The Franchise Memorandum

In one of the first post-Leegin appellate decisions in the vertical pricing context, the Eleventh Circuit this month rejected on the pleadings the antitrust claims brought by consumers against a manufacturer in Jacobs v. Tempur-Pedic North Am., Inc., 2010 U.S. App. LEXIS 24638 (11th Cir. Dec. 2, 2010). The complaint alleged, and was taken as true, that the manufacturer and its distributors agreed as to minimum resale prices for the manufacturer’s mattresses. The appeals court agreed with the trial court that the pleading of “visco-elastic foam mattresses” as a relevant product market cannot stand without more facts than the plaintiffs had set forth. Under today’s heightened pleading standards in federal cases, the court held that a plaintiff must plead more compelling facts regarding the relevant market and other required elements. The same result was true as to the plaintiffs’ claim of horizontal price fixing. The theory underlying that claim was that the manufacturer was a competing distributor through its own Web site, which also adhered to the established minimum pricing. But the Eleventh Circuit noted that dual distribution practices are typically viewed as vertical, and also held that the plaintiffs had not made the required “plausible” showing of an unlawful agreement.

The court denied the plaintiffs’ request to conduct further discovery, as well as their request to replead the case. This decision will be frequently cited by manufacturers and suppliers in defending against claims that they are engaged in price fixing with distributors.