Aug 22, 2019 - Blog, Franchise Articles by |

If you are like most dissatisfied franchisees, you want to get out of the system, and you are prepared to do so by all legal means available. However, you also probably know that your rights under your franchise agreement are limited. In fact, if you have reviewed the “Termination” section of your agreement, you may have noticed that you don’t actually have any termination rights at all (in contrast to your franchisor, which probably has multiple options for forcing you out of the franchise system). Fortunately, an antitrust attorney who is familiar with the franchise relationship may be able to help.

What is Antitrust Law?

Antitrust law prohibits private parties (i.e. franchisors, vendors and other third parties) from entering into agreements that constitute unreasonable restraints on trade. Antitrust law has its origins in consumer protection, with the Sherman Antitrust Act of 1890 (the “Sherman Act”) outlawing business arrangements (which, at the time, used a specific form of trust) that created monopolies and restricted market competition. The Sherman Act remains relevant today, and various other laws at the state and federal levels prevent anti-competitive conduct and establish other antitrust protections as well.

How is Antitrust Law Relevant to Franchisees?

So, how is antitrust law relevant to franchisees? In the franchise context, the Sherman Act and other state and federal antitrust laws prohibit franchisors from entering into contracts that either (i) force franchisees to pay more for products and services than market forces would dictate, or (ii) restrict franchisees’ ability to offer competitive prices to their customers. Some specific examples of relevant anti-competitive practices include:

  • Unilaterally refusing to deal with franchisees or non-preferred vendors
  • Entering into “tying arrangements” that require franchisees to purchase one product in order to purchase another one
  • Establishing minimum prices to be offered by franchisees
  • Restricting customers’ access to franchisees in competing territories
  • Granting exclusive territories that result in unreasonable restraints on trade
  • Engaging in discriminatory pricing practices or offering different franchisees different terms of sale for anti-competitive purposes
  • Engaging in predatory advertising and pricing tactics that harm franchisees or consumers

However, it is important to note that none of these examples are per se unlawful (meaning that they would be prohibited regardless of the specific factual circumstances involved). Antitrust is a highly complex and fact-specific area of the law; and, while many anti-competitive practices are illegal, there is a lot that franchisors can get away with as well.

How Can an Antitrust Attorney Help a Struggling Franchisee?

While the Federal Trade Commission (FTC), U.S. Department of Justice (DOJ), and other authorities can enforce franchisors’ obligations under state and federal antitrust laws, many of these laws also give franchisees a “private right of action” against their franchisors. In other words, if your franchisor has committed an antitrust violation that has harmed your franchise, you can sue for damages and other remedies. If your franchise is struggling and you want out, filing an antitrust claim could provide the leverage you need to negotiate a termination on favorable terms.

If you believe that your franchisor may have committed an antitrust violation, you should speak with an attorney promptly to determine what options you have available. Remember, while antitrust laws exist at the federal level, there are state-specific antitrust laws as well. So, franchisees in some states may have causes of action that are not available to franchisees in others. An attorney who is familiar with these laws and how they apply specifically within the franchise context will be able to provide you with a thorough assessment and help you choose the best path forward.

Are All Franchisors Susceptible to Antitrust Claims?

No, not necessarily. In addition, it may be possible for franchisees in certain geographic areas to have antitrust claims while franchisees in other locations do not. This is because a fundamental principle of antitrust law is that, in order to commit a violation, the violator must have sufficient “market power” to have a negative impact on competition.

Similar to the other aspects of an antitrust claim, market power is a fact-driven issue. Truth be told, most franchisors do not have the market power to broadly control the prices offered to consumers. However, franchisors can exert market power over their franchisees; and, in niche markets, franchisors may be able to establish sufficient geography-specific market power to substantiate a pricing-related antitrust claim. As a result, to a certain extent, the size of a franchise system can be irrelevant – or at least non-determinative of the viability of franchisee-initiated antitrust litigation.

Can Franchisees Join Together to Pursue Antitrust Claims?

Due to the nature of certain antitrust violations, oftentimes, multiple franchisees will suffer similar negative effects. When this is the case, it may be possible for franchisees to join together as a group to take legal action against their franchisor. While group representation of franchisees presents its own potential legal challenges, antitrust cases will often involve circumstances in which joint legal action is a viable option. In order to decide whether group representation is appropriate, an antitrust attorney will need to thoroughly assess the relative similarity of the franchisees’ claims as well as any potential conflicts (or other drawbacks) to multi-plaintiff litigation in light of the circumstances at hand.

Do Franchisees Need an Antitrust Lawyer with Franchise Law Experience?

Yes, without a doubt. Just as antitrust law is a nuanced and highly-complex practice area, so too is franchise law. If an antitrust lawyer does not routinely handle franchise-related litigation, he or she is going to lack the insights needed to represent his or her franchisee clients effectively. If your franchise is struggling and you want a way out, you need to choose an attorney who gives you the best chance at securing a favorable outcome. This means choosing an attorney who has specific (and successful) experience representing franchisees under similar circumstances.

Contact Antitrust Attorney Jeffrey M. Goldstein for a Free Consultation

Attorney Jeffrey M. Goldstein has over 30 years of experience representing franchisees in antitrust litigation. For a free, no-obligation consultation, call 202-293-3947 or inquire online today.

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