On January 6, 2022, Sidley won a precedent-setting motion on behalf of Fashion Nova in the Central District of California in connection with antitrust claims asserted by a startup competitor, Honeybum. U.S. District Court Judge Gary Klausner issued an order granting Fashion Nova’s motion for summary judgment in its entirety. In doing so, Judge Klausner definitively shut down antitrust claims on the part of Honeybum which accused Fashion Nova of engaging in a conspiracy to stifle the growth of this new competitor by blocking access to certain fashion vendors. Specifically, Honeybum asserted that Fashion Nova organized a boycott of preferred fashion vendors in Los Angeles to refuse to do business with Honeybum. Honeybum sought tens of millions of dollars in monetary damages based on what it claimed was lost profits and a loss in business value resulting from the asserted boycott. Fashion Nova operates predominantly online but also in brick-and-mortar locations having grown through the revolutionary use of celebrity influencers and social media marketing.
Sidley successfully executed a two-part litigation strategy. Sidley’s summary judgment victory for Fashion Nova on January 6 followed the court’s granting of Fashion Nova’s motion to dismiss with prejudice in March of 2021 in which the Court ruled that Honeybum could not move forward with claims under Section 2 of the Sherman Act for monopolization. Sidley argued that Honeybum failed plausibly to plead that Fashion Nova maintains market power within a relevant market, which is a necessary element of that claim. Following the dismissal, Sidley implemented a discovery strategy targeted to proving that Honeybum’s Section 1 group boycott claim also lacked merit because there was no agreement among the fashion vendors to refuse to sell to Honeybum. Thereafter, in response to Sidley’s subsequent Motion for Summary Judgment, Judge Klausner ruled that Honeybum did not provide evidence of the requisite existence of an agreement that is an “unreasonable restraint of trade” and dismissed the remaining Section 1 claim (and attendant tortious interference causes of action) terminating the case in its entirety.
Judge Klausner agreed with Sidley that the guidance provided by the Supreme Court in Nat’l Soc’y of Prof’l Eng’re v. United States and recognized by the 9th Circuit in In re Musical Instruments & Equip. Antitrust Litig. that group boycotts are only per se unreasonable when they involve horizontal agreements among direct competitors — in this case, the vendors. And Judge Klausner agreed with Sidley that Honeybum could not demonstrate any type of conduct by the vendors that precluded the possibility that the vendors acted independently and not in a concerted fashion.
This case is important because it provides clear guidelines as to what must be shown in order to prove a per se group boycott violation under Section 1 of the Sherman Act. While some group boycotts are analyzed under a rule of reason (which generally requires proof that any anticompetitive effects of the boycott are not outweighed by pro-competitive benefits), where the allegation is that the defendant organized a hub and spoke conspiracy among a group of providers which compete among themselves, evidence of an agreement among those providers is required. The decision also provides insights into what competitive responses by established market participants may be permissible when startup competitors enter the market and seek to exploit or free ride on established supply relationships, as well as with respect to what legal challenges under the antitrust laws might succeed where new market entrants seek to limit the business practices of larger and more established competitors. This type of business scenario is obviously prevalent beyond the fashion space (e.g., the technology industry).
The Sidley team was led by partner Chad Hummel and included a multi-state team of Sidley litigators and trial lawyers with experience in business disputes and antitrust litigation, including senior counsel Timothy Muris (Washington, D.C.) and senior managing associate Anna Tutundjian (Los Angeles).