Distribution Law

David M. Duree has more than 40 years experience in handling Distributor and Distribution cases. With offices in St. Louis, Mo. and O’Fallon, Ill., he also handles cases in numerous other states.

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DAVID M. DUREE AND ASSOCIATES, P.C.
ATTORNEYS AT LAW, Franchise Lawyer.

Law updates about Illegal Monopoly, Business Law, Distribution Law, Antitrust Law, Distribution System Law, the Robinson-Patman act, Noerr Pennington Doctrine, Manufacturer Distributor Relations and Exclusive Dealing Agreements. Franchisee Attorney.

These materials are in reverse chronological order. New material is added at the top. Older material is inserted in the correct chronological spot. Overruled, modified and/or obsolete material is deleted, revised, consolidated and/or moved, when appropriate. Citations preceded by <>are linked to the complete court opinion. (NOTE: Some linked court sites are not always available).

A foreign aluminum producer waived its immunity from attachment of its property with in the United States, under the Foreign States Immunity Act, 28 U.S.C. § 1609, by executing a contract with the shipper granting it the right to attach cargo for payment of its shipping charges. As a result the pre-arbitration/judgment attachment of the producer’s shipment of aluminum, by the shipper, through a federal writ of attachment, did not violate the act. <>Venus Lines Agency v. CVG Industria Venezolana De Aluminio, 210 F.3d 1309, (2000 WL 485070) (11th Cir. 2000)

Contract between bagel producer/supplier and bagel manufacturer, which distributes and sells refrigerated dough products was not a “requirements” contract which required the manufacturer to purchase all its requirements for bagels in a certain area from the producer. The producer argued the contract was ambiguous and that extrinsic evidence would establish the intent of the parties to treat the contract as a “requirements” contract for all beagles required by Earthgrains for its Fort Payne facility. The District and Appellate Courts found the contract was not ambiguous, and therefore extrinsic evidence was not admissible to establish the intent of the parties. <>Brooklyn Bagel Boys, Inc., v. Earthgrains Refrigerated Dough Products, Inc.,(Case No. 99-3055) 212 F. 3d 373, (2000 WL 562573) (7th Cir. 2000)

The Illinois Wine and Spirits Industry Fair Dealing Act of 1999, 815 ILCS 725/1 et. seq. makes it unlawful for a supplier of alcoholic beverages to cancel or substantionally alter any distribution arrangement, then existing, without good cause. A number of liquor suppliers decided to terminate existing distributorships before the Act became effective, to permit them to select new distributors without risking violation of the Act. The Illinois Liquor Control Commission issued orders directing the suppliers to resume or continue dealings with the distributors (once the Act became effective) under its authority to issue ex-parte interim orders to that effect. The suppliers brought suit in the federal court seeking an injunction against the liquor commission and the distributors who had been terminated, arguing that the Fair Dealing Act of 1999 was unconstitutional because it arguably violates the contracts and commerce clauses of the constitution. The District Court issued a preliminary injunction against the commission barring enforcement of the Act until its constitutionality could be determined. The distributors, but not the commission, appealed. The Seventh Circuit dismissed the appeals, finding that only the liquor commission had standing to appeal the injunction against it. <>Kendall-Jackson Winery, LTD. v. Lenord L. Branson, Chairman of the Illinois Liquor Control Commission, et el., (Case No. 00-1062) 212 F.3d 995, (7th Cir. 5-22-2000)

California Public Policy reflected in its franchise statutes precluded transfer of a California franchise dispute to the home state of the franchiser under a forum selection clause in the Franchise Agreement. <>Jones v. GNC Franchising Inc., 211 F.3d 495 (9th Cir. 2000)

