Origami Owl LLC v. Mayo et al

Filing 57

ORDER denying 52 Motion to Dismiss Counts/Claims. Signed by Judge David G Campbell on 8/7/2015.(DGC, nvo)

Download PDF
1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Origami Owl LLC, No. CV-15-00110-PHX-DGC Plaintiff, 10 11 v. 12 ORDER Julie E. Mayo, et al., 13 Defendants. 14 15 Origami Owl has moved to dismiss West Coast Charm’s antitrust counterclaims. 16 Doc. 52. The motion is fully briefed and neither side has requested oral argument. 17 Docs. 53, 54. The Court will deny the motion. 18 I. Background. 19 Origami Owl is in the business of low-priced jewelry. Doc. 20, ¶ 13. The jewelry 20 includes lockets, chains, dangles, tags, bracelets, and earrings. Id. Origami Owl sells its 21 products online as well as through a salesforce of independent “designers.” Id., ¶¶ 13-14. 22 Origami Owl has registered patents, trademarks, and copyrights that protect its unique 23 designs. Id., ¶ 18. Defendants West Coast Charms, LLC, 5th Avenue Pets, Julie Mayo, 24 and Ann Mayo are also in the business of ornamental jewelry. Id., ¶ 20. Origami 25 brought suit claiming infringement of its intellectual property rights. Doc. 1. 26 West Coast Charms, LLC (“WCC”) filed counterclaims against Origami Owl. 27 Doc. 48. WCC alleges that Origami Owl copies and reproduces jewelry that others have 28 designed. Id., ¶ 2. Origami allegedly discounts its retail prices for jewelry by eighty 1 percent from its wholesale prices. Id., ¶ 29. WCC also alleges that Origami “bull[ies] 2 competitors with false claims of proprietary intangible asset ownership” (id., ¶ 32) and 3 that competitors cannot compete with Origami’s pricing and “army of its so-called 4 designers” (id., ¶ 34). WCC claims that it owns various copyrights and a trademark that 5 Origami has infringed. Id., ¶¶ 38-103. 6 WCC also claims that Origami has violated antitrust laws under the Sherman Act. 7 Id., ¶¶ 104-24. Specifically, WCC claims that Origami has attempted to monopolize the 8 market and has conspired with its designers to restrain trade. Id. (citing 15 U.S.C. §§ 1- 9 2). Origami Owl moves to dismiss the antitrust counterclaims. 10 II. 11 Legal Standard. A party may move to dismiss a counterclaim for “failure to state a claim upon 12 which relief can be granted.” 13 counterclaim has failed to state a claim, the well-pled factual allegations are taken as true 14 and construed in the light most favorable to the nonmoving party. Cousins v. Lockyer, 15 568 F.3d 1063, 1067 (9th Cir. 2009). Legal conclusions couched as factual allegations 16 are not entitled to the assumption of truth. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 17 Furthermore, “the factual allegations that are taken as true must plausibly suggest an 18 entitlement to relief, such that it is not unfair to require the opposing party to be subjected 19 to the expense of discovery and continued litigation.” Starr v. Baca, 652 F.3d 1202, 1216 20 (9th Cir. 2011). This plausibility standard “is not akin to a ‘probability requirement,’ but 21 it asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 22 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). 23 III. Fed. R. Civ. P. 12(b)(6). In analyzing whether a Analysis. 24 Antitrust laws are designed for “the protection of competition, not competitors[.]” 25 Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962). Section 1 of the Sherman 26 Act makes unlawful “[e]very contract, combination . . . or conspiracy, in restraint of trade 27 or commerce[.]” 15 U.S.C. § 1. Section 2 makes unlawful the attempted or actual 28 monopolization of trade or commerce. Id. § 2. WCC brings claims under both of these -2- 1 sections. Origami Owl objects to these claims on various grounds, which the Court will 2 address in the order presented. 3 A. 4 Origami argues that WCC has failed to plausibly allege a relevant market. 5 “Failure to identify a relevant market is a proper ground for dismissing a Sherman Act 6 claim.” Tanaka v. Univ. of S. California, 252 F.3d 1059, 1063 (9th Cir. 2001) (citing Big 7 Bear Lodging Ass’n v. Snow Summit, Inc., 182 F.3d 1096, 1105 (9th Cir. 1999)). 