The Franchise Memorandum

In a rare post-Leegin case involving resale price maintenance, a federal district court in Florida has refused to dismiss claims brought by retailer Costco against its supplier of contact lenses. Costco Wholesale Corp. v. Johnson & Johnson Vision Care, Inc., No. 3:15- cv-00734 (M.D. Fla. Nov. 4, 2015). Costco alleged that Johnson & Johnson forced it to agree to increase its retail contact lens prices to minimum levels. The resale price maintenance policy was alleged to have followed agreements between Johnson & Johnson and eye doctors who sell contact lenses, and between Johnson & Johnson and distributors for the products.

Of special importance to brand owners and franchisors, the court found that a single branded product such as Johnson & Johnson's contact lenses could in-and-of-itself be a relevant market to analyze for antitrust purposes, at least at the pleading stage of the case. Johnson & Johnson's potential harm to competition for the sale of its products, and in the broader contact lens market as a whole, was sufficient to create a claim under Section 1 of the Sherman Antitrust Act. (The court's decision applied a "Rule of Reason" standard for weighing the reasonableness of the manufacturer's required resale pricing agreements, as required under the U.S. Supreme Court's 2007 Leegin decision.) The court found it plausible that an agreement between Johnson & Johnson and eye doctors could have led to the resale price controls, along with Johnson & Johnson's alleged agreements with distributors. Moreover, even the agreement between Costco itself and Johnson & Johnson met the required element of concerted action in restraint of trade. Despite its own acquiescence to the pricing controls, Costco—individually and on behalf of its customers/members—had sufficient "standing" to challenge Johnson & Johnson's pricing requirements.