A District Court in Georgia certified a class of Dairy Queen franchisees and denied the franchiser’s motion to dismiss the antitrust claims arising from alleged illegal tying agreements, and from alleged exclusive dealing agreements, in violation of the Robinson-Patman act. The case is still pending. Collins et el. v. International Dairy Queen et al., 59 F. Supp. 2d 1312 (M.D. Ga. 1999), 939 F. Supp. 875 (M.D. Ga. 1996), 174 F.R.D. 511 (M.D. Ga. 1997), 980 F. Supp. 1252 (M.D. Ga. 1997), 990 F. Supp. 1469 (M.D. Ga. 1998), 2 F. Supp. 2d 1465 (M.D. Ga. 1998), 186 F.R.D. 689 (M.D. Ga. 1999), 190 F.R.D. 633 (M.D. Ga. 2000)

A vendor of Point of Sales Systems to fast food (Subway) franchisees stated a cause of action against the franchiser, Doctor’s Associates, Inc., for illegal tying agreements and exclusive dealing agreements, in violation of the Robinson-Patman act and other antitrust statutes, for the common law tort of tortious interference with a business expectancy and for violation of the Connecticut Unfair Trade Practices Act. Motion to Dismiss, for the most part, denied. Subsolutions, Inc. v. Doctor’s Associates, Inc., 62 F. Supp. 2d 616 (D. Conn. 1999)

A swimwear manufacturer which used the trademark “Miraclesuit” was not entitled to a preliminary injunction against another manufacturer which used the trademark “The Miracle Bra”. Preliminary injunction granted by the District Court vacated. A preliminary injunction requires a demonstration of the likelihood of confusion, not just the possibility of confusion, by the consuming public. The preliminary injunction was vacated because the remedies of royalties and damages would likely be improper once the case was heard on the merits. <>A & H Sportswear, Inc., v. Victoria Secret Stores, Inc., et el, 166 F. 3d 197 (3rd Cir. 1999)

Suppliers, manufacturers and franchisers may set price ceilings for the resale of their products by their dealers, distributors and franchisees without risking a “per se” finding of prohibited tying agreements, or exclusive dealing agreements, in violation of the Robinson-Patman act and other antitrust statutes. The “per se” violation rule has been replaced with the “Rule of Reason” Standard, providing the trial and federal circuit appellate courts with far more discretion in determining if antitrust law has been violated by price ceilings. <>State Oil Co. v. Kahn, 522 U.S. 3 (1997); <>Addamax Corp. v. Open Software Foundation, Inc., 152 F. 3d 48 (1st Cir. 1998)

The concept of the customers’ goodwill in the context of trademark law is the goodwill for the trademark, not the goodwill for a specific restaurant. As a result, a terminated “Roy Rogers” franchisee could not continue to use the trademark, after termination, notwithstanding its contention that the owners of the trademark had mismanaged the operation, resulting in a significant reduction in the number of operating franchisees and damage to the “goodwill” and trademark. The District Court found that the resulting harm to the franchisee, by granting the injunction, would outweigh the harm to the trademark owners if the injunction was not granted. The Court of Appeals reversed, finding the District abused its discretion. A preliminary injunction was entered by the Court of Appeals. <>Pappan Enterprises, Inc. v. Hardee’s Food Systems, Inc. et el., 143 F. 3d 800 (3rd Cir. 1998)

A verdict of $196,000,000 compensatory damages plus $150,000,000 in punitive damages for a certified class of Meineke Muffler Franchisees, against the franchiser and related parties, was reversed by the Fourth Circuit, which found that the requirements for class certification had not been met, which tainted the entire case, and that the claims were essentially for breach of contract, dismissing the tort claims. The franchisees had asserted claims alleging that the franchiser misused funds paid by the franchisees into an advertising fund managed by the franchiser. The Court also held that the franchiser did not owe a fiduciary duty to the franchisees with respect to its administration of the advertising fund. <>Broussard et el. v. Meineke Discount Muffler Shops, Inc. et el., 155 F. 3d 331 (4th Cir. 1998)

A Michigan District Court held that Pizza franchisees claims of antitrust violations, through illegal tying agreements, requiring them to purchase specified supplies, could constitute illegal tying agreements, but that the relevant market was the pizza franchising opportunities available to prospective franchisees before they contracted with Little Caesar’s, instead of the market for Little Caesar’s franchisees, and as a result the franchiser lacked sufficient market share to establish an illegal monopoly, through use of the alleged illegal tying agreements. Little Caesar’s Enterprises, Inc. v. Gary Smith et el., 34 F. Supp. 2d 459 (E.D. Mich. 1998)

