The Franchise Memorandum

A New York federal court recently granted Honeywell International, Inc.’s motion to dismiss a former distributor’s antitrust claims, despite the plaintiff’s allegation that it was terminated pursuant to an agreement among Honeywell and its other distributors, who allegedly objected to the plaintiff’s discounting. In Integrated Systems and Power, Inc. v. Honeywell Int’l, Inc., 2010 U.S. Dist. LEXIS 47283 (S.D.N.Y. May 13, 2010), the court found ISPI’s allegations insufficient to state a claim for either per se or Rule of Reason violations of Section 1 of the Sherman Act.

First, the court rejected ISPI’s claim that its termination was the result of a per se illegal horizontal conspiracy. Invoking the heightened pleading requirements announced by the Supreme Court in 2007, the district court found ISPI’s allegation that Honeywell “was an active participant” in an agreement among its other distributors too conclusory to support a claim. While the other distributors had complained to Honeywell, the court found that the decision to terminate ISPI was made by Honeywell alone and thus constituted a vertical, rather than horizontal, restraint. Moreover, the other distributors had no occasion to refuse to deal with or boycott ISPI. In dismissing ISPI’s Rule of Reason claim, the court held that the relevant product market that ISPI alleged—a single brand market comprised of the sale, installation, and servicing of NOTIFIER fire-detection alarm system products in New York City—was not legally cognizable because it did not provide for interchangeable substitute products.