## Facts

- Frank and Ann Principe and their family company operated McDonald’s franchises in Virginia.
- In 1970, they obtained a McDonald’s franchise in Hopewell, Virginia, executing a 20-year franchise license and a 20-year lease for the restaurant premises from McDonald’s; they paid a license fee and security deposit and agreed to pay royalties and percentage rent based on gross receipts.
- In 1974, they obtained a second franchise in Colonial Heights, Virginia, on similar terms.
- In 1976, the Principes sought a third franchise in Petersburg, Virginia; McDonald’s denied the request after internal review, citing inadequate management capacity to operate an additional store.
- The Principes alleged McDonald’s retaliated for their resistance to pricing suggestions and unlawfully tied (1) franchise rights to (2) a required premises lease and a security deposit note, asserting violations of Sherman Act § 1 and Clayton Act § 3 (plus other dismissed claims).
- McDonald’s characterized its offering as a single business-format franchise package that integrated trademark rights with site selection, real-estate development, construction/design, training, marketing, and ongoing operational support; the lease and deposit were presented as components of that package.

## Issues

1. Whether requiring franchisees to operate only in premises leased from McDonald’s (and provide a security deposit note) constituted an unlawful tying arrangement under Sherman Act § 1, including whether the franchise and the lease/deposit were separate products.
2. Whether Clayton Act § 3 applied to the alleged tie involving a franchise relationship and a lease/security deposit note as “commodities.”
3. Whether the district court properly disposed of the plaintiffs’ related non-tying claims (addressed only secondarily on appeal).

## Decision

- The Fourth Circuit affirmed.
- The court held there was no unlawful tie under Sherman Act § 1 because McDonald’s sold a single integrated franchise package rather than separate tying and tied products.
- The court held Clayton Act § 3 did not apply because the franchise and the lease/security deposit note were not “commodities” within the statute.
- The directed verdict for defendants on the Sherman Act tying claim and the summary judgment for defendants on the Clayton Act tying claim were upheld.

## Legal Principles

- A tying claim requires, as a threshold matter, two distinct products; components that function as part of a single integrated offering are not treated as separate products for tying analysis.
- Business-format franchises may constitute a single product when the franchisor offers a complete method of doing business integrating brand, real estate strategy, operational systems, training, and support.
- Clayton Act § 3 reaches only tying arrangements involving “goods, wares, merchandise, machinery, supplies, or other commodities,” and generally excludes franchises, services, and lease rights.
- If the arrangement involves only one product, the tying theory fails without needing full analysis of market power or foreclosure in a separate tied-product market.

## Conclusion

The Fourth Circuit concluded that McDonald’s requirement that franchisees lease the restaurant premises from McDonald’s was an integrated feature of a single business-format franchise offering, not a tie between separate products; accordingly, the Sherman Act tying claim failed, and Clayton Act § 3 was unavailable because the arrangement did not involve statutory “commodities.”


Principe v. McDonald’s Corp., 631 F.2d 303 (4th Cir. 1980)