(CN) – The 8th Circuit affirmed dismissal of an antitrust lawsuit accusing Amway and two of its sponsors of conspiring to fix prices. The plaintiff distributors “have attempted to characterize vertical constraints as a horizontal restraint conspiracy,” Judge Wollman wrote.
The dispute stems from a decision by four distributors to break away from their sponsor and form their own distribution system, through which they would sell Amway products.
Plaintiffs Nitro Distributing and West Palm Conventions Services joined the breakaway group, called Pro Net. Pro Net separated from InterNET, a supplier of motivational tapes and other tools used to recruit distributors in a sponsorship line headed by Dexter Yager. Yager’s line was once Amway’s largest line of sponsorship in the tools business.
When Pro Net founders told Amway about their decision to split, Amway’s in-house counsel and its manager of distributor relations warned them that the breakaway would be contentious.
A sticking point was the motivational audio tapes that some of Pro Net’s founders created for InterNET. The parties eventually agreed that InterNET would give Pro Net the master versions of the tapes in exchange for a $.14 royalty fee for each tape that Pro Net sold. Each side also agreed not to “raid” the other’s down-line distributors.
The breakaway turned out to be a bad move for the distributors who joined Pro Net. They experienced decreased sales and market shares, and in some cases, their businesses failed.
Nitro, West Palm and three other distributors filed suit, alleging that Amway and Pro Net – and at times, InterNET – were involved in an antitrust conspiracy. They claimed that Pro Net was a sham corporation organized to boost Amway’s control over the market for business support materials. They also accused Amway and Pro Net of conspiring to allocate customers and fix prices.
The district court ruled for Amway, and the federal appeals court in St. Louis affirmed.
“The record shows that appellants failed to exclude the possibility of independent action, have attempted to characterize vertical constraints as a horizontal restraint conspiracy, and have set forth factual allegations that do not demonstrate the existence of any unlawful restraint of trade,” Judge Wollman wrote.