Realnetworks, Inc. et al v. DVD Copy Control Association, Inc. et al

Filing 444

MOTION to Dismiss NOTICE OF MOTION AND MOTION OF DVD COPY CONTROL ASSOCIATION, INC. TO DISMISS COUNTERCLAIMS filed by DVD Copy Control Association, Inc.. Motion Hearing set for 9/14/2009 02:00 PM in Courtroom 15, 18th Floor, San Francisco. (Attachments: # 1 Proposed Order)(Steer, Reginald) (Filed on 7/14/2009)

Realnetworks, Inc. et al v. DVD Copy Control Association, Inc. et al

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1 REGINALD D. STEER (SBN 056324) [e-mail] 2 MARIA ELLINIKOS (SBN 235528) [e-mail] 3 AKIN GUMP STRAUSS HAUER & FELD LLP 580 California Street, 15th Floor 4 San Francisco, California 94104-1036 Telephone: [phone] Facsimile: [phone] 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
MOTION OF DVD CCA TO DISMISS CASE NO. C08 04548 MHP; C08 CV 04719 MHP

STEPHEN MICK (SBN 131569) [e-mail] MICHAEL SMALL (SBN 222768) [e-mail] AKIN GUMP STRAUSS HAUER & FELD LLP 2029 Century Park East, Suite 2400 Los Angeles, California 90067-3012 Telephone: [phone] Facsimile: [phone] Attorneys for Defendant and Counterclaimant DVD COPY CONTROL ASSOCIATION, INC.

WILLIAM SLOAN COATS (SBN 94864) [e-mail] MARK WEINSTEIN (SBN 193043) [e-mail] MARK F. LAMBERT (SBN 197410) [e-mail] WHITE & CASE LLP 3000 El Camino Real 5 Palo Alto Square, 9th Floor Palo Alto, California 94306 Telephone: [phone] Facsimile: [phone]

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA REALNETWORKS, INC., a Washington Corporation; and REALNETWORKS HOME ENTERTAINMENT, INC., a Delaware corporation, Plaintiffs, v. DVD COPY CONTROL ASSOCIATION, INC., a Delaware nonprofit corporation, et al. Defendants. Case No. C08 04548 MHP Related Case No. C08 CV 04719 MHP NOTICE OF MOTION AND MOTION OF DVD COPY CONTROL ASSOCIATION, INC. TO DISMISS COUNTERCLAIMS Before: Courtroom: Date: Time: Hon. Marilyn Hall Patel 15 September 14, 2009 2:00 p.m.

AND RELATED CASES

[Proposed Order filed herewith]

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TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE THAT, on September 14, 2009, at 2:00 pm, or such other date and

3 time as the Court may establish, before the Honorable Marilyn Hall Patel of the United States District 4 Court for the Northern District of California, 450 Golden Gate Avenue, San Francisco, California, 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
MOTION OF DVD CCA TO DISMISS CASE NO. C08 04548 MHP; C08 CV 04719 MHP

Defendant and Counterclaimant DVD Copy Control Association ("DVD CCA") will and hereby does move pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure, for dismissal of the Counterclaims of RealNetworks, Inc. and RealNetworks Home Entertainment, Inc. (collectively, "RealNetworks") against DVD CCA. This Motion is based upon this Notice of Motion and Motion, the attached Supporting Memorandum of Points and Authorities, the pleadings, records, and papers on file in this action, such other papers as may be filed at or before the hearing, the oral arguments of counsel, and any other matters properly before the Court. Dated: July 14, 2009 Respectfully submitted, AKIN GUMP STRAUSS HAUER & FELD LLP WHITE & CASE LLP

By

/s/ REGINALD D. STEER Attorneys for Defendant and Counterclaimant DVD COPY CONTROL ASSOCIATION, INC.

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1 2 3 I. 4 II. 5 III. 6 7 8 9 10 11 12 13 14 IV. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 E. C. D. B.

