The Franchise Memorandum

The United States Court of Appeals for the Ninth Circuit has affirmed a district court holding that Aerotec International failed to establish federal antitrust claims against Honeywell International, one of the largest manufacturers of auxiliary power units for aircraft. Aerotec Int’l v. Honeywell Int’l, 836 F.3d 1171 (9th Cir. 2016). Aerotec, a small company that provides repair services for Honeywell’s products, alleged that during a worldwide parts shortage, it was unable to purchase from Honeywell the parts necessary to service its clients because Honeywell’s part allocation system assigned independent companies like Aerotec a lower priority than Honeywell affiliates. The Ninth Circuit affirmed the lower court’s grant of summary judgment in favor of Honeywell, holding that Aerotec’s claims failed as a matter of law and that Aerotec had failed to present sufficient evidence to support its claims.

The Ninth Circuit held that Honeywell did not engage in prohibited tying because it found no evidence that Honeywell conditioned the sale of replacement parts on the requirement that purchasers use Honeywell for repair services, either explicitly or by implication. The court also rejected Aerotec’s arguments that Honeywell’s policies disfavoring independent companies were a form of “de facto” tying and that Honeywell engaged in exclusive dealing with customers in violation of the Sherman Act. Although nearly half of Honeywell-manufactured airplane equipment was under some type of repair contract with Honeywell, Aerotec did not proffer any specific details of those contracts that would establish its claim of exclusive dealing.

In addition, the Ninth Circuit found no evidence of Honeywell’s alleged unlawful “refusal to deal,” noting that evidence of ill intent is not sufficient to violate antitrust laws because such laws are intended to regulate “anticompetitive conduct, not merely anticompetitive aspirations.” The court also dismissed Aerotec’s claim that Honeywell had violated the “essential facilities” doctrine, which imposes liability when a party with market power denies competitors access to an item deemed essential to competition. Noting that the United States Supreme Court has yet to recognize the doctrine, the court held that the replacement parts Honeywell allocated to its affiliates over Aerotec were not “essential” because substitute parts could be purchased elsewhere. Further, the court dismissed Aerotec’s claims of unlawful bundling, noting that Aerotec and other companies had the ability to offer similar bundles, and found that Honeywell did not offer repair services below its cost because the prices were part of a long-term agreement on which Honeywell turned a profit.