### 1997 D e c i sion s O p inion s of the U nit e d

S t a t e s C our t of Appe al s

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10-27-1997



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. D omino s P i zz a I nc

P r e c e de n t i al or N on-P r e c e de n t i al :

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96-1638



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" Que e n C t y P i z za I nc v

. D ominos P i z za I nc " (1997). 1997 D e cisio n s

. P a pe r 253.

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. e du/thir dc ir c uit_1997/253Filed October 27, 1997

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 96

- 1638

QUEEN CITY PIZZA, INC.; THOMAS C. BOLGER; SCALE

PIZZA, INC.; BAUGHANS, INC.; CHARLES F. BUCK; F.M.

PIZZA, INC.; ROBERT S. BIGELOW; BLUE EARTH

ENTERPRISES, INC.; KEVIN BORES; DAVIS PIZZA

ENTERPRISES, INC.; DIANE A. DAVIS; FISHER PIZZA,

INC.; JAMES B. FISHER, JR.; SEPCO, INC.; S&S PIZZA

CORP.; G&L PIZZA CO.; STEPHEN D. GALLUP; LUGENT

PIZZA, INC.; JOSEPH J. LUGENT; BILLIO'S PIZZA, INC.;

WILLIAM J. MURTHA; SPRING GARDEN PIZZA, INC.;

BRAD L. WALKER; JRW PIZZA, INC.; JAMES R. WOOD,

Individually and as Class Representatives of a Class

Consisting of All Present and Certain Former Domino's

Franchisees in the United States; INTERNATIONAL

FRANCHISE ADVISORY CO UNCIL, INC.

v.

DOMINO'S PIZZA, INC.

Queen City Pizza, Inc.; Thomas C.

Bolger; Scale Pizza, Inc.; Baughans,

Inc.; Charles F. Buck; F.M. Pizza, Inc.;

Robert S. Bigelow; Blue Earth

Enterprises, Inc.; Kevin Bores ; Davis

Pizza Enterprises, Inc.; Diane A. Davis;

Fisher Pizza, Inc.; James B. Fisher, Jr.;

SEPCO, Inc.; S&S Pizza, Inc.; G&L

Pizza, Inc.; Stephen D. Gallup; Lugent

Pizza, Inc.; Joseph J. Lugent; Billio's

Pizz a, Inc.; William J. Murtha; Spring

Garden Pizza, Inc.; Brad L. Walker;

JRW Pizza, Inc.; James R. Wood; and

International Franchise Advisory

Council, Inc.,

Appellants

(D.C. Civ. No. 95

- cv

- 03777)

SUR PETITION FOR REHEARING

Present: SLOVITER, Chief Judge,BECKER, STAPLETON, MANSMANN, GREENBERG,

SCIRICA, COWEN, NYGAARD, ALITO, ROTH, LEWIS,

McKEE and LAY,* Circuit Judges

ORDER

The petition for rehearing filed by appellants in the

above

- entitl ed case having been submitted to the judges

who participated in the decision of this Court and to all the

other available circuit judges of the circuit in regular active

service, and no judge who concurred in the decision having

asked for rehearing, an d a majority of the circuit judges of

the circuit in regular service not having voted for rehearing,

the petition for rehearing by the panel and the Court in

banc, is denied. Chief Judge Sloviter and Judges Becker,

Mansmann, Nygaard and Roth would gran t rehearing.

BY THE COURT,

/s/ Anthony J. Scirica

Circuit Judge

Dated: October 27, 1997

________________________________________________________________

*The Honorable Donald P. Lay, United States Circuit Judge for the

Eighth Judicial C ircuit, who sat by designation, as to panel rehearing

only.

2

BECKER, Circuit Judge, Statement Sur Denial of the Petition

for Rehearing.

The majority opinion's interpretation of the Supreme

Court's decision i n Eastman Kodak Co. v. Image Technical

Servs., Inc., 504 U.S. 451 (1992) has serious consequences

for our future examination of franchisor/franchisee

relationships in the context of the antitrust laws. The

majority states that

Kodak does not hold that the existence of information

and switching costs alone, such as those faced by the

Domino's franchisees, renders an otherwise invalid

relevant market valid.

Queen City Pizza, Inc., et al. v. Domino's Pizza, Inc., No.

9 6

- 1638. Slip op. at 16. Instead the majority believes that

the ratio decidendi of the Kodak case is that the

aftermarket commodity or service alleged to constitute a

single brand market must be unique. Slip op. at 15

- 16.

When this view is combined with the majority's further

holding that uniqueness must come from the nature of theproduct, not the franchise agreement, slip op. at 13

- 14, the

result is that the franchisor/franchisee relationship is

rendered virtually immune from antitrust scrutiny.

Judge Lay's splendid dissenting opinion fully exposes the

flaws in the majority's relevant product market analysis,

and I need not labor the point. I do, however, write

separately to elucidate a concern about the majority's

approach to antitrust polic y in the franchising area that

Judge Lay discusses only briefly, slip op. at 34

- 35, but

which also strongly counsels that this case be heard en

banc.

I have long believed that "The way you come out in [a]

case depends on how you go in." See Larry Mu ko, Inc. v.

Southwestern Pa. Bldg. & Constr. Trades Council, 609 F.2d

1368, 1377 (3d Cir. 1979)(Aldisert, J., dissenting). The

majority's holdings stem, I believe, from how it has gone

into the case, i.e. from the fact that the majority has bought

int o the oft

- heard paeans of praise for franchising:

Franchising is a bedrock of the American economy.

More than one third of all dollars spent in retailing

3

transactions in the United States are paid to franchise

outlets. We do not believe the antitrust laws were

designed to erect a serious barrier to this form of

business organization.

Queen City Pizza, Inc., et al. v. Domino's Pizza, Inc., No.

96

- 1638. Slip op. a t 18. It also has endorsed the

questionable theory that the kind of tying arrangements

involved here "are an essential and important aspect of the

franchise form of business organization." Id. But these

theories are also flawed.

I believe that the a pproach endorsed by the majority

might have been acceptable two decades ago, see Ungar v.

Dunkin' Donuts, 531 F.2d 1211 (3d Cir. 1976), when

franchising was in its nascent, or at least its growing stage.

But now the food franchisors are leviathans, and I am

underwhelmed by the suggestion that they may be

permitted with impunity to perpetuate the type of

arrangements pled in the complaint. These arrangements

are clearly quite onerous to the average franchisee, a

relatively small business person whos e sunk costs in the

franchise represent all or most of his or her assets and who

lacks the considerable resources necessary to switch or

defranchise. Moreover, the amount of commerce that the

franchisors are foreclosing in the tied product market

-- fo rthe pizza sauce, flour and other supplies (for which non

franchisor dominated suppliers, be they individualfirms or

a franchise cooperative, could easily meet quality control

specifications) is enormous.

Additionally, to the extent that the plain tiffs have alleged

coercion in connection with their acceptance of a

burdensome tie, a Rule 12(b)(6) dismissal would be

inconsistent with Ungar. Indeed, even if the majority's legal

position is correct, it can only be sustained if it were an

affirmanc e of a summary judgment on a full record, which

is how the opinion seems to read. It can not stand under its

actual procedural status

-- review of a Rule 12(b)(6)

dismissal.

For all the foregoing reasons, I dissent from the denial of

rehearing en ba nc.

4

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

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