SAN FRANCISCO (CN) - Home Depot is running an illegal group boycott of competing hardware stores, with help from two major power tool makers: Makita and Milwaukee Electric Tool Corp., to compete with Amazon.com, a California hardware chain claims in court.
Orchard Supply Hardware sued Home Depot USA, Milwaukee Electric Tool Corp. and Makita USA, in Federal Court.
Orchard claims that Milwaukee Electric Tool and Makita "unexpectedly cut off" its supply of power tools in June, "doing so 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 claims that the defendants also cut of Ace Hardware's 4,000 stores from supplies of the power tools.
Milwaukee Electric Tool and Makita produce "every kind of power tool commonly sold in the United States," Orchard says, including impact drivers, power saws, cordless tools and combo kits and sanders.
The companies "jointly make a substantial percentage of all of the products sold each year in the United States, accounting for 50 percent of 12v impact driver, 46 percent of reciprocating saws, [and] 44 percent of all 12v cordless tools and combo kits," the complaint states.
Orchard "must" carry Milwaukee Electric Tool and Makita products to "remain a viable competitor in the market," it says. It claims that "most" professional tradesmen purchase the companies' power tools exclusively.
According to the 43-page complaint: "Home Depot publicly announced in early June 2012 that it planned to lock down the sales of core hardware products, particularly the power tools made by core suppliers of them. Less than one week later, Makita gave notice that it would no longer sell any of its products to Orchard despite Orchard's excellent and long history as a substantial customer of Makita. Around two weeks later, and still in June 2012, Milwaukee for its part gave notice that it too would refuse to makes sales of any of its products to Orchard, even though Orchard had enjoyed a long, uninterrupted, and prosperous relationship with Milwaukee."
Home Depot used the tactic to "fortify" its position in the tool market, Orchard says, "but not for any reasonable or pro-competitive business purpose, much less a compelling business necessity that can justify its acting in concert with the two predominant suppliers of professional power tools in order to ensure that its direct competitor can no longer carry them."
The timing of the boycott was "not a matter of happenstance," Orchard says.
Orchard "recently developed a new, successful format for its stores, and its newly formatted stores have been highly profitable." Home Depot was "openly concerned about the competitive threat," Orchard says.
Orchard, a publicly traded company, stands to lose $2 million annually from the boycott, it says, and "reasonably apprehends that its losses will increase significantly as the housing and construction markets in California continue to recover."
Atlanta-based Home Depot "Prevailed on Milwaukee and Makita to withhold their necessary supplies from other major sellers of hardware products, including the approximately four thousand member stores of the Ace Hardware wholesale cooperative as well as other sellers of hardware products," Orchard says in the complaint.
"On its own admission, Home Depot plans to organize, coordinate, and use these group boycotts in order to fortify its market positions and rid itself of competitive threats from other brick-and-mortar outlets while it tries to develop a successful strategy for countering the challenge posed by Amazon's online model," the complaint states.
Orchard seeks restitution, treble damages, punitive damages, and attorney's fees for restraint of trade, illegal group boycott, tortuous interference with contracts, unfair business practices, tortuous interference with prospective economic advantage, and California business law violations.
It is represented by William Markham, of San Diego.