Home > INBLF Articles > Business Litigation > Recent California Federal District Court Decision, in Alleged “Hub-and-Spoke” Antitrust Conspiracy, Allows Plaintiff to Aggregate Competitive Effects of Separate Vertical Agreements to Show Antitrust Injury in Claim Against the “Hub” but not the “Spokes”.

Recent California Federal District Court Decision, in Alleged “Hub-and-Spoke” Antitrust Conspiracy, Allows Plaintiff to Aggregate Competitive Effects of Separate Vertical Agreements to Show Antitrust Injury in Claim Against the “Hub” but not the “Spokes”. Mulcahy, James M.

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In the antitrust context, a “rimless wheel” – or “hub-and-spoke” – conspiracy is not a general conspiracy but instead amounts to multiple conspiracies between the common defendant – e.g., a distributor – and each of the other defendants – e.g., multiple suppliers.

This means that, absent allegations establishing a “rim” between the spokes, a hub-and-spoke conspiracy is not a single conspiracy, but rather consists of separate conspiracies for each spoke. Nevertheless, in a case of first impression, the United States District Court for the Northern District of California recently held that it is appropriate to aggregate the cumulative anticompetitive effects of multiple independent vertical agreements for the purpose of showing that a common distributor’s conduct was anticompetitive in violation of both Section 1 of the Sherman Act1 and California’s antitrust statute (the Cartwright Act).2

In Orchard Supply Hardware LLC v. Home Depot USA, Inc,3 the plaintiff operated a chain of retail hardware stores in competition with Home Depot USA, Inc. (Home Depot).4 METCo and Makita were horizontal competitors at the same level of distribution (supplier-supplier), and they each were vertically aligned with various retailers (supplier-dealer), such as Home Depot and Orchard. On June 7, 2012, Home Depot publicly announced that it would enter into “exclusive supplier contracts with Key suppliers, so that it would become the principal or only supplier of the single most important kind of core hardware product – professional power tools and related accessories.”5 Within one week, the two principal suppliers of power tools – Makita and METCo – notified Orchard that they no longer would sell Orchard professional power tools.6

Orchard then sued the two suppliers (Makita and METCo) and Home Depot alleging, among other things, the existence of a horizontal group boycott in violation of both Section 1 of the Sherman Act and the Cartwright Act.7 The district court granted defendants’ motion to dismiss, with leave to amend, on the ground that Orchard had failed to establish that the suppliers had conspired with each other to boycott Orchard rather than each independently deciding that they no longer would deal with the Orchard chain of hardware stores.8 In its second amended complaint (SAC), Orchard asserted both a per se horizontal group boycott antitrust claim and, alternatively, a rule of reason vertical boycott claim.

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