The recent decision in Burda v. Wendy’s International, Inc. et al., is prompting us to recommend that all franchisors review certain language regarding suppliers in their franchise disclosure documents and franchise agreements. In this case, the Ohio District Court allowed a franchisee’s tying arrangement antitrust claim to go forward against Wendy’s International, Inc based on certain language in the plaintiff’s franchise agreement.
The facts of the case
Robert Burda became a Wendy’s franchisee in 1996, at which time multiple Wendy’s-approved food suppliers existed. Subsequent to the purchase of his franchise, Wendy’s required Burda to purchase his buns and certain other food supplies from specific suppliers. Burda alleged that he did not have knowledge of the imposed requirements at the time of his purchase of the franchise, and thus was unable to calculate the costs of using such suppliers in his anticipated profits at the time of purchase.
Burda alleged that he was the victim of an illegal tying arrangement, whereby Wendy’s used its control over the franchise rights to compel him to purchase certain tied goods (buns and food supplies). In order for Burda to establish that the tying arrangement was illegal, he was required to show that Wendy’s had “appreciable economic power” in the tying product market. Burda needed to establish that once the agreement existed for him to buy one product (the franchise), he was “locked-in” to purchasing another product (the food supplies) as a result of Wendy’s rules (or at least that he could not purchase the product from another supplier).
The court found that if Wendy’s had changed its policy after the initial sale was made, or concealed the rules from Burda, the illegal tying claim could go forward. Importantly, the court found that the tying claim would be unavailable to Burda if his franchise agreement put him on notice of the potential imposition of the exclusive purchasing restrictions. Although the franchise agreement provided that Burda was required to purchase all food items from suppliers who met Wendy’s specifications, who had quality controls, and who were approved in writing by Wendy’s, this language was not enough to bar Burda’s claim from going forward.
What does this mean for you?
The court also gave examples of franchise agreement language that would be sufficient to bar a tying claim. For example, language providing that the franchisor may, in its sole discretion, require supplies “to be purchased exclusively from us or from approved suppliers or distributors” would be sufficient to put the franchisee on notice of the potential of an exclusive purchasing restriction. Thus, we suggest that all clients review their franchise agreements to ensure compliance with this decision.