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21 Franchise L.J. 1 (2001-2002)

handle is hein.journals/fchlj21 and id is 1 raw text is: FRwNCHISE





Franchise Tying Claims:
Revolution or Just a Kodak Moment?

perhaps the most common
nonprice antitrust claim in
franchise cases is tying, or
forcing a franchisee to buy some-
thing as a condition to buying or
keeping its franchise. The U.S.
Supreme Court has defined a
tying arrangement as an agree-
ment by a party to sell one prod-
uct but only on the condition that
the buyer also purchases a differ-
ent (or tied) product, or at least  Allan P. Hillman
agrees that he will not purchase
that product from any other supplier.' Tying can involve ser-
vices as well as products,2 and leases as well as sales.3 A
tying arrangement will violate section 1 of the Sherman Act
if the seller has 'appreciable economic power' in the tying
product market and if the arrangement affects a substantial
volume of commerce in the tied market.4
In 1923, in an early franchise tying case, Federal Trade
Commission v. Sinclair Refining Co.,' the U.S. Supreme
Court struck down the FTC's finding of an illegal tie
between gasoline and gasoline dealerships. The Court
observed that the great purpose of the antitrust laws was
to advance the public interest by securing fair opportunity
for the play of contending forces ordinarily engendered by
an honest desire for gain, and that competitors should be
given large freedom of action to conduct their own affairs.6
What is interesting about Sinclair is that, as in many antitrust
cases, the philosophical and economic rationale for the judg-
ment could apply regardless of which side prevailed.
The modem era of tying law began in 1958 in Northern
Pacific Railroad Co. v. United States,7 when the Court placed
tying arrangements firmly in the limited group of offenses
that are per se illegal-restraints that, due to their history
of producing anticompetitive effects, are conclusively
presumed unreasonable without elaborate inquiry as to the
Allan P. Hillman is an owner of the law firm of Neuberger, Quinn, Gie-
len, Rubin & Gibber, P.A., in Baltimore, Maryland.

precise harm [they have] caused or the business excuse for
[their] use.8
A tie may be found where the same party sells both the
tying and tied products, or where the seller of the tying prod-
uct (such as a franchisor selling franchises) requires purchase
of the tied product from a designated supplier.' For designated
supplier ties to be illegal, however, most courts have required
that the defendant have some economic interest in the sale of
the tied product; for example, that a franchisor requiring fran-
chisees to purchase supplies from a third-party designee
obtain some economic benefit from those transactions.'6
(continued on page 31)

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