Pizza franchisees did not state a claim for antitrust violations in an action against the franchiser. The franchisees claimed the franchiser attempted to establish an illegal monopolization by requiring them to purchase specified ingredients, supplies, material and dough. The Third Circuit determined that neither the ingredients, supplies and materials used by the franchisees, nor the franchiser-approved dough, qualified as a separate market for purposes of a tying claim under the antitrust statutes. <>Queen City Pizza, Inc. v. Domino’s Pizza, Inc., et el., 124 F. 3d 430 (3rd Cir. 1997)

A supplier/franchiser could be held liable under antitrust law for a tying agreement in an attempt to create an illegal monopoly, where the supplier/franchiser withheld its product or terminated its dealer on the grounds that the dealer was selling a similar product of a competing supplier/franchiser. There was no violation here because the supplier/franchiser only threatened to withhold its product, but failed to follow through with its threat. <>Borschow Hospital and Medical Supplies, Inc. v. Ceasar Castillo, Inc. et el, 96 F. 3d 10 (1st Cir. 1996)

A mail-order prescription service retailer was entitled to recover under both fraud and breach of contract theories from the mail-order pharmacy (supplier) its successor in interest, its parent and the parent’s chairman of the board, where the mail-order pharmacy (supplier) agreed not to conduct a similar business with another organization structured like the plaintiff, retailer, then entered into similar arrangements with other similar, retailer, organizations. Actual and punitive damages were affirmed. <>Preferred RX, Inc. v. American Prescription Plan, Inc., et el., 46 F. 3d 535 (6th Cir. 1995)

A choice of law clause in a sales representative contract was void as against public policy under the Illinois Sales Representatives Act, 820 ILCS § 120/0.01 et seq., because the protection of the Sales Representatives Act constitutes a fundamental public policy in Illinois. Maher & Associates, Inc. v. Quality Cabinets, 267 Ill. App. 3d 69, 203 Ill. Dec. 850, 640 N.E. 2d 1000 (Ill. App. 1994).

The Noerr-Pennington Doctrine. The Noerr-Pennington Doctrine was developed to protect efforts to influence legislative or executive action by the government (by petitioning and/or filing lawsuits) from liability under the antitrust statutes. Litigation or other conduct petitioning the government cannot be the basis for claims of malicious prosecution or abuse of process or the basis for enforcing or establishing an illegal monopoly under antitrust law, unless the litigation is sham litigation, i.e. litigation which is objectively baseless;<>Eastern Rail Road President’s Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); <>United Mine Workers v. Pennington, 381 U.S. 657 (1965); <>California Motor Transport v. Trucking Unlimited, 404 U.S. 508 (1972); Defino v. Civic Center Corp., 780 S.W. 2d 665 (Mo. App. 1989); Oregon Natural Resources Council v. Mohla, 944 F. 2d 531 (9th Cir. 1991); Franchise Realty Interstate Corp. (McDonald’s Affiliate) v. San Francisco Local Joint Executive Board of Culinary Workers, 542 F. 2d 1076 (9th Cir. 1976); <>Whelan v. Abell, 48 F. 3d 1247 (D.C. Cir. 1995); Havoco of America, LTD. v. Hollobow, 702 F. 2d 643 (7th Cir. 1983); <>Professional Real Estate v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993)

A tying arrangement is an agreement to sell a product only on the condition that the buyer also purchase another product, or at least agrees that he will not purchase that other product from any other supplier. In 1992 the United States Supreme Court held that a relevant market for the purpose of determining if “tying” claims violate the antitrust statutes could be restricted to a manufacturer’s single brand and that aftermarket power resulting from market imperfections could be used to establish an illegal tying claim. <>Northern Pac. Ry. Co. v. United States, 356 U.S. 1 (1958); <>Eastman Kodak Co. v. Image Technical Servs. Inc., 504 U.S. 451 (1992)

The Pillsbury Company purchased the Hagen-Dazs franchise operation. The franchisees brought suit against the Pillsbury Company and others claiming fraud and breach of the contractual duty of good faith. The court granted summary judgment for the defendants, finding that the purchaser of the franchise chain could not be held liable for the alleged fraud of the franchiser, that the franchiser’s officers could not be held liable for the alleged fraudulent conduct of the franchiser’s agents, that express disclaimers in the Uniform Franchise Offering Circular made the franchisees reliance on the franchiser’s alleged misrepresentations unreasonable, and that even if the franchiser greatly increased sales of prepacked ice cream (bypassing the franchisees) to supermarkets and convenience stores, such increased sales could not support a claim of breach of an implied duty of good faith. Massachusetts law applied under a choice of law clause. Rosenberg v. The Pillsbury Co., et el., 718 F. Supp. 1146 (S.D.N.Y. 1989)

Mobil’s franchising package, including its trademark, are not distinct from the gasoline it sells to its franchisees, because Mobil was the ultimate source of the trademarked gasoline and the Mobil dealers were mere “conduits” for Mobil gasoline. As a result an illegal “tying” arrangement could not be established. Smith v. Mobil Oil Corp., 667 F. Supp. 1314 (W.D.Mo. 1987)

Only the parties to a Franchise Contract, containing an arbitration clause, may compel arbitration or be compelled to arbitrate. Officers and directors of a corporate party may not be compelled to arbitrate and may not compel arbitration. Vukusich v. Comprehensive Accounting Corp., 150 Ill App. 3d 634, 501 N.E.2d 1332, 103 Ill. Dec. 794 (1986)

A franchiser required each franchisee to purchase commonplace items exclusively from the franchiser. The Court concluded that the tying of these products (the franchise and license to use the trademark) with the commonplace goods required to operate the franchise was an illegal typing arrangement, in violation of the antitrust statutes, because the coerced purchase of the commonplace items amounted to little more than an effort to impede competition on the merits in the marketplace, with potential monopolization of the market for the tied products. Siegel v. Chicken Delight, Inc., 448 F. 2d 43 (9th Cir. 1971); in another case, however, the Court determined that the franchiser’s trademark lacked sufficient independent existence, apart from the ice cream products allegedly tied to its sale, to justify an unlawful tying determination. Krehl v. Baskin Robbins Ice Cream Co., 664 F. 2d 1348 (9th Cir. 1982)

In an antitrust case, the plaintiff must show antitrust injury of two types. He must show an injury to himself, causally linked to the illegal activities of the defendant, and that the defendant’s activities stifle competition in violation of antitrust law. Midwestern Waffles, Inc. v. Waffle House, Inc., 734 F. 2d 705 (11th Cir. 1984); Kypta v. McDonald’s Corp., 671 F. 2d 1282 (11th Cir. 1982)

A manufacturer may make sufficient changes to the distributorship agreement as to render it meaningless thereby constituting a constructive termination of the agreement. American Business Interiors v. Haworth, Inc., 798 F. 2d 1135 (8th Cir. 1986);<>Petereit v. S.B. Thomas, Inc., 63 F. 3d 1169 (2nd Cir. 1995); Carlo Gerlardi Corp. v. Miller Brewing Co., 502 F. Supp. 637 (D.N.J. 1980)

Lease payments, a license fee and a security deposit paid by the franchisee to the franchiser for a lease of the real estate, were not separate from the franchise agreement and trademark because they were considered as an essential ingredient of the franchise system’s formula for success. As a result they were treated as part of the franchise itself. Since two products were not involved, an illegal tying arrangement could not be established. Principe v. McDonald’s Corp., 631 F. 2d 303 (4th Cir. 1980)

Exclusive dealing arrangements are relationships in which a buyer agrees to purchase goods or services only from a particular seller, or a seller agrees to sell goods and services only to a particular buyer. Because exclusive dealing arrangements often have pro-competitive effects, they are analyzed under the “rule of reason”. Under the Rule of Reason, exclusive dealing arrangements are illegal only when they foreclose competitors from a substantial portion of the market. <>Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (1961). Franchisee Attorney.