Home Depot Ducks Suit on Exclusive Tool Supply
(CN) - A California hardware chain cannot pursue claims that Home Depot's exclusive supplier deals with power-tool manufacturers illegally restrained trade, a federal judge ruled.
In a December 2012 federal complaint, Orchard Supply Hardware claimed that Milwaukee Electric Tool and Makita had "unexpectedly cut off" its supply of power tools, "very shortly after Home Depot had publicly announced in early June 2012 that it planned to lock up the supply of key hardware products in order to counter the competitive threat posed by Amazon and other online retailers."
Orchard owns and operates general hardware stores throughout California. It claimed that the defendants also cut off 4,000 Ace Hardware stores from supplies of the power tools.
Milwaukee Electric Tool and Makita produce "every kind of power tool commonly sold in the United States," including impact drivers, power saws, cordless tools and combo kits and sanders, according to the complaint. Together they control between 9 percent and 50 percent of the market share of various power tools.
Orchard sought to hold Home Depot, Milwaukee Electric Tool and Makita liable for tortious interference as well as violations of the Sherman Act; its California counterpart, the Cartwright Act; and unfair competition law.
U.S. District Judge Jon Tigar in San Francisco dismissed the case Friday for failure to state a claim.
Orchard cannot show an unlawful group boycott because that would require showing "a horizontal arrangement" to participate in the boycott between Milwaukee Electric Tool and Makita, according to the ruling.
Pointing out that other suppliers like Black & Decker declined to establish an exclusive relationship with Home Depot, Tigar blew holes through Orchard's argued that Home Depot "reassured each complicit supplier that the other would likewise refuse to make sales to Orchard and other targeted competitors."
Futhermore, under the 9th Circuit's March 2012 ruling Brantley v. NBC Universal, "allegations that an agreement has the effect of reducing consumers' choices or increasing prices to consumers does not sufficiently allege an injury to competition.'"
"The Brantley court indicated that plaintiffs could allege a viable injury to competition by alleging that an agreement facilitated horizontal collusion or foreclosed competitors from entering into or competing in a market," Tigar wrote. "Allegations of this sort would sufficiently plead harm to competition. However, where, as here, the only alleged injury to competition is increased prices and reduced consumer choice, dismissal is proper."
Having failed to support a Sherman Act claim, Orchard likewise cannot sue under California's Cartwright Act and unfair competition law, according to the ruling.
Orchard also failed cannot claim tortious interference since it failed to show that it had any enforceable contracts with its existing customers or with the power tool suppliers.
"Instead, it states only that plaintiff had 'regular trading relationships,' 'contractual dealings,' and 'master sales contract/ancillary contracts,'" Tigar wrote.
Orchard may file an amended complaint within 30 days of the ruling.