## Facts

- Domino’s Pizza, Inc. operated a nationwide franchise system in which franchisees obtained rights to use the Domino’s name and format in exchange for franchise fees and royalties.
- The standard franchise agreement required ingredients and materials to meet corporate standards and authorized Domino’s to require purchases from Domino’s or Domino’s-approved suppliers.
- Franchisees alleged Domino’s used its contractual authority over standards and approvals to force them to purchase roughly 90% of needed ingredients and supplies from Domino’s at supracompetitive prices.
- Franchisees alleged Domino’s altered specifications or requirements when franchisees sought alternative suppliers, making compliance impossible unless they returned to Domino’s sources.
- Plaintiffs asserted antitrust markets limited to “ingredients, supplies, materials and distribution services used by Domino’s franchisees,” i.e., purchases by franchisees bound by Domino’s agreements.
- The district court dismissed the Sherman Act claims under Rule 12(b)(6) and declined supplemental jurisdiction over related state-law claims.

## Issues

1. Whether a relevant antitrust product market may be defined as supplies and services purchased only by Domino’s franchisees, where the limitation arises from franchise contract provisions rather than economic substitutability.
2. Whether the complaint stated tying or monopolization claims under Sherman Act §§ 1 and 2 without alleging a legally cognizable relevant market and market power.

## Decision

- The Third Circuit affirmed dismissal of the federal antitrust claims under Rule 12(b)(6).
- The court held plaintiffs’ proposed market was not a cognizable relevant product market because it was defined by contractual restraints, not reasonable interchangeability or cross-elasticity of demand.
- Because plaintiffs failed to plead a valid relevant market (and thus market power), the tying and monopolization theories failed as a matter of law.
- The court affirmed the district court’s decision to decline supplemental jurisdiction over state-law claims after dismissing the federal claims.

## Legal Principles

- A relevant product market is determined by reasonable interchangeability of use and cross-elasticity of demand, not by the identity of buyers bound by private contracts.
- An antitrust plaintiff cannot define the relevant market as only the goods and services the defendant sells to the plaintiff pursuant to a contract when substitutes exist in the broader economy.
- Aftermarket theories associated with lock-in do not apply where purchasers knowingly accept disclosed contractual restrictions ex ante and the alleged “captive” demand is created by the contract rather than information problems or unforeseen post-sale policy changes.
- Alleged exploitation of contractual power may present contract-law questions but does not establish antitrust injury absent harm to competition in a properly defined market.

## Conclusion

The court held that franchisees could not convert contract-based purchasing obligations into an antitrust market; because the complaint defined the market only by franchise contractual restrictions rather than economic substitutability, it failed to plead market power and thus failed to state Sherman Act tying or monopolization claims.


Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430 (3d Cir. 1997)