Opinion ID: 403391
Heading Depth: 4
Heading Rank: 2

Heading: Conflict with Franchise Contract Law

Text: 52 As further evidence of the district court's noncompliance with the rule of reason, Sportservice contends that the district court's finding of a section 1 liability puts the Sherman Act into novel conflict with the law of franchises. In particular, Sportservice directs our attention to a trend in the law of franchises where courts have upheld long-term franchise agreements in the face of terminations or non-renewals of agreements by franchisors. 10 Throughout its brief, Sportservice maintains that it is no different from the typical franchisee of the many fast food franchises operating in this country, 11 and apparently would have us believe that affirming the district court's finding of section 1 liability would seriously impair the contracting abilities of some of the major fast food franchisors by restricting franchise contract length. This novel argument concerning the novel conflict with the law of franchises does not impress us. 53 First, we fail to see the analogy between a major national entertainment events concessionaire like Sportservice and the typical small businessman who owns the exclusive right to use a fast food trademark under a franchise agreement with a major national franchisor. The typical franchised fast food operation bears little resemblance to Sportservice's operations in either product line or competitive market conditions. While the fast food franchisee competes in an open market among many operators (including intra-brand competitors) who sell items for which there exists recognized cross-elasticity of demand for many different types of food products, Sportservice's operations, by comparison, constitute monopolies for the sale of a limited menu of items of its choosing to a closed, contained market with no sales competition from others (either inter- or intra-brand). Although the exclusive nature of Sportservice's right to sell concession items at a particular event or facility is not the subject of the antitrust inquiry in this case, 12 the monopolistic feature of a typical Sportservice concession franchise and others included in the relevant market in this case cannot be ignored in defining differences between Sportservice and the franchisees it seeks to be associated with in its argument here. 54 Even were we to accept Sportservice's proffered analogy, the policies promoted in the state law cases cited by Sportservice for the proposition that courts are protecting the length of franchise agreements do not apply to Sportservice. The equitable policies expressed in the cases cited which protect small business franchisees against contract termination by large franchising companies simply do not transfer to the facts of this case. If there were any disparity in bargaining power between Sportservice and its franchisors in the relevant market, the record indicates that Sportservice, as franchisee, most often possessed the superior bargaining position. 55 Moreover, Sportservice once again overemphasizes the district court's conclusion of unnecessary contract length in the Sportservice franchise agreements with its argument that courts are protecting franchise contract length. We reiterate that the district court below considered a number of factors in finding a section 1 violation in this litigation. As evidence that Sportservice's anticompetitive conduct was unreasonable, the district court also focused upon the suspect use of Sportservice's vast financial resources and the customary inclusion of follow-the-franchise provisions in its agreements. Contract length is but one of many considerations figuring into the district court's conclusion. We are inclined, as was the district court, to avoid a concentration only upon the unreasonable length of Sportservice's contracts. 56 Finally, no party in the franchise law cases cited by Sportservice raised any claim that the amassing of a number of franchises foreclosed competition in a relevant market as Finley raises in the present litigation. In order for the Sportservice's franchise law cases to be even remotely analogous to the facts of this case, those cases would have to involve claims that a particular defendant owned or controlled such a large number of lengthy franchises in a relevant market that such defendant threatened to restrain competition in violation of antitrust law. The cases cited by Sportservice focus instead upon the narrow issue of whether one particular franchise agreement should be terminated with cause or otherwise. Based on the foregoing, we emphatically reject any notion that our affirmance of the district court's conclusion of section 1 liability will disturb present agreements or impair prospective dealings between fast food franchisees and franchisors.