Maris Strikes Out on Tying Claim

By Steven B. Feirman and Susan H. Pope

Over the last decade, franchisees have brought numerous antitrust claims against franchisors seeking to rely on the Supreme Court's "lock-in" analysis of Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992). In the typical fact pattern, the franchisee alleges that the franchisor has unlawfully tied the sale of some product (such as the sale of a franchisor-required ingredient) to the sale of the franchise itself. In an unusual fact pattern that recently was presented to the 11th Circuit Court of Appeals, a beer distributorship owned by the family of the late Roger Maris (a New York Yankees baseball star during the 1960s) claimed that Anheuser-Busch's prohibition on any public ownership of its distributors also created an unlawful tying arrangement. In both situations, it is claimed that "market power" in the tying market (allegedly a single brand or the franchise system itself) derives from the contractual relationship between the supplier/franchisor and the franchisee, and that the supplier/franchisor has market power in a market consisting solely of its single brand.

In the wake of Kodak, some franchisees successfully extended the Supreme Court's lock-in concept to franchise antitrust tying cases. The leading case where this occurred is in Collins v. International Dairy Queen, Inc., 939 F. Supp. 875 (M.D. Ga. 1996), where Dairy Queen franchisees alleged that Dairy Queen's requirement that food and supplies be purchased from Dairy Queen constituted an unlawful tying arrangement. Dairy Queen argued that it could not be held liable for tying because the restraint was simply part of the franchise agreement into which the franchisee freely entered, and that any power over the franchisees resulted from that agreement rather than market power. The district court rejected Dairy Queen's summary judgment motion based on a variation of Kodak, holding that "because of the excessive costs and potential losses associated with purchasing another franchise, a Dairy Queen franchisee wishing to obtain products and supplies from alternative sources at lower costs may be locked in to the existing arrangement."

A majority of courts, however, have refused to automatically equate a franchisor's contractual power over a franchisee with the possession of market power for purposes of antitrust analysis. In the leading case taking this position, Queen City Pizza v. Domino's Pizza, 124 F.3d 430 (3d Cir...