8 Plausibly alleging the size and characteristics of the relevant market is a prerequisite to 9 claiming that a company has sufficient market power to build a monopoly or engage in 10 anticompetitive conduct within that market. Walker Process Equip., Inc. v. Food Mach. 11 & Chem. Corp., 382 U.S. 172, 177 (1965) (“Without a definition of [the relevant] market 12 there is no way to measure [the company’s] ability to lessen or destroy competition.”); 13 see also Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1044 & n.3 (9th Cir. 14 2008). Relevant Market. 15 “A ‘relevant market’ is determined by a product market and a geographic market.” 16 Portney v. CIBA Vision Corp., 593 F. Supp. 2d 1120, 1126 (C.D. Cal. 2008). “‘The outer 17 boundaries of a product market are determined by the reasonable interchangeability of 18 use or the cross-elasticity of demand between the product itself and substitutes for it.’” 19 Olin Corp. v. F.T.C., 986 F.2d 1295, 1298 (9th Cir. 1993) (quoting Brown Shoe Co., 370 20 U.S. at 325). “The geographic market extends to the area of effective competition . . . 21 where buyers can turn for alternative sources of supply.” Tanaka, 252 F.3d at 1063 22 (quotation marks and citations omitted). There is no requirement that the relevant market 23 “be pled with specificity,” but a court may dismiss an antitrust claim if its relevant- 24 market definition is “facially unsustainable.” Newcal Indus., 513 F.3d at 1045. 25 The allegations in WCC’s counterclaim are as follows: 26 23. There is a particular market in the United States with respect to purchasers purchasing on an online basis specially-designed custom costume charms, floating lockets, lanyard lockets, ornamental chains, ornamental plates, ornamental dangles, ornamental tags, necklaces, bracelets and earrings that do not incorporate precious jewels or metals that is typified by high-end jewelers and such specially-designed custom 27 28 -3- 1 2 3 4 5 6 7 8 9 costume products is known herein as the ‘Relevant Products’ and the online market in the United States is known herein as the “Market.” 24. Customers seeking the Relevant Products, particularly the specific design and/or customization aspect of the Relevant Products, do not have the same ability to acquire such products other than through online means as going to a physical retail outlet does not entail the same type of electronic ordering efficiency and capability as an online market. 25. Customers seeking the Relevant Products do not see fancy diamond or other precious metal jewelry as a substitute for the Relevant Products or vice versa. 26. Customers seeking specific design and customization do not see generic jewelry as a substitute for the Relevant Products. Doc. 48, ¶¶ 23-24. 10 WCC has plausibly alleged a relevant market. The product market consists of the 11 online market for customized, ornamental, and low-priced jewelry. The geographic 12 market is the United States. Origami Owl objects to the narrowing of the market to 13 online sales. Origami argues that local jewelry stores can compete with online sales and 14 that any claim to the contrary is implausible. Origami emphasizes that “[t]he relevant 15 market must include sellers or producers who have the actual or potential ability to 16 deprive one another of significant levels of business.” Doc. 52 at 8 (citing Thurman 17 Indus., Inc. v. Pay ‘N Pak Stores, Inc., 875 F.2d 1369, 1374 (9th Cir. 1989)). 18 Courts have found a claimant’s alleged relevant market to be implausible at the 19 motion to dismiss stage. In Tanaka, a student athlete complained of a university’s refusal 20 to allow her to transfer to a different school. 252 F.3d at 1061-62. For her antitrust 21 claim, she alleged that the “relevant geographic market is Los Angeles and the relevant 22 product market is the ‘UCLA women’s soccer program.’” 252 F.3d at 1063. She also 23 alleged that other universities across the country had recruited her. Id. Relying on this 24 fact, the Ninth Circuit found that numerous universities with athletic programs “compete 25 in the recruiting of student-athletes and, hence, are interchangeable with each other for 26 antitrust purposes.” Id. at 1064. Even though the claimant alleged that the UCLA 27 women’s soccer program was “unique,” the court found this conclusory allegation to be 28 insufficient. Id. at 1063. -4- 1 In Little Rock Cardiology Clinic PA v. Baptist Health, the claimant alleged that the 2 relevant product market was “the market for cardiology procedures obtained in hospitals 3 by patients covered by private insurance.” 