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Ninth Circuit Affirms Dismissal of Antitrust Claims for Failure to Plead That Exclusive Dealing Agreements Foreclosed Competition
Posted in Antitrust

The Ninth Circuit affirmed dismissal of Hip Hop Beverage Corporation’s claim that its competitor, Monster Energy, unlawfully restricted competition through exclusive dealing agreements. Hip Hop Beverage Corp. v. Monster Energy Co., 2018 WL 2093508 (9th Cir. May 7, 2018). The suit stemmed from Hip Hop Beverage’s attempt to sell to the U.S. Defense Commissary Agency. In compliance with DECA’s vending requirements, Hip Hop Beverage hired a broker, Mid Valley Products, but Mid Valley terminated the contract “due to conflicts at the broker level with regards to competing energy drink companies.” Hip Hop Beverage then sued Monster, alleging that it controlled certain defined military and retail markets through exclusive dealing arrangements with the only available brokers necessary to reach those consumers.

The district court dismissed Hip Hop Beverage’s antitrust claims, and the Ninth Circuit affirmed. The appellate court noted, among other problems, that Hip Hop Beverage did not adequately plead how the exclusive dealing agreements substantially foreclosed competition in the relevant market. Instead, Hip Hop Beverage’s allegations only showed that it was damaged as a competitor, which is insufficient under antitrust law. Although Hip Hop Beverage alleged that Monster had caused at least four brokers to refuse to do business with it, Hip Hop Beverage did not identify in its complaint how many total brokers were in the market in order to show the scope of foreclosed competition. Indeed, Hip Hop Beverage conceded that it remained in the market without the assistance of brokers, and the court noted that the ability to reach consumers through alternative channels of distribution tended to show that the restrictions complained of did not foreclose competition from any part of the relevant market.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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