TABLE OF CONTENTS Page No. INTRODUCTION ...............................................................................................................1 STATEMENT OF FACTS ...................................................................................................1 ARGUMENT.......................................................................................................................5 A. The Counterclaims Do Not Adequately Allege That DVD CCA Participated In Any Conspiracy To Violate The Antitrust Laws..............................5 The Sherman Act Claim Must Be Dismissed For The Independent Reason That The Alleged Conspiratorial Conduct of DVD CCA Is Immunized Under The Noerr-Pennington Doctrine ................................................8 Alternatively, The Sherman Act Claim Must Be Dismissed At Least Insofar As It Asserts Per Se Liability Against DVD CCA.............................9 RealNetworks's Cartwright Act Claim Fails For The Same Reasons As Its Federal Antitrust Claim ............................................................................... 11 RealNetworks's UCL Claim Fails For The Same Reasons As Its Federal Antitrust Claim..........................................................................................12

CONCLUSION..................................................................................................................12

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TABLE OF AUTHORITIES Page No. CASES Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).................................................................................................. 5, 6

5 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).............................................................................................. 5, 6, 7, 9 6 Blank v. Kirwan, 39 Cal. 3d 311 (1985) ..................................................................................................... 11 7 8 Chavez v. Whirlpool Corp., 93 Cal. App. 4th 363 (2001)............................................................................................ 12 9 Conley v. Gibson, 355 U.S. 41 (1957)........................................................................................................ 5, 7 10 Corp. v. Independence Tube Corp., 11 CopperweldU.S. 752 (1984)...................................................................................................... 7, 8 467 12 Exxon Corp. v. Superior Court, 51 Cal. App. 4th 1672 (1997).......................................................................................... 11 13 Freeman v. Lasky, Haas & Cohler, 14 410 F.3d 1180 (9th Cir. 2005) ........................................................................................... 8 15 Freeman v. San Diego Ass'n of Realtors, 77 Cal. App. 4th 171 (1999)............................................................................................ 11 16 Hal Roach Studios, Inc. v. Richard Feiner & Co., 17 896 F.2d 1542 (9th Cir. 1990) ........................................................................................... 2 18 In re ATM Fee Antitrust Litig., 554 F. Supp. 2d 1003 (N.D. Cal. 2008) ...................................................................... 9, 10 19 Jack Russell Terrier Network of N. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027 (9th Cir. 2005) ........................................................................................... 8 20 21 Kendall v. Visa U.S.A., Inc., 518 F.3d 1042 (9th Cir. 2008) ............................................................................... 5, 6, 7, 9 22 Morrison v. Viacom, Inc., 66 Cal. App. 4th 534 (1998)............................................................................................ 11 23 Estate Investors v. Columbia Pictures Indus., 24 Prof'l Real U.S. 49 (1993)............................................................................................................ 8 508 25 Rick-Mik Enters. v. Equilon Enters., 532 F.3d 963 (9th Cir. 2008) ............................................................................................. 5 26 Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 27 792 F.2d 210 (D.C. Cir. 1986) ........................................................................................ 10 28
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SC Manufactured Homes, Inc. v. Liebert, 162 Cal. App. 4th 68 (2008)............................................................................................ 12 State of Cal. ex rel. Van de Kamp v. Texaco, Inc., 46 Cal. 3d 1147 (1988) ................................................................................................... 11 Texaco, Inc. v. Dagher, 547 U.S. 1 (2006).................................................................................................... 8, 9, 10 STATUTES National Cooperative Research and Production Act, 15 U.S.C. §§ 4301-4305.................... 11, 12 66 Fed. Reg. 40,727 (Aug. 3, 2001)........................................................................................ 2, 11 74 Fed. Reg. 17,985 (Apr. 20, 2009) ............................................................................................ 2 OTHER AUTHORITIES Antitrust Modernization Commission, Report and Recommendations 118 (2007).................... 10