591 F.3d 591, 596 (8th Cir. 2009) (emphasis 4 added). The claimant also alleged that doctors providing these cardiology procedures can 5 and did “accept payment from sources other than private insurers.” Id. at 597. Thus, the 6 claimant was attempting to narrow the market to cardiology procedures obtained by 7 patients covered by private insurance, even though the claimant admitted that the doctors 8 accepted public insurance. For that reason, the Eighth Circuit found the alleged relevant 9 market to be implausible. Id. at 597-98. 10 WCC’s allegations are not like those in Tanaka and Little Rock. WCC alleges that 11 the relevant market is online sales of certain types of jewelry. WCC further alleges a 12 reason for narrowing the market to online sales, namely, that customers are unable to 13 acquire these products at local retail stores and these stores do not have “the same type of 14 electronic ordering efficiency and capability as an online market.” Doc. 48, ¶ 24. These 15 allegations are not implausible, as was the allegation in Tanaka that the market was 16 limited to one university’s athletic program. 17 inconsistent, as were the allegations in Little Rock. Nor are WCC’s allegations internally 18 Origami Owl may well be correct that WCC’s alleged relevant market is unlikely 19 to survive summary judgment. But at this stage, the Court is required to assume the truth 20 of WCC’s allegations and to construe them in WCC’s favor. Cousins, 568 F.3d at 1067. 21 Furthermore, the definition of the relevant market is normally “a factual inquiry for the 22 jury.” Thurman Indus., 875 F.2d at 1374.1 23 1 24 25 26 27 28 There is one possible inconsistency in WCC’s allegations. WCC claims that Origami Owl employs over 50,000 designers “who actually constitute a massive salesforce across the United States[.]” Doc. 48, ¶ 22. If these designers are engaged in person-to-person sales, then WCC’s claim that the relevant market is limited to online sales might fail. Origami, however, does not address this inconsistency in its motion to dismiss, as it argues more generally that “there is no plausible reason alleged that noninternet sales are not alternative sources of supply for a consumer seeking to purchase jewelry, and no reason to accept WCC’s limitation of the market to online sales activity.” Doc. 52 at 9. Furthermore, WCC’s allegations regarding these “designers” are vague, and their role uncertain. Construing the allegations in WCC’s favor, the Court finds that the nature of the relevant market is a factual matter better resolved in summary judgment -5- 1 B. 2 Origami argues that WCC has failed to allege that Origami has “market power” 3 within the relevant market as required for an antitrust claim. See Newcal Indus., 513 F.3d 4 at 1044. Market power refers to a company’s ability to control output and prices, and its 5 existence “depends largely on the ability of existing firms to quickly increase their own 6 output in response to a contraction by the defendant.” Rebel Oil Co. v. Atl. Richfield Co., 7 51 F.3d 1421, 1441 (9th Cir. 1995). A claimant may demonstrate a defendant’s market 8 power by: (1) defining the relevant market, (2) showing that the defendant owns a 9 dominant share of that market, and (3) showing that there are significant barriers to entry 10 and that existing competitors lack the capacity to increase their output in the short run. 11 W. Parcel Exp. v. United Parcel Serv. of Am., Inc., 190 F.3d 974, 975 (9th Cir. 1999) 12 (quoting Rebel Oil, 51 F.3d at 1434). 13 14 Market Power. WCC has plausibly alleged that Origami has market power. First, WCC has defined the relevant market as the online market in certain types of ornamental jewelry. 15 Second, WCC has plausibly alleged that Origami owns a dominant share of that 16 market. See Doc. 48, ¶¶ 27 (“[Origami’s] sales of Relevant Products in the Market 17 equals or exceeds $250 million annually.”), 28 (“[Origami] is the largest seller of the 18 Relevant Products in the Market.”), 30 (“[Origami] is able to sell its products within the 19 Market at a significantly reduced price as compared to competitors based upon 20 [Origami’s] market power.”), 33 (“[Origami’s] competitors have lost market share as a 21 direct result of [Origami’s] predatory conduct in the Market.”). These allegations do not 22 specify the exact market share that Origami possesses, but construing the allegations in 23 favor of WCC, the Court may reasonably infer that Origami dominates the market.2 24 25 26 27 28 motions or at trial. The Court cannot conclude that the allegations fail to state a claim upon which relief can be granted. 