The Franchise Memorandum

A Pennsylvania federal court certified a class—and five subclasses—in an antitrust lawsuit against Babies “R” Us (“BRU”) in McDonough v. Toys “R” Us, et al., 2009 U.S. Dist. LEXIS 60684 (E.D. Penn. July 15, 2009). The case was decided on the heels of the Supreme Court’s antitrust decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., as well as the Third Circuit’s ruling in In re Hydrogen Peroxide Antitrust Litigation that district courts must engage in a rigorous analysis under Federal Rule of Civil Procedure 23 before certifying any class action.

The case involved antitrust claims brought by purchasers of baby products that BRU was engaged in a price restriction conspiracy concerning six major brands in its stores. All of the plaintiffs seeking class status claimed that BRU demanded that manufacturers, as a condition of having their products carried in its stores, eliminate or drastically reduce the number of discounted products available through internet retailers. The plaintiffs alleged that BRU went so far as to cancel contracts with manufacturers that would not eliminate lower price internet sales of their products.

The main question under Rule 23 was whether issues common to the proposed class predominated over individual issues. Relying on expert testimony, and applying the rule of reason standard, the court found that there was enough evidence that BRU’s prices were supra-competitive and that all class members paid inflated prices. As to whether “non-price factors,” such as service, selection, and product displays, were unique so as to bar common proof and defeat the class, the court found that such factors do not carry weight when the case involves a dominant retailer coercing manufacturers to abandon lower-price distributors.