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MEMORANDUM OF POINTS AND AUTHORITIES INTRODUCTION The Sherman Act counterclaim brought by RealNetworks against DVD CCA is riddled with fatal

4 deficiencies. First, RealNetworks does not allege that DVD CCA has refused it anything at all. To the 5 contrary, it is undisputed that DVD CCA dealt with RealNetworks in the only capacity it could: by 6 granting RealNetworks exactly the CSS license it requested. Therefore, RealNetworks does not and 7 cannot plausibly allege that DVD CCA took part in any concerted refusal to deal. 8 Moreover, RealNetworks's Sherman Act counterclaim is subject to dismissal for at least the

9 following additional reasons: (1) DVD CCA's conduct as licensor of CSS technology cannot be part of 10 an antitrust conspiracy because it is the conduct of a single entity, not of more than one entity as is 11 required to state a claim for an antitrust conspiracy and (2) all of DVD CCA's conduct that is alleged to 12 be part of the supposed conspiracy is immunized from liability by the Noerr-Pennington doctrine. 13 Because RealNetworks's other claims, for violation of California's Cartwright Act and Unfair 14 Competition Law ("UCL"), are premised on the exact same allegations as RealNetworks's Sherman Act 15 claim, the California law claims fail as well. Accordingly, DVD CCA respectfully requests that 16 RealNetworks's counterclaims be dismissed in their entirety. Alternatively, DVD CCA submits that 17 RealNetworks's counterclaims should be dismissed pursuant to the "core activity" doctrine and statutory 18 law applicable to joint ventures, to the extent that the claims purport to allege per se federal and state 19 antitrust liability against DVD CCA. 20 II. 21 22 23 24 25 26 27 28 This Statement of Facts draws from the facts alleged in RealNetworks's complaint and counterclaims and their exhibits, from RealNetworks's answers to the complaints of DVD CCA and the Studios and from judicially noticeable matters. DVD CCA does not concede the truth of RealNetworks's fact allegations, nor does it concede the truthfulness of RealNetworks's characterizations of underlying facts (for example, RealNetworks's mischaracterizations of preliminary injunction hearing testimony in paragraphs 13-15 of the counterclaims). 1
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STATEMENT OF FACTS1 Before making DVDs commercially available to the public, owners of movie and television

content were understandably reluctant to distribute content on DVDs without a way to protect their copyrighted material. To address these concerns, as well as the concerns of companies seeking to cost-

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effectively manufacture products for playing DVDs, Matsushita Electric Industrial, Inc., Ltd.

2 ("Matsushita") and Toshiba Corporation developed the DVD Content Scramble System ("CSS") 3 technology. RealNetworks Complaint Ex. 1 ("License Agreement") Recital A2. The CSS technology 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The Court may consider the CSS License Agreement in the context of this motion to dismiss, because RealNetworks attached the CSS License Agreement as Exhibit 1 to its Complaint for Declaratory Relief. See Dkt. No. 2; Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990) (materials properly submitted with the complaint are part of the complaint for purposes of a 12(b)(6) motion). 2
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encrypts the video information on a DVD to prevent unauthorized consumer copying of copyrighted content. Id.; RealNetworks Complaint ¶ 20. Manufacturers desiring to create products to play back CSS-protected DVDs must obtain a CSS license. RealNetworks Complaint ¶¶ 20-21. That license, first referred to as the CSS Interim License Agreement (collectively with all subsequent versions of the CSS License Agreement and integrated documents, the "Agreement"), was originally administered by Matsushita, one of the original developers of CSS. See License Agreement Recitals A & B (noting that Matsushita was a developer of CSS), §1.10 (defining "CSS Interim License Agreement" and naming Matsushita as interim licensor). Responsibility for licensing and enforcing CSS technology now rests with DVD CCA, a Delaware not-for-profit corporation. See id.; RealNetworks Complaint ¶ 12; RealNetworks Counterclaims ¶ 47. Over the course of its existence, the DVD CCA's membership has included not only the Studios, but hundreds of other companies in the consumer electronics, computer software and information technologies industries. See, e.g., 66 Fed. Reg. 40,727-40,729 (Aug. 3, 2001) (Department of Justice Antitrust Division notice listing DVD CCA's members); 74 Fed. Reg. 17,985 (Apr. 20, 2009) (noting changes in DVD CCA's membership). The entities that have been licensed by DVD CCA to use the CSS technology include owners and manufacturers of content distributed on DVD discs, creators of encryption engines, hardware and software decrypters, and manufacturers of DVD Players and DVDROM drives. RealNetworks Complaint ¶¶ 20-21; RealNetworks Counterclaims ¶ 47. RealNetworks became a CSS Licensee to obtain the decryption keys and other CSS technical information needed to implement playback of CSS-protected DVD content, so that it could make and sell its RealDVD software. RealNetworks Counterclaims ¶ 59. RealNetworks executed the Agreement