2 The specificity of these allegations distinguishes this case from two cases that Origami cites. In POURfect Products v. KitchenAid, No. CV-09-2660-PHX-GMS, 2010 WL 1769413, at *2 (D. Ariz. May 3, 2010), the plaintiff merely alleged: “By virtue of its influence over its trade customers at the retail level of the market, KitchenAid possessed monopoly power in the relevant market of aftermarket attachments.” In Prime Healthcare Servs., Inc. v. Serv. Employees Int'l Union, No. 11-CV-2652-GPC-RBB, 2013 -6- 1 Third, WCC has plausibly alleged that there are significant barriers to entry in this 2 market and competitors lack the capacity to increase their output in the short run. The 3 barriers that WCC alleges are Origami’s employment of an “army” of 50,000 designers, 4 Origami’s misuse of intellectual property to “bully” competitors, and Origami’s 5 predatory pricing. Id., ¶¶ 29-35. WCC has further alleged that these barriers have 6 prevented competitors from entering the market and increasing output. Id., ¶¶ 34-35. 7 Origami faults WCC for failing to detail Origami’s alleged “bullying” and misuse 8 of intellectual property; for failing to explain how new entrants’ “diminished capability” 9 to compete translates into “significant barriers” to competition; and for failing to state 10 that Origami’s dominance in the market affects all competition as opposed to “certain 11 competitors.” The Court finds Origami’s objections to be too formalistic. WCC need not 12 plead every factual detail of its case, and has plausibly alleged that Origami dominates 13 the relevant market and stifles competition. 14 C. 15 Origami next argues that WCC has failed to allege an injury to competition, that 16 is, an antitrust injury. An antitrust claimant must allege an “antitrust injury, which is to 17 say injury of the type the antitrust laws were intended to prevent and that flows from that 18 which makes defendants’ acts unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 19 429 U.S. 477, 489 (1977). “Antitrust injury does not arise . . . until a private party is 20 adversely affected by an anticompetitive aspect of the defendant’s conduct.” 21 Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 339 (1990) (emphasis in original). 22 Thus, an antitrust claimant “must plead an injury to competition beyond the impact on the 23 [claimant] . . . . [and] may not substitute allegations of injury to the claimant[] for 24 allegations of injury to competition.” Brantley v. NBC Universal, Inc., 675 F.3d 1192, Antitrust Injury. Atl. 25 26 27 28 WL 3873074, at *15 (S.D. Cal. July 25, 2013), the plaintiff merely alleged: “Kaiser Defendants are the ‘dominant force in the alleged relevant hospital markets, with substantial market share and power.’” In both of these cases, the courts found the plaintiff’s allegations regarding market power to be conclusory. Unlike these cases, WCC has set forth specific factual allegations. These allegations raise a reasonable inference that Origami Owl has market power. -7- 1 1198, 1200 (9th Cir. 2012). “[A] claimant must, at a minimum, sketch the outline of [the 2 injury to competition] with allegations of supporting factual detail.” Id. (quotation marks 3 and citations omitted). 4 WCC has plausibly alleged that Origami Owl’s predatory pricing has injured 5 competition – an antitrust injury. Predatory pricing occurs when a company sets prices 6 below the company’s marginal costs to drive out competition, and then raises prices 7 above competitive levels to recoup any losses suffered. Rebel Oil, 51 F.3d at 1433-34; 8 see also Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 318 9 (2007). A company’s predatory pricing causes antitrust injury to competitors because 10 they are unable to compete with the predatory company and the market suffers 11 disequilibrium. See Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 339 (1990). 12 “[T]o prevail on a predatory pricing claim, a plaintiff must demonstrate that: (1) ‘the 13 prices complained of are below an appropriate measure of its rival’s costs’; and (2) there 14 is a ‘dangerous probability’ that the defendant will be able to recoup its ‘investment’ in 15 below-cost prices.” Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438, 451 16 (2009) (citations omitted).3 17 WCC alleges that Origami “is able to sell the Relevant Products in the Market 18 using predatory pricing by discounting its prices for the Relevant Products to retail 19 customers at eighty percent reductions from wholesale pricing” (Doc. 48, ¶ 29); Origami 20 “is able to sell its products within the Market at a significantly reduced price as compared 21 to competitors” (id., ¶ 30); Origami “is able to sell its products within the Market at a 22 23 24 25 26 27 28 3 The Supreme Court has used this two-part test in the context of monopolization claims under Section 2 of the Sherman Act. The law is unsettled as to whether the second part of the test – a dangerous probability of raising prices above competitive levels – applies to claims under Section 1. See, e.g., Energy Conversion Devices Liquidation Trust ex rel. Madden v. Trina Solar Ltd., No. 13-14241, 2014 WL 5511517, at *4-5 (E.D. Mich. Oct. 31, 2014) (finding that a Section 1 claimant must demonstrate a dangerous probability of recoupment); Solyndra Residual Trust , by & through Neilson v. Suntech Power Holdings Co., 62 F. Supp. 3d 1027, 1042 (N.D. Cal. 2014) (“[A] defendant’s recoupment of losses resulting from its below cost pricing need not be alleged to state a claim under § 1.”). The Court finds it unnecessary to resolve this issue now because WCC has plausibly alleged that there is a dangerous probability that Origami will raise its prices above competitive levels. -8- 1 significantly reduced price as compared to competitors due to the fact that [Origami] 2 engages in Deceptive Copying Acts rather than investing in original creative designs” 3 (id., ¶ 31); Origami’s predatory conduct has caused competitors to lose market share (id., 4 ¶ 33); and Origami “has stifled new entrants into the Market by way of new entrants’ 5 diminished capability to compete with [Origami’s] pricing, [Origami’s] army of so-called 6 designers and in fear of [Origami’s] bullying tactics involving claims of intellectual 7 property ownership” (id., ¶ 34). 8 9 The Court finds these allegations sufficient for a predatory pricing claim. True, WCC does not specifically allege that Origami’s prices are below cost. But this 10 allegation may be reasonably inferred from WCC’s allegations that Origami discounts its 11 retail prices at “eighty percent reductions from wholesale pricing,” sells its products at 12 “significantly reduced price[s] as compared to competitors,” and is able to set these 13 significantly reduced prices due to “deceptive copying acts” (i.e., by infringing on others’ 14 intellectual property). If the misuse of others’ intellectual property is what enables 15 Origami to set low prices, then the Court may reasonably infer that those prices are below 16 cost. 17 Also true, WCC does not specifically allege that there is a dangerous probability 18 that Origami will set higher prices after it drives out the competition. But this allegation 19 may be reasonably inferred from WCC’s allegations that Origami has engaged in below- 20 cost pricing and thereby increased its market share. See Solyndra, 62 F. Supp. 3d at 21 1042-43 (finding that Plaintiff alleged a dangerous probability of recoupment by alleging 22 defendants’ predatory pricing and increased market share). If Origami is driving out 23 competition by predatory pricing and misusing intellectual property, then the Court may 24 reasonably infer a dangerous probability that Origami will use its strengthened position to 25 raise prices above competitive levels.4 26 4 27 28 For its argument that WCC has not plausibly alleged a dangerous probability of recoupment, Origami cites Korea Kumho Petrochemical v. Flexsys America LP, No. C07-01057 MJJ, 2008 WL 686834, at *9 (N.D. Cal. Mar. 11, 2008). In Korea, the claimant’s sole allegation regarding dangerous probability was: “Given Flexsys’s dominance of the U.S. 6PPD market, there was a dangerous probability that it would by -9- 1 In sum, WCC has plausibly alleged a claim of predatory pricing and thereby 2 alleged an antitrust injury. Although, as Origami points out, parts of the counterclaim 3 speak only of the injuries that WCC has suffered (Doc. 48, ¶¶ 110, 122), other parts 4 speak clearly of the injuries that competition has suffered due to Origami’s 5 anticompetitive conduct. See id., ¶¶ 34-35. 