepts that are at play in the analysis and
evaluation of virtually every federal antitrust claim.
First, the principal goal of the federal antitrust laws is to prohibit
conduct that unreasonably restricts competition; it is generally not
enough to demonstrate injury to an individual competitor.7 Moreover, to
recover on an antitrust claim, a private plaintiff must establish that it has
suffered antitrust injury; that is, “injury of the type the antitrust laws
were intended to prevent and that flows from that which makes
defendants’ acts unlawful.”
8 It is not enough that an injury is “causally
related to an antitrust violation”; an injury “will not qualify as ‘antitrust
injury’ unless it is attributable to an anti-competitive aspect of the
practice under scrutiny.”9 This means that a terminated dealer or
franchisee must show that its claimed injury stems from a reduction in
competition, not simply from any harm to itself resulting from its
termination. Frequently, termination suits are dismissed for failure to
state a claim where all that is alleged is the substitution of one distributor
for another, because competition is unaffected by the replacement of the
terminated distributor.
Second, the primary concern of antitrust law is interbrand
competition, not intrabrand competition.10 Interbrand competition is the
competition between different manufacturers of the same type of
product.11 By contrast, intrabrand competition is the competition
between distributors, wholesalers, or retailers of the product of a given
manufacturer.12 The primacy of interbrand competition in antitrust law
means that manufacturers have wide discretion in placing restrictions on
resemble federal antitrust laws, and often look to federal cases for
guidance in interpreting state antitrust statutes, state antitrust enforcement
is beyond the scope of this chapter and is not discussed in detail. See
STATUTES (4th ed. 2009) for in-depth treatment of state antitrust laws.
7. Brown Shoe v. United States, 370 U.S. 294, 320 (1962).
8. Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990)
(quotation omitted).
9. Id. at 334.
10. Leegin Creative Leather Prods. v. PSKS, 551 U.S. 877, 890 (2007) (“The
promotion of interbrand competition is important because the primary
purpose of the antitrust laws is to protect [this type of] competition.”)
(internal quotations omitted).
11. Id.
12. Id.
Antitrust Claims Arising Out of Termination
the distribution of their products that reduce intrabrand competition,
provided they do not unreasonably restrict interbrand competition.13
These vertical restrictions can promote interbrand competition by
“encourag[ing] retailers to invest in tangible or intangible services or
promotional efforts that aid the manufacturer’s position as against rival
manufacturers,” “by facilitating market entry for new firms and brands,”
“inducing the retailer’s performance and allowing it to use its own
initiative and experience in providing valuable services” through
guaranteed margins and threatened termination if it fails to live up to
expectations, and by preventing discounting retailers from “free riding”
on the efforts of other retailers who furnish services to customers.14 In
certain circumstances, however, these vertical restrictions may be found
A. The Sherman Act
Section 1 of the Sherman Act proscribes contracts, combinations and
conspiracies (i.e., concerted conduct) in unreasonable restraint of trade,16
while Section 2 of the Sherman Act prohibits monopolization, attempts
to monopolize (i.e., unilateral conduct by a single firm designed to
acquire or maintain dominance in the marketplace), and conspiracies to
monopolize.17 Section 4 of the Clayton Act grants those injured by the
conduct proscribed in the federal antitrust laws the right to sue the
offending party.18 The prima facie elements of claims alleging violations
of Sections 1 and 2, as well as their potential applicability to termination
cases, are discussed in turn.
1. Section One of the Sherman Act
Some franchisees and dealers have alleged that their termination was
the unlawful product of an illegal price-fixing conspiracy or group
13. Id. (“Absent vertical price restraints, the retail services that enhance
interbrand competition might be underprovided. This is because
discounting retailers can free ride on retailers who furnish services and
then capture some of the increased demand those services generate.”)
(citing Continental T.V. v. GTE Sylvania, 433 U.S. 36, 55 (1977)).
14. Id. at 891-92.
15. Id. at 893-94.
16. 15 U.S.C. § 1.
17. 15 U.S.C. § 2.
18. 15 U.S.C. § 15.

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