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on August 13, 2007, with the understanding that the Agreement establishes the terms and conditions under which RealNetworks may use CSS. RealNetworks Answer to DVD CCA Counterclaims ("RealNetworks Answer") ¶ 9; RealNetworks Counterclaims ¶ 59. The terms of the Agreement explicitly require RealNetworks to abide by the CSS Specifications in full. See License Agreement §

5 4.2.1. Moreover, at the time RealNetworks executed the Agreement, it was well aware of DVD CCA's 6 interpretation of the Agreement as barring devices that allow consumers to make copies of CSS7 protected DVDs. RealNetworks Counterclaims ¶ 22. RealNetworks was familiar with DVD CCA's 8 publicly-stated positions in the state court action DVD CCA v. Kaleidescape, Inc., No.1:04 CV 031829 9 (Cal. Superior Ct., Mar. 29, 2007), which is under submission before a California appellate court.

10 RealNetworks Counterclaims ¶¶ 22-23. 11 Nevertheless, RealNetworks developed, marketed and planned on distributing RealDVD, a

12 product that enables copying of CSS-protected DVD content onto a hard drive for later playback without 13 the DVD present, thereby thwarting the CSS technology's purpose of preventing unauthorized consumer 14 copying. License Agreement Recital A; RealNetworks Answer ¶ 12. RealNetworks slated RealDVD 15 for launch on September 30, 2008. RealNetworks Counterclaims ¶ 60. 16 In September 2008, shortly before launching RealDVD, RealNetworks allegedly approached the

17 Studios to seek agreements relating to the Studios' content in light of RealDVD's copying capabilities. 18 RealNetworks Counterclaims ¶¶ 7-9 ("Before RealNetworks released Vegas, RealNetworks approached 19 the Studios to notify them of the product, and to explore mutual marketing opportunities"; referring to 20 "the negotiations between RealNetworks and the Studios"). There is no allegation that DVD CCA 21 participated in these discussions. See generally id. (omitting any mention of DVD CCA). Indeed, 22 RealNetworks never alleges that DVD CCA owns or has any right to license the content that 23 RealNetworks discussed with the Studios. 24 Soon after, on September 30, 2008, RealNetworks filed a declaratory judgment action in this

25 Court against the Studios and DVD CCA. Id. at ¶ 60. On the same day, the Studios filed a complaint in 26 the Central District of California for, inter alia, breach of the Agreement as third-party beneficiaries and 27 violations of the Digital Millennium Copyright Act, and seeking a temporary restraining order enjoining 28
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RealNetworks from distributing RealDVD. Id.; see also Complaint, Universal City Studios Prods. v.

