Antitrust Implications of Food-Service Franchising Agreements

Abstract

Many chain-restaurant franchise agreements include a provision requiring that franchisees purchase from the franchiser certain food items and even food-preparation equipment. The franchisors reason that such requirements protect the quality of the consumer goods produced and thereby the reputation of a franchisor's products. Often those required purchases mean that franchisees must pay higher prices than if they were allowed to shop for equal-quality goods in a competitive environment. In a court case brought by franchisees against their franchisor, the court held (and was affirmed on appeal) that in certain instances such purchase requirements are in violation of antitrust law and represent restraint of trade where a competitive marketplace should exist. The appeals court considered that purchase-requirement arrangements can be justified to preserve the distinctiveness, uniformity, and quality of a franchisor's products, but only in the absence of less-restrictive alternatives. Specifically, the trial jury found that effective quality control could be achieved if the franchiser would simply describe the exact specifications of those nonproprietary items that franchisees might purchase from competing suppliers.