Introduction
Section 1 of the Sherman Antitrust Act (Sherman § 1) proclaims contracts, combinations, or conspiracies in restraint of trade or commerce to be illegal. Thus, for an agreement to fall within Sherman § 1’s boundaries, there must be a joining together of separate actors or entities. However, for over a century since the Sherman Act’s enactment, courts have struggled to draw the line between separate business entities and single entities. This distinction became more defined with the Supreme Court’s holding in Copperweld Corp. v. Independence Tube Corp. that parent companies are incapable of conspiring with wholly owned subsidiaries. But Copperweld failed to address business entities that do not fall so cleanly within the “parent company” and “wholly owned subsidiary” buckets, including franchised business entities and other joint ventures.
Franchised businesses are typically independently owned by franchisees, and franchisees are both dependent on and independent from their franchisors. For example, franchisees may be dependent on franchisors for merchandising decisions, but independent with regard to hiring decisions. In Arrington v. Burger King Worldwide, Inc., the Eleventh Circuit clarified the Sherman § 1 analysis of franchisors and franchisees by correctly applying American Needle, Inc. v. National Football League, which guides courts to look to the activity at issue, instead of the formal structure of the entities engaged in the activity, to assess whether the actors are separate entities or a single entity under Sherman § 1.
The Eleventh Circuit’s application of American Needle led it to the proper conclusion that franchised fast food restaurants are separate actors in labor markets and may conspire for the purposes of Sherman § 1. The Eleventh Circuit is the first circuit court to address the applicability of Sherman § 1 to franchisors and franchisees since the American Needle decision and its Arrington decision represents a shift from the Sherman § 1 leniency franchisors and franchisees enjoyed before American Needle.
This Case Note argues that the Eleventh Circuit correctly applied American Needle to franchisors and franchisees and properly considered labor market competition within the scope of Sherman § 1. Part I of this Case Note explores the legal landscape relating to the Sherman Act, franchising agreements, and the single-entity defense. This Part then presents the facts and procedural history of Arrington and explores the Eleventh Circuit’s decision and its application of American Needle. Part II begins with a defense of American Needle’s flexible approach toward antitrust liability. This Case Note then argues that the Eleventh Circuit in Arrington correctly applied American Needle within the context of assessing concerted action between a franchisor and franchisee. Next, this Case Note discusses Sherman § 1’s application in the context of labor markets. A portion of Part II is dedicated to contextualizing Arrington within recent trends in antitrust enforcement—particularly the Biden administration’s aggressive approach toward antitrust enforcement. Part II concludes with an argument that, on remand, the “no-hire agreements” in Arrington should be held illegal regardless of the applicable standard of review.