2 RealNetworks, Inc., No. C-08-04719-MHP (N.D. Cal. Sept. 30, 2008) (Dkt. No. 1); Notice of 3 Application and Ex Parte Application of Plaintiffs for Temporary Restraining Order, Universal City 4 Studios (N.D. Cal. Sept. 30, 2008) (Dkt. No. 7). The Central District action was transferred to this 5 Court, which granted the temporary restraining order. DVD CCA then counterclaimed against 6 RealNetworks for breach of the Agreement and the implied covenant of good faith and fair dealing. 7 RealNetworks Counterclaims ¶ 61. DVD CCA and the Studios subsequently filed motions for a 8 preliminary injunction against the sale of RealDVD. Id. The hearing on these motions for preliminary 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 RealNetworks simultaneously moved to file a proposed second amended complaint alleging these same causes of action against the Studios. Dkt. No. 324. 28 4
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injunction took place before this Court in April and May 2009. On May 13, 2009, in the midst of the preliminary injunction hearing, RealNetworks filed counterclaims in reply to DVD CCA's breach of contract and implied covenant counterclaims, alleging federal and state antitrust and unfair competition causes of action. RealNetworks alleged in its counterclaims that it "approached the Studios to notify them of the [RealDVD] product, and to explore mutual marketing opportunities," but that it "was unable to conclude a deal with any of the Studios." RealNetworks Counterclaims ¶¶ 7-9 (emphasis added). RealNetworks also characterized as an alleged "horizontal group boycott" an agreement among "[t]he Studios . . . that they would claim that they cannot enter into individual [marketing and licensing] agreements with RealNetworks." Id. at ¶¶ 10-11 (emphasis added). Moreover, RealNetworks's counterclaims include a section entitled "The Group Boycott: Refusing to Deal with RealNetworks," alleging that "[t]he Studios have entered into a `contract, combination, or conspiracy,' within the meaning of Section 1, among the Studios." Id. at ¶ 70; see also id. at ¶¶ 40-44 (accusing only Studios of "making these agreements," entering into an "illegal scheme," having a "collective agreement not to negotiate individual licenses for their content with RealNetworks," and having an "illegal agreement"). None of the aforementioned paragraphs alleges any involvement in the supposed "group boycott" by DVD CCA.3 Indeed, RealNetworks's only factual

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allegations against DVD CCA all attack only its "interpretation of the CSS License Agreement." Id. at ¶ 37; see also id. at ¶¶ 34, 36, 38, 71, 81, 90. III. ARGUMENT A. The Counterclaims Do Not Adequately Allege That DVD CCA Participated In Any Conspiracy To Violate The Antitrust Laws

The Supreme Court's landmark opinion in Bell Atlantic Corp. v. Twombly holds that to survive a

7 motion to dismiss, an antitrust complaint must contain "enough factual matter (taken as true) to suggest 8 that an agreement was made" to violate the antitrust laws. 550 U.S. 544, 556 (2007); see Kendall v. Visa 9 U.S.A., Inc., 518 F.3d 1042, 1047 (9th Cir. 2008) (applying Twombly); Rick-Mik Enters. v. Equilon 10 Enters., 532 F.3d 963, 970 (9th Cir. 2008) (same). Under this pleading standard, "an allegation of 11 parallel conduct and a bare assertion of conspiracy will not suffice" to defeat a motion to dismiss. 12 Twombly, 550 U.S. at 556; see also id. at 564, n.9 ("descriptions of parallel conduct" pled in conjunction 13 with allegations that defendants "engaged in a contract, combination or conspiracy and agreed not to 14 compete with one another" were insufficient to survive a motion to dismiss) (internal quotations 15 omitted); accord Kendall, 518 F.3d at 1047. Following Twombly, the Ninth Circuit has held that "to 16 allege an agreement between antitrust co-conspirators, the complaint must allege facts such as a `specific 17 time, place or person involved in the alleged conspiracies.'" Kendall, 518 F.3d at 1047 (emphasis 18 added) (quoting Twombly, 550 U.S. at 565 n.10); see also id. at 1048 (dismissing complaint because it 19 "does not answer the basic questions: who, did what, to whom (or with whom), where, and when?"). 20 The Supreme Court's ruling in Twombly "`retired' the familiar language derived from Conley v.

