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The Franchise Memorandum

Ninth Circuit Revives Kodak-Based Theory of Market Definition
Posted in Antitrust

Distinguishing the situation in Queen City Pizza as a “contractually-created market power” (which cannot lead to antitrust liability), the United States Court of Appeals for the Ninth Circuit restored claims under the Sherman Antitrust Act in Newcal Industries, Inc. v. Ikon Office Solution, 2008 WL 185520 (9th Cir. Jan. 23, 2008). While this case is not brought against a franchisor, the court’s renewed affinity for the Kodak-based theory of a single-brand market could be cited against franchisors in some scenarios. Ikon, the defendant in this case, saw its district court dismissal reversed and must now defend various claims related to its conduct in the “market” for its own brand of copier equipment.

Like franchisors are sometimes accused of doing to franchisees, plaintiff-competitor Newcal alleges that Ikon exploits its contractual relationships with customers to gain monopoly power in aftermarkets. Newcal says Ikon leverages the contractual relationships to gain advantages that are not disclosed at the time of the original customer contracts. The alleged “lack of disclosure” and subsequent attempt to “leverage a special relationship” beyond the contracted-for rights is what franchisors, at least in the Ninth Circuit, could see cited against them in new attempts to apply Kodak liability to franchise cases.

The Ninth Circuit did acknowledge that its opinion does not mean Newcal will be able to survive a summary judgment motion once evidence and perhaps expert opinions have been produced. It is also possible the United States Supreme Court ultimately will use this case as a vehicle to revisit its 1992 decision in Kodak.

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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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