By: Nebyu Retta
Duty Free Americas (“DFA”) operates stores in the United States and International airports. Estee Lauder Companies, Inc. (“Estee Lauder”) is the largest manufacturer of beauty technology and products of duty-free retail outlets in the United States. The United States Court of Appeals of the Eleventh Circuit led by a three judge panel reaffirmed the dismissal of a Florida Court’s ruling against DFA. (Duty Free Americas, Inc. v. The Estee Lauder Companies, Inc. No. 14-11853(11th Cir. Aug. 2015)).
DFA alleged that Estee Lauder stopped dealing with them and instead contracted with other duty-free airport focused retailers, thereby opening up the floodgates for competitors to win bids for airport retail space. DFA claimed that Estee Lauder took advantage of its dominant position in the airport marketplace in order to set higher prices for consumers and harm competition by undercutting DFA’s ability to compete.
The Eleventh Circuit explained (opinion available here) that the general rule is that “unilateral refusal to deal is generally not unlawful.” However, the Court noted that there has long been an established exception to that rule—that it may be deemed anticompetitive when a company with an overriding market share rakes in short-term profits by cutting ties with an ongoing, profitable business relationship, and in doing so raises consumer prices. Nonetheless, the Court underscored that harm to a single competitor is not an antitrust violation.
Although the Court acknowledged that DFA had refused to comply with Estee Lauder’s pricing framework and terminated the contract with Estee Lauder—the Court held that DFA could not meet the narrow requirements to meet the exception to the rule. The Court explained its holding that because DFA appeared to be the only entity harmed—not competition as a whole. Moreover, the Court noted that Estee Lauder’s market share was approximately 50% of the cosmetics market; too small to be considered a monopoly.
False Advertising Claim
DFA also asserted a claim of false advertising, alleging that Estee Lauder was subject to contributory liability for the false advertising conducted by their competitors.
In what appeared to be a shift in posture, the 11th Circuit expanded the scope of contributory liability to false advertising—reasoning that contributory liability is well recognized in trademark law, therefore contributory false advertising should be as well under §43(a) of the Lanham Act. The Court finally defined the elements as a party must be “engaged in false advertising that injured the plaintiff and the defendant actively and materially furthered that conduct either by knowingly inducing or causing the conduct, or by materially participating in it.” id. at 51.
Yet, after evaluating the alleged false advertising statements, the Court determined that Estee Lauder’s sales were too unrelated to the false or misleading statements.
What does this mean to businesses and retailers who may want to end a relationship with another business? This case shows us that parties generally have a permissive right to refuse to deal with one another. Fair competition is what drives our marketplace and the Federal Court’s still have reverence for parties right to choose. Issues arise however if and when a company controls a large segment of the relevant market and refuses to continue a profitable relationship to harm competition and raises prices for consumers. Nevertheless, this continues to be a very high hurdle to climb over. Furthermore, the Eleventh Circuit finally established elements for contributory false advertising claims. This provides useful and helpful direction for plaintiffs who seek to assert this claim.
Bio: Nebyu is a third-year evening student at Suffolk University Law School and a staff member of the Journal of High Technology Law. He also works as a full-time Corporate Bankruptcy Litigation Assistant at the Boston office of Jager Smith, P.C. He received his undergraduate degree from the University of South Carolina, majoring in English and minoring in Business Administration.