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From Antitrust Law Daily, April 23, 2013

Failure to Prove Antitrust Injury Doomed Toy Manufacturer’s Claim Against Distributor

By Tobias J. Gillett, J.D., LL.M.

A toy manufacturer’s president failed to state a Sherman Act restraint of trade claim against a toy distributor over an alleged conspiracy to cause the manufacturer to default on a loan from the distributor, thus permitting the distributor to monopolize the market for the manufacturer’s products, the federal district court in Chicago has ruled (Maher v. The Rowen Group, April 22, 2013, Aspen, M.). The manufacturer’s president failed to allege any impact on the market or consumers that would constitute an antitrust injury, according to the court.

The Rowen Group, Inc. manufactures toys, primarily in the hobby and game industries, under the name Playroom Entertainment. On June 30, 2011, Daniel Rowen, president of the The Rowen Group, entered into an agreement with ACD Distribution LLC, a hobby and game distributor, to borrow $500,000 for Playroom.

According to Rowen, ACD’s principals subsequently failed to follow through on provisions in the agreement requiring ACD to maintain Playroom’s accounting records and software and to prioritize sales and promotion of Playroom’s products. As a result, Playroom had substantially lower sales in the third and fourth quarters of 2011, and its records were not up-to-date or in accordance with Generally Accepted Accounting Principles.

ACD’s principals paid the first $435,000 of the loan to Playroom, but refused to pay the remaining $65,000, claiming that Playroom was in "possible default." ACD’s principals then filed suit against Rowen, alleging breach of contract and fraud. Rowen filed counterclaims, alleging a conspiracy to restrain trade under Section 1 of the Sherman Act, among other claims. ACD’s principals filed a motion to dismiss the counterclaims.

Rowen alleged that ACD’s principals conspired to force Playroom to default on its loans by holding Playroom’s product in inventory and failing to fulfill their promises with respect to Playroom’s accounting and other tasks. Rowen claimed that the principals intended to acquire Playroom’s assets and restrained trade by "nearly eras[ing] Playroom’s presence in the national hobby/game market."

The court rejected Rowen’s restraint of trade claim. The court observed that a plaintiff pleading a Section 1 claim must allege "not only an injury to himself, but an injury to the market as well." Here, Rowen alleged that Playroom had lost sales and that ACD could then "monopolize the market chain for Playroom’s products." However, he did not allege any "facts regarding Playroom’s market share or the projected impact the [principals’] action will have on the hobby/game market." Since Rowen had not alleged an impact on the market or consumers, he failed to state a claim on which relief could be granted, in the court’s view.

The court also dismissed Rowen’s counterclaim for fraud, but declined to dismiss counterclaims for breach of contract and tortious interference with a contract.

The case is No. 12-cv-07169.

Attorneys: Leonard Stewart Shifflett (Quarles & Brady LLP) for Robert P. Maher. Brian J. Kaplan (Kopka Pinkus Dolin & Eads) for The Rowen Group, Inc.

Companies: The Rowen Group, Inc.; ACD Distribution LLC

MainStory: TopStory Antitrust IllinoisNews

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