Shortline Distribution, Dealer Purity Face Off in North Dakota

Regular readers of this publication will recall that in March we told you about legislation supported by the North Dakota Implement Dealers Association (NDIDA) that, if passed into law, would add a number of restrictions to the relationship between a manufacturer and North Dakota equipment dealers. That legislation passed both bodies of the state legislature with overwhelming majorities. The governor signed it into law, and it was scheduled to take effect August 1. 

In late July, a complaint (AEM et al. vs. North Dakota) was filed. The plaintiffs asked the federal court to block the law on constitutional grounds. We have followed developments in this litigation closely, and, while not a party to the action, we are concerned. We believe this suit seeks to defend “dealer purity” under the protection of federal trademark law (Lanham Act).

Last week, North Dakota’s attorney general responded strongly to AEM’s (plaintiffs) request for a preliminary injunction, blocking the new law from taking effect. Below are brief excerpts and conclusions from the state’s 28-page response. (Links to full State Response)

• Placing two competing manufacturers’ products side-by-side on the dealer lot does not implicate the Lanham Act. Indeed, public interest would be served by allowing consumers to select the most appropriate product for their needs and reducing the distance a consumer has to travel in rural North Dakota to shop for the various products offered by farm equipment implement dealers.
   
• Manufacturers do not give dealers opportunities to negotiate terms of these agreements; rather, dealers, who already are locked into a relationship with the manufacturer by reason of the substantial investments they have made, have little choice but to sign these agreements since the manufacturers present them on a “take it or leave it basis.” Realistically, the dealer does not have the option to “leave it,” since that would amount to abandoning the huge investment the dealer has made in its business and livelihood. 
   
• If manufacturers are allowed free rein to act arbitrarily; to make them buy huge quantities of useless products, to refuse to allow them to sell to qualified buyers, to make them drop lines that they need in order to survive, or to condition the continuance of their businesses upon agreement to onerous and unfair dispute resolution terms—the narrow margin that dealers subsist on today will likely be disrupted. 
   
• The disputed provisions here allow a dealer to decide the product display within the dealership to be free from forced premises renovations, to be free from a required amount of inventory, and to propose a transfer of license agreements. The disputed provisions do not, however, allow a dealer to alter a product’s quality or a product’s trademark.
   
• Although the Plaintiffs do not cite the specific Lanham Act violation, they broadly argue public interest will be served by “reducing the risks for consumer confusion or deception caused by Senate Bill 2289’s effects on federally registered trademarks. No provision in SB 2289 allows a dealer to alter a trademark or product. The notion that a dealer would be allowed to place a Case tractor next to a Caterpillar tractor is not a cause for confusion.

I urge Association members concerned with “dealer purity” to follow this case on our website in a more in-depth format. We will discuss it at the convention in Houston during our Dealer Relations Committee meeting and during no-cost, one-on-one meetings with our attorney Trent Johnson. If you have questions, Houston is the place to get answers. Along with our leadership, I look forward to visiting with you in the convention in November.

Vernon Schmidt, Executive Vice President 
Farm Equipment Manufacturers Association