21 Gibson which provided `the accepted rule that a complaint should not be dismissed for failure to state a 22 claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim 23 which would entitle him to relief.'" Rick-Mik, 532 F.3d at 971 (quoting Twombly, 550 U.S. at 561 24 25 26 27 28
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(citing Conley, 355 U.S. 41, 45-46 (1957))) (internal citations omitted); see also Kendall, 518 F.3d at 1047 n.5 (observing that the Twombly court "specifically abrogated the usual `notice pleading' rule" for the purpose of antitrust pleadings); accord Rick-Mik, 532 F.3d at 971. Underscoring that Twombly had supplanted the Conley standard, the Supreme Court subsequently made clear in Ashcroft v. Iqbal that a 5

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complaint is not "plausible" enough to survive a motion to dismiss if it is "more likely explained by" lawful behavior. 129 S. Ct. 1937, 1950 (2009); see also Twombly, 550 U.S. at 557 n.5 (complaint must be "factually suggestive" of liability and not just "factually neutral"); Kendall, 518 F.3d at 1049 ("Allegations of facts that could just as easily suggest rational, legal business behavior by the defendants as they could suggest an illegal conspiracy are insufficient to plead a violation of the antitrust laws"). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged--but it has not shown--that the pleader is entitled to relief," and it must therefore be dismissed. Iqbal, 129 S. Ct. at 1950 (internal quotations omitted). Of course, the rule has long been that "bare assertions" that "amount to nothing more than a formulaic recitation of the elements" of a claim "are conclusory and not entitled to be assumed true." Id. at 1951 (internal

11 quotations omitted). In short, in order to survive DVD CCA's motion to dismiss, RealNetworks's 12 counterclaims in this case must not only raise the possibility that DVD CCA participated in a conspiracy 13 to violate the antitrust laws, but must provide the factual particulars that make such participation 14 15 16 17 18 19 20 plausible in comparison to alternative views of the alleged facts. They do not meet this standard. RealNetworks's allegations do not plausibly allege that DVD CCA participated in any conspiracy to violate the antitrust laws. Specifically, RealNetworks alleges that it "approached the Studios to notify them of the product, and to explore mutual marketing opportunities," but that it "was unable to conclude a deal with any of the Studios." RealNetworks Counterclaims ¶¶ 7-9 (emphasis added). RealNetworks then characterizes as an alleged "horizontal group boycott" an agreement among "[t]he Studios . . . that they would claim that they cannot enter into individual [marketing and licensing] agreements with

21 RealNetworks." Id. at ¶¶ 10-11 (emphasis added). Tellingly, RealNetworks later alleges in the section 22 of its counterclaims entitled "The Group Boycott: Refusing to Deal with RealNetworks," that "[t]he 23 Studios have entered into a `contract, combination, or conspiracy,' within the meaning of Section 1, 24 among the Studios." Id. at ¶ 70 (emphasis added); see also id. at ¶¶ 40-44 (accusing only Studios of 25 "making these agreements," entering into an "illegal scheme," having a "collective agreement not to 26 negotiate individual licenses for their content with RealNetworks," and having an "illegal agreement"). 27 None of RealNetworks's allegations concerning the purported refusal to deal with it implicate DVD 28
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CCA. And none of its allegations provide any details of any purported agreement between DVD CCA and the Studios that "answer the basic questions: who, did what, to whom (or with whom), where, and when?" Kendall, 518 F.3d at 1048. Furthermore, to the extent that RealNetworks is trying to claim that the creation of the CSS License Agreement was conspiratorial, that claim cannot proceed because RealNetworks has not alleged that DVD CCA existed at the time of that event or played any role in it; indeed, RealNetworks has not alleged when the Agreement was drafted, who drafted it, when DVD CCA was formed, etc. See id. at 1047-48 