Has Estee Lauder built such significant brand value that a retailer is doomed if it cannot stock Estee Lauder’s products on its shelves? This is the question Duty Free Americas asked a federal appeals court to once again consider after both the district court and the appeals court said “no.” The courts’ decisions confirm that manufacturers usually are free to choose with whom they will deal, and who may be cut off.
The Retailer’s Allegations
Duty Free Americas (DFA) operates stores in American and foreign airports, and Estee Lauder allegedly controlled half of the market for duty free stores’ cosmetic sales. DFA alleged that Estee Lauder stopped dealing with DFA and, instead, contracted with other duty-free, airport-focused retailers and helped those competitors win bids for airport retail space. DFA alleged that Estee Lauder abused its dominant position to extract higher, monopolistic prices from consumers and to harm competition by reducing DFA’s ability to compete.
The Appeals Court’s Ruling
The United States Court of Appeals for the 11th Circuit emphasized that “a unilateral refusal to deal is generally not unlawful.” The court went on to identify the one exception recognized by the Supreme Court: It may be anticompetitive when a company with a dominant market share (e.g., 75 percent of the market) appears to forego short-run profits by terminating an ongoing, profitable deal and, in doing so, raises consumer prices. The court further explained that a monopolization claim like DFA’s requires that the defendant harm competition in the relevant market – harm to a single competitor is not an antitrust violation.
The court held that DFA could not meet the requirements of the narrow exception to the rule that companies are generally free to choose whether or not to continue contracting with a retailer. The court also concluded that only DFA appeared to have been harmed (not competition as a whole), and that DFA had in fact terminated the contract with Estee Lauder and had refused to comply with Estee Lauder’s suggested pricing framework. The court also noted that Estee Lauder’s market share (roughly 50 percent of the cosmetics market) did not confer it with the power of a monopolist. The court concluded that “the complaint wholly fails to allege any truly anticompetitive conduct on Estee Lauder’s part.”
The court’s decision is available here. DFA has asked the 11th Circuit to reconsider its decision.
What this Case Means for Fashion Designers and Retailers
Successful companies are often concerned when faced with a decision whether to terminate a relationship with a buyer or retailer. But Estee Lauder’s experience in federal court once again confirms that refusals to deal usually are permissible. Cutting off a retailer could become problematic, however, if a company controls a significant majority of the relevant market, and is refusing to continue a profitable relationship, and does so to harm competition, and raises prices for consumers. This is a high bar and a rare case.