On June 5, 2024, Judge William Griesbach of the United States District Court for the Eastern District of Wisconsin dismissed an action brought by a class of Harley-Davidson purchasers alleging that the motorcycle manufacturer unlawfully tied its motorcycles and the accompanying factory warranty to Harley-Davidson replacement parts. In Re: Harley-Davidson Aftermarket Parts Marketing, Sales Practices, and Antitrust Litigation, No. 23-MD-3064, 2024 WL 2846349 (E.D. Wis. June 5, 2024). The lawsuit stems from a 2022 Federal Trade Commission (FTC) action alleging Harley-Davidson violated the Magnuson-Moss Warranty Act (MMWA) by voiding warranties for repairs made using third-party parts. The MMWA is a consumer protection statute that requires transparency in warranties on consumer products and establishes minimum criteria for different types of warranties and warranty-like products. Unlike the FTC suit, however, here plaintiffs also alleged a Sherman Act Section 1 violation. But finding plaintiffs had failed to properly allege an actionable tying scheme, the Court dismissed the action in its entirety.
A tying arrangement occurs when a party sells a product but only on the condition that a different (or tied) product is purchased. Haley-Davidson combines its motorcycles with a 24-month warranty. Plaintiffs, however, alleged that the warranty only covered repairs if all services were undertaken by an authorized Harley-Davidson dealer—exclusively using Harley-Davidson parts. According to plaintiffs, if purchasers used third-party parts or repair services, they risked voiding their warranty, which allegedly specified that “customers cannot use third-party manufactured parts or other aftermarket parts for repairs.” The motorcycle along with the bundled warranty, therefore, was alleged to be the tying product, and the repair parts were the tied product.
The Court primarily focused on plaintiffs’ reliance on the Supreme Court’s seminal tying case, Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992). There, as Judge Griesbach recounted, Kodak “implemented a policy that it would only sell replacement parts to buyers of Kodak equipment who use Kodak service or repair their own machines.” Independent service organizations (ISOs) also serviced and repaired Kodak’s equipment, but Kodak limited access to other Kodak part sources. Specifically, Kodak entered into agreements with original-equipment manufacturers where the manufacturers agreed to not sell parts compatible with Kodak equipment to anyone other than Kodak. Simultaneously, Kodak would only sell parts to third parties who agreed not to use ISO services. As a result of Kodak’s policy, many ISOs were unable to obtain parts and went out of business—meaning consumers were forced to change to Kodak service, even though they preferred the ISO service. The Supreme Court found sufficient evidence of an unlawful tying scheme.
Turning to the facts at hand, Judge Griesbach explained that Harley-Davidson did not force tying conditions like Kodak. As the Court observed, Harley-Davidson “has not tied the sale of motorcycles to parts[,]” nor has it “imposed tying conditions on the purchase of parts or forced buyers to promise not to buy parts from a competitor.” And no Harley-Davidson policy “explicitly precluded [customers] from buying a motorcycle without agreeing to purchase Harley-Davidson parts.”
Nevertheless, the caselaw recognizes that a tie need not be explicit to be actionable. Plaintiffs, therefore, theorized that customers buying new Harley-Davidson motorcycles were forced between a choice of buying Harley-Davidson parts or risking losing warranty coverage, which made it unappealing to buy a competing product.
The Court was unconvinced. First, the Court faulted plaintiffs for making only “conclusor[y] assert[ions] that the risk of losing warranty coverage drives up the cost of owning a motorcycle altogether.” But, as the Court explained, a risk of losing warranty coverage is not sufficient to constitute coercion for antitrust tying purposes. Further, the Court concluded that restrictions limiting the warranty were not equivalent to requiring purchasing of a tied product. In short, the Court did not view the risk of forgoing warranty coverage from buying a non-Harley-Davidson part as an illegal tying arrangement. As such, the Court held that plaintiffs failed to state a tying claim. Further, without a properly pled tying claim, plaintiffs’ attempted monopolization claim was also dismissed.
In Re: Harley-Davidson Aftermarket Parts Marketing, Sales Practices, and Antitrust Litigation demonstrates that although tying arrangements need not be explicit to be actionable, relying on a theory of unlawful tying via forcing or coercion, to avoid a motion to dismiss, requires some level of specifically pleading how the alleged scheme makes it too expensive or burdensome to use a competitor’s product.
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