## Facts

- Chicken Delight franchised fried-chicken outlets using a trademark and standardized operating system.
- The franchisor charged no franchise fee or royalty; instead it required franchisees, as a condition of obtaining the trademark license and system, to buy specified cookers/fryers, mixes, and trademark-bearing packaging exclusively from Chicken Delight.
- Franchisees alleged these required items were priced above comparable goods available from competing suppliers.
- Franchisees brought a federal antitrust class action under Sherman Act § 1 seeking treble damages, claiming the franchise agreement imposed unlawful tying arrangements.
- After a lengthy jury trial, the district court directed findings for plaintiffs on the existence of a tie, economic power, lack of justification (with a limited justification issue submitted to the jury), and class injury; the jury returned special verdicts for plaintiffs.
- Chicken Delight took an interlocutory appeal from the liability rulings and verdicts.

## Issues

1. Whether conditioning the franchise trademark/system license on exclusive purchases of equipment, mixes, and packaging constituted a tying arrangement under Sherman Act § 1.
2. Whether the trademark/system and the required goods were separate products or a single integrated “franchise package.”
3. Whether Chicken Delight had sufficient economic power in the tying product (the trademark/system) to support per se illegality.
4. Whether asserted quality-control and goodwill protections justified the tie.
5. Whether injury to the franchisee class was established as a matter of law.

## Decision

- The Ninth Circuit affirmed the district court’s liability determinations.
- The franchise trademark/system was a tying product distinct from the tied products (equipment, mixes, and packaging).
- Chicken Delight possessed sufficient economic power in the tying product to support application of the per se rule against tying.
- The asserted quality-control and uniformity justifications did not excuse the compulsory exclusive-purchase requirements.
- Classwide injury was established as a matter of law based on mandatory purchases at allegedly supracompetitive prices.

## Legal Principles

- A tying arrangement exists when access to one product (the tying product) is conditioned on the purchase of a separate product (the tied product).
- In franchising, a trademark and operating system can constitute a distinct tying product separate from required equipment and supplies, even if the franchisor structures compensation through supply markups rather than royalties.
- When the seller has sufficient economic power in the tying product and conditions its availability on purchase of tied goods, the arrangement may be unlawful per se under Sherman Act § 1.
- Quality-control interests do not justify a tie where less restrictive means (such as standards or approved suppliers) can protect goodwill without mandatory exclusive purchasing.
- In a per se tying case, payment of inflated prices for tied goods due to compulsory purchasing can satisfy the injury requirement for affected buyers.

## Conclusion

The court held that Chicken Delight’s franchise arrangement—conditioning access to its trademark and system on exclusive purchases of specified equipment and supplies—constituted a per se unlawful tying scheme under Sherman Act § 1, with insufficient justification and legally established injury to the franchisee class.


Siegel v. Chicken Delight, Inc., 448 F.2d 43 (9th Cir. 1971)