6 D. 7 Origami argues that WCC’s attempted monopolization claim is defective. Section 8 2 of the Sherman Act makes it unlawful to “monopolize, or attempt to monopolize, or 9 combine or conspire with any other person or persons, to monopolize any part of the 10 trade or commerce among the several States[.]” 15 U.S.C. § 2. “[T]he statute targets ‘the 11 willful acquisition or maintenance of that power as distinguished from growth or 12 development as a consequence of a superior product, business acumen, or historic 13 accident.’” Pacific Bell, 555 U.S. at 448 (quoting United States v. Grinnell Corp., 384 14 U.S. 563, 570-71 (1966)). “‘[T]o demonstrate attempted monopolization a plaintiff must 15 prove (1) that the defendant has engaged in predatory or anticompetitive conduct with 16 (2) a specific intent to monopolize and (3) a dangerous probability of achieving 17 monopoly power.’” Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 893 (9th 18 Cir. 2007) (quoting Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993)). Section 2 Attempted Monopolization Claim. 19 Origami argues that WCC has failed to allege Origami’s specific intent to 20 monopolize. The Court disagrees. “[S]pecific intent . . . may be inferred from conduct 21 [that is] predatory or clearly in restraint of competition[.]” Thurman Indus., 875 F.2d at 22 1378; see also Arminak & Associates, Inc. v. Saint-Gobain Calmar, Inc., 789 F. Supp. 2d 23 1201, 1205 (C.D. Cal. 2011) (“Specific intent to monopolize may be inferred from . . . 24 conduct forming the basis for a substantial claim of restraint of trade or conduct that is 25 clearly threatening to competition or clearly exclusionary, but the focus must be on proof 26 27 28 its unlawful actions achieve monopoly power in violation of Section 2 of the Sherman Act.” The district court found this to be a legal conclusion, noting also that the claimant had made other allegations that cut against a dangerous probability of recoupment. Here, by contrast, WCC has alleged that Origami has increased its market share and the manner by which it has done so. - 10 - 1 of unfair or predatory conduct.” (quotation marks and citations omitted)).5 As already 2 noted, WCC has plausibly alleged that Origami Owl is engaged in predatory pricing and 3 that there is a dangerous probability that Origami will recoup its investment by raising its 4 prices above competitive levels, thereby achieving monopoly power. The Court may 5 infer Origami’s specific intent to monopolize from this conduct. 6 E. 7 Origami argues that WCC has failed to allege that Origami and its designers 8 agreed or conspired to restrain trade or commerce. To state a claim under 15 U.S.C. § 1, 9 a claimant must plead: (1) a contract, combination, or conspiracy among two or more 10 persons or distinct business entities; (2) by which the persons or entities intended to harm 11 or restrain trade or commerce; (3) which actually injures competition. Brantley, 675 F.3d 12 at 1197 (quoting Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047 (9th Cir. 2008)). 13 Unless a claimant alleges a per se violation of the Sherman Act (which WCC has not), a 14 court must assess whether an agreement harms or restrains trade under a rule-of-reason 15 analysis. See Paladin Assocs., Inc. v. Mont. Power Co., 328 F.3d 1145, 1154 (9th Cir. 16 2003); see also State Oil Co. v. Khan, 522 U.S. 3, 10 (1997) (stating that Section 1 17 “outlaw[s] only unreasonable restraints” of trade or commerce). The rule of reason tests 18 “‘whether the restraint imposed is such as merely regulates and perhaps thereby promotes 19 competition or whether it is such as may suppress or even destroy competition.’” Id. at 20 1156 n.9 (quoting Bd. of Trade of City of Chicago v. United States, 246 U.S. 231, 238 21 (1918)). Section 1 Restraint of Trade Claim. 22 WCC has plausibly alleged a violation of Section 1. First, WCC has alleged an 23 agreement between Origami Owl and individual “designers,” who act as a “salesforce” 24 25 26 27 28 5 In its reply, Origami emphasizes that Spectrum Sports overruled Ninth Circuit cases that “had previously ruled that evidence of unfair or predatory conduct could satisfy both the specific intent and dangerous probability elements of attempted monopolization[.]” Doc. 54 at 13 (citing 506 U.S. 447). But Spectrum Sports was clear that predatory “conduct may be sufficient to prove the necessary intent to monopolize,” even though such conduct alone could not prove a dangerous probability of monopolization. 