Plaintiff Bearing Distributors, Inc. (BDI), a dealer, brought an action against Rockwell Automation, Inc. (Rockwell), and a competing dealer, Motion, alleging that Rockwell and Motion conspired to terminate it for refusing to abide by Rockwell’s resale price maintenance (RPM) policy.  Rockwell contended that it terminated BDI, because it refused to impose a 25% minimum markup on BDI sales from "unauthorized" locations.  As the complaint failed to allege an RPM agreement between Rockwell and Motion, Motion moved to dismiss. It claimed that it was lawful for Rockwell to terminate a dealer, even at the suggestion of a competing dealer, where there was no agreement on price, or price levels.

The District Court denied the motion to dismiss.  It held that while the conduct alleged was not per se illegal, the complaint nevertheless stated a claim requiring rule of reason analysis.  The complaint alleged, in effect, that the tendered reason for the termination-sales from unauthorized locations- was pretextual.  It alleged that the real reason was BDI’s refusal to adhere to a minimum RPM policy.  In addition, the complaint alleged that a conspiring dealer, Motion, had falsely informed BDI customers that it was substituting parts made in China, and representing that they were genuine Rockwell parts. The relevant product market was the sale of power transmission parts to the industrial maintenance, repair , and operation replacement and original equipment manufacturer market segments.  BDI was one of four large distributors, which also included Motion. With BDI’s elimination, the remaining three dealers, it is alleged, possessed market power.

In denying the motion to dismiss, the court held that it would not apply the per se rule applicable to RPM, absent an allegation of a price fixing agreement between the manufacturer and a complaining dealer, citing Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717 (1988). It recognized, however, that the per se rule was merely an analytical tool that allows a court to find a Sherman Act violation, without performing an in depth analysis of the competitive effects in a properly defined market.

The court acknowledged that a claim is not stated if a manufacturer unilaterally terminates a dealer, even at the behest one dealer’s complaints about the terminated dealer.  The court recognized that the complaint failed to allege a price fixing agreement between Motion, the complaining dealer, and Rockwell.  The complaint, however, sufficiently pleaded a group boycott to eliminate BDI as a competitor, and thus stated a claim upon which relief could be granted.

Of interest, are the allegations that Rockwell tolerated sales from unauthorized locations from competing dealers.  An inference may be present that the proffered reason for the termination was, thus, not the "real" reason, but a pretext.

The moral of the story is that failure to allege a per se unlawful RPM agreement is not necessarily fatal, where a complaint adequately pleads a concerted refusal to deal, and where the plaintiff adequately alleges sufficient concentration in the downstream market, and that the elimination of the plaintiff as a competitor will raise the specter of injury to the competition, because of the increased concentration in an already concentrated market.  Another moral is that counsel should be sensitive to maintaining an adequate record of unilateral action by the manufacturer, particularly where the action is taken after receiving complaints from competing dealers.  Counsel should also be careful to avoid the appearance on inconsistent enforcement of even benign vertical non-price restraints, such as termination for sales from unauthorized locations.

Authored by:


Don T. Hibner, Jr.

(213) 617-4115