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The Franchise Memorandum

Watch Supplier Is Not a Franchisor but May Have Provided Promotional Benefits to Retailers Unequally
Posted in Antitrust

The United States Court of Appeals for the Third Circuit recently ruled that Swatch Group was not subject to New Jersey’s Franchise Practices Act (“NJFPA”) but partially reversed the lower court’s summary judgment order because a material dispute of fact remained regarding a retailer’s claim that Swatch violated the Robinson-Patman Act (“RPA”). Orologio of Short Hills, Inc. v. Swatch Group (U.S.), Inc., 2016 WL 3454211 (3d Cir. June 24, 2016). Orologio, a high-end watch store in suburban New Jersey, sued Swatch after it was dropped as an authorized dealer. Orologio claimed that the termination was without cause in violation of the NJFPA and that Swatch also violated the RPA by not providing certain promotional benefits to all of its authorized Omega dealers on “proportionally equal terms.”

The Third Circuit rejected Orologio’s state law claim on the grounds that the store was not a franchisee as defined by the NJFPA. According to the court, there was no “community of interest” because Orologio was not economically dependent on Swatch, and because there was insufficient evidence that Swatch exerted significant control over Orologio. On the store’s RPA claim, however, the Third Circuit found sufficient evidence to reverse and remand. Orologio alleged that Swatch told some stores that they could access co-op advertising funds simply by applying for them, while telling others that the funds were awarded exclusively on the basis of sales benchmarks. The court held that further proceedings were needed to determine whether Swatch did in fact make those and other funds more readily available to some retailers than to others in violation of the RPA’s “proportionally equal” requirement.

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