506 U.S. at 459. Thus, the Court may infer Origami’s intent to monopolize from its alleged predatory conduct. - 11 - 1 for Origami. 2 contractual restraints to sell only the Relevant Products provided by [Origami] 3 incorporating the copyrights and patents that are the subject of the Deceptive Copying 4 Acts.” Id., ¶ 114. The agreement also includes “price constraints” on “the designers.” 5 Id., ¶ 121. Thus, the agreement between Origami and its designers is alleged to be both 6 an exclusive-dealing agreement and an agreement to fix the maximum price at which the 7 designers may sell Origami’s product. Doc. 48, ¶ 22. This agreement “binds” the designers “to exclusive 8 Second, WCC has plausibly alleged that the parties intended to harm or restrain 9 trade or commerce. An antitrust claimant must show that “the actors had an intent to 10 adhere to an agreement that was designed to achieve an unlawful objective; it is not 11 required that the proof show the actors specifically intended to restrain trade.” Capital 12 Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs., Inc., 996 F.2d 537, 545 (2d Cir. 13 1993); see also United States v. Griffith, 334 U.S. 100, 105 (1948); Paladin Assocs., 328 14 F.3d at 1153-54. WCC has alleged that the parties’ intended agreement was designed to 15 achieve an unlawful objective, namely, to engage in predatory pricing. As already 16 explained, WCC has plausibly alleged a claim of predatory pricing, and such an 17 agreement may violate the Sherman Act under the rule of reason. See Khan, 522 U.S. at 18 22; USA Petroleum Co., 495 U.S. at 339.6 19 20 Third, WCC has alleged an injury to competition. This injury consists of the harm imposed by predatory pricing. In sum, while many of WCC’s allegations may be 21 6 22 23 24 25 26 27 28 The Court notes that WCC has alleged another way in which the agreement between Origami Owl and its designers may be an unreasonable restraint on trade, namely, that the agreement is an exclusive-dealing agreement. An exclusive-dealing agreement is one “between a vendor and a buyer that prevents the buyer from purchasing a given good from any other vendor.” Allied Orthopedic Appliances Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991, 996 (9th Cir. 2010). “‘[A]n exclusive-dealing arrangement does not constitute a per se violation of section 1.’” Id. (quoting Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1303-04 (9th Cir. 1982)). “Under the antitrust rule of reason, an exclusive dealing arrangement violates Section 1 only if its effect is to ‘foreclose competition in a substantial share of the line of commerce affected.’” Id. (quoting Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir. 1997)). Because WCC’s allegations regarding an agreement to engage in predatory pricing suffice to support its Section 1 claim, the Court finds it unnecessary to address whether WCC’s allegations regarding the exclusive-dealing agreement also suffice to support its claim. - 12 - 1 conclusory, WCC has plausibly alleged a violation of Section 1. 2 III. Conclusion. 3 Origami Owl’s alleged predatory pricing forms an important part of WCC’s 4 antitrust claims. The Court is mindful that “[i]n cases seeking to impose antitrust liability 5 for prices that are too low, mistaken inferences are ‘especially costly, because they chill 6 the very conduct the antitrust laws are designed to protect,’” Pacific Bell, 555 U.S. at 451 7 (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986)), 8 and that the Supreme Court has “carefully limited the circumstances under which 9 plaintiffs can state a Sherman Act claim by alleging that prices are too low,” id. 10 Nevertheless, WCC has plausibly alleged that Origami Owl is engaged in predatory 11 pricing within a particular market, and the Court will not dismiss WCC’s claims at this 12 stage in the case. 13 IT IS ORDERED that Origami Owl’s motion to dismiss (Doc. 52) is denied. 14 Dated this 7th day of August, 2015. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 13 -

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.

Why Is My Information Online?