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Court Dismisses Antitrust Claim Because Requirement to PurchaseProducts from Exclusive Supplier Did Not Establish Relevant Market
Posted in Antitrust

A North Carolina trial court dismissed a state-law antitrust claim that Window World franchisees brought against their franchisor in Window World of Baton Rouge, LLC v. Window World, Inc., 2016 WL 6242945 (N.C. Super. Ct. Oct. 25, 2016). The franchisees claimed that Window World conspired with a supplier of vinyl replacement windows by requiring franchisees to purchase products at inflated prices, rather than allowing them to pay the lowest price available among suppliers of their own choosing. Although federal Sherman Act precedent was instructive to the court’s analysis, Window World’s motion to dismiss was reviewed under a more lenient North Carolina pleading standard. Nevertheless, even under that standard, the court concluded that the relevant market identified by the franchisees could not, as a matter of law, constitute a valid market for antitrust liability in light of the circumstances pleaded in the complaint.

Instead of alleging that Window World had exercised dominant market power in the broad market for windows and related accessories, the franchisees alleged a “lock-in” theory of antitrust liability. In other words, the franchisees alleged that Window World exercised market power over its franchisees by locking them into franchise agreements and then imposing burdensome and excessive prices. The court concluded that franchisees could only be locked in to such a narrow “market” when there was a “change of policy” that could not have been foreseen at the time that a franchisee entered into its franchise agreement. In this case, however, the agreement unambiguously provided that Window World may require franchisees to purchase products from an exclusive supplier, putting franchisees on notice of possible exclusive arrangements before they entered into the franchise relationship. Therefore, to the extent that franchisees were “locked in” to purchasing from a sole supplier, the court concluded that it was the result of franchisees’ voluntary contractual agreements, not because of Window World’s market power.

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