The Franchise Memorandum

A federal district court in California this month dismissed claims by a smaller hardware store chain against Home Depot and two manufacturers of power tools. Orchard Supply Hardware LLC v. Home Depot USA, Inc., et al., Case No. 12-cv-06361-JST (N.D. Cal. April 12, 2013). The claim, which was dismissed without prejudice, was that Home Depot had demanded exclusive supply contracts with the two manufacturers, both of which then stopped supplying the plaintiff. Those allegations alone were not enough to state a viable antitrust action, the court held.

The decision rejected each of the plaintiff’s theories. First, it would not be inherently illegal for a large dealer like Home Depot to seek and obtain an exclusive distribution agreement with a supplier, the court found. Nor would two suppliers simultaneously reaching exclusive arrangements with the same large dealer constitute an unlawful agreement under Section 1 of the Sherman Antitrust Act. Absent allegations that the two suppliers agreed with each other to take parallel action, there can be no horizontal conspiracy, the court held. Lastly, the plaintiff’s failure to plead that competition was harmed in a relevant geographic market defeated any theory under the “rule of reason” for weighing antitrust claims. On similar grounds, the court also dismissed claims under California’s state antitrust statute and other law. While the plaintiff was given leave to attempt to replead its claims, the firm rejection of its legal theories leaves Home Depot and the manufacturers the victors in this round at least.