The Franchise Memorandum

A federal court in North Carolina recently denied Hyundai’s request to dismiss federal antitrust counterclaims brought against it in a trademark infringement lawsuit. Hyundai Motor Am., Inc. v. Direct Techs. Int’l, Inc., 2018 WL 4110544 (W.D.N.C. Aug. 29, 2018). Hyundai sued Direct Technologies International (DTI) for trademark infringement, false advertising, dilution, unfair competition, intentional interference, and unfair and deceptive trade practices, alleging that DTI imported and sold Hyundai-branded parts through an unauthorized distributor. In response, DTI asserted federal antitrust counterclaims, including violations of the Sherman Act, Clayton Act, and Lanham Act, alleging that Hyundai tried to harm its competitors and monopolize the market for Hyundai replacement parts by threatening not to honor its warranties if its cars were found not to contain genuine Hyundai-made parts.

Hyundai moved to dismiss DTI’s counterclaims arguing, primarily, that DTI did not identify a relevant market or an actual tying relationship (conditioning the sale of one product on the purchase of another). Hyundai also argued that DTI did not allege that the purported conspiracy underlying its claim harmed competition. The court disagreed. The court held that DTI did, in fact, identify a relevant market—the replacement part market for Hyundai automobiles. It further held that DTI adequately alleged a tying relationship under the theory that Hyundai’s vehicle warranties were conditioned on the use of Hyundai-brand replacement parts. The court also held that DTI did, in fact, allege harm to competition under the theory that Hyundai’s agreements with its dealers and distributors affect a substantial volume of interstate commerce in the market for replacement parts for Hyundai automobiles, that Hyundai coerced its dealers into entering its dealer agreement in restraint of trade, and that Hyundai used its agreements to acquire a monopoly. Finally, the court denied Hyundai’s arguments regarding similar claims made under North Carolina’s state antitrust law.