Franchisors Flirt With Antitrust Violations

March 14, 2012 by Cris | 0 Comments

NuWire Investor:

Antitrust law makes it illegal for a seller to require a buyer to purchase additional products for the privilege of buying an initial product. It should be no surprise this kind of product “tying” is illegal; however, franchisors are known to do this when it comes to selling products to franchisees. The franchisor argument is that “tying” is necessary to achieve end-product uniformity and ensure quality control and it is often enough to win in court if a franchisee fails to demonstrate the franchisor has monopolized the market for the products at issue. Even so, some cases are decided in favor of franchisees, making the argument worthwhile if the cost to franchisees is high and the evidence against franchisors is strong. For more on this continue reading the following article from JDSupra.

The antitrust laws sometimes forbid product “tying.” A tying arrangement is an agreement by a party to sell one product on the condition that the buyer also purchases a different (or tied) product. In the franchise context, franchisors sometimes require franchisees to buy products from them or affiliated companies. Are these arrangements lawful?

Franchisors and franchisees see these arrangements differently. The franchisees – perhaps upset with the pricing of the franchisor-supplied products – may allege an antitrust violation, claiming that the franchise is the “tying” product and the required supplies or ingredients are the “tied” products. (Such ties can hurt competition in the tied product market – for example, if fast food franchises are at issue, ties could deny an important customer base to a competing supplier of food ingredients. Full post.

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