The Franchise Memorandum

The United States District Court for the Northern District of Ohio has dismissed federal antitrust counterclaims brought by an HVAC systems franchisee against its franchisor. Trane U.S. Inc. v. Meehan, 2008 WL 2219781 (N.D. Ohio May 29, 2008). The events giving rise to the suit began when Trane audited its franchisee, Toledo Trane, and discovered significant noncompliance with the Manual of Policies and Procedures (“MOPP”) Trane issued to its franchisees. The MOPP largely affected “bundled sales,” which are sales of products that combine Trane and non-Trane components. Trane terminated Toledo’s franchise and filed suit seeking damages for the alleged fraud.

Toledo counterclaimed that Trane, via several rules and policies, violated federal antitrust law. Specifically, Toledo contended that Trane forced it to participate in (1) a resale price maintenance scheme by setting price minimums for Trane products and price maximums for non-Trane products so as to maximize Trane’s return on bundled sales; (2) a tying arrangement whereby Trane used its power over Trane-branded products to force purchases of non-Trane branded products on Trane’s terms when Toledo would rather have purchased them on different terms; and (3) a horizontal non-price restraint regarding Toledo’s distribution of non-Trane branded products.

The district court granted the defendants’ motion to dismiss, holding that the price maintenance counterclaim regarding the sale of Trane products failed to make the requisite showing that Toledo resold the merchandise in question where Trane, not Toledo, billed the customer directly. The court did indicate that Toledo properly stated a claim for illegal price maintenance regarding the sale of non-Trane products, but failed to do so within the requisite statute of limitations period. Toledo’s tying claim failed to allege Trane’s ability to appreciably restrain trade in the market for non-Trane products, the court held. Lastly, since Toledo was an upstream supplier to Toledo, Toledo could not state a claim for a horizontal restraint.