2238 Victory Corp. v. Fjallraven USA Retail, LLC

Background

2238 Victory Corp. alleged that it bought merchandise wholesale and resold it to consumers through Amazon. Fjallraven USA Retail, LLC and Fjallraven USA, LLC were described collectively as Fjallraven. Fjallraven entered an agreement with Netrush LLC under which Netrush became Fjallraven’s exclusive authorized Amazon seller. The agreement also provided for Netrush to perform brand-control and compliance services for Fjallraven.

Victory alleged that Fjallraven and Netrush conspired to exclude it from selling Fjallraven products on Amazon. In particular, Victory alleged that the defendants submitted 16 intellectual-property complaints to Amazon identifying Victory’s Fjallraven products as counterfeit. Victory alleged that it was expelled from Amazon temporarily and remained permanently barred from selling Fjallraven products there. Victory brought two claims under section 1 of the Sherman Act and claims under New York law for tortious interference with existing and prospective business relationships and trade libel.

Federal Antitrust Claims

The defendants moved under Rule 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. Count One alleged a per se violation of section 1 of the Sherman Act. A per se violation is a business restraint treated as illegal without a detailed examination of its competitive effects.

The court concluded that Victory’s factual allegations described a “dual distribution” arrangement: Fjallraven both sold its products directly and used Netrush as a distributor. The court held that this combined vertical and horizontal relationship had to be reviewed under the rule of reason, which examines the restraint’s actual effects on competition. The court also explained that the alleged restraint concerned intrabrand competition—competition among sellers of Fjallraven products—rather than a recognized category of restraint that is automatically illegal.

Because the alleged conduct did not constitute a per se violation, the court dismissed Count One. The court noted that Victory had expressly abandoned Count Two, its separate claim that the alleged vertical agreement violated section 1 under the rule of reason, and stated that Count Two was dismissed as expressly abandoned. The court further noted, without deciding that claim, that the abandoned rule-of-reason claim likely would have failed for several reasons, including deficiencies in defining the relevant market, alleging an effect on competition, and alleging antitrust injury.

New York Claims and Disposition

The court declined to exercise supplemental jurisdiction, meaning authority to hear related state-law claims, over Victory’s remaining New York claims. The court had dismissed Victory’s only federal claim, and it concluded that considerations including judicial economy, fairness, convenience, and respect for state courts favored declining jurisdiction.

The court granted the defendants’ motion to dismiss Count One. Count Two was dismissed as expressly abandoned. The remaining New York claims were dismissed without prejudice. The clerk was directed to enter judgment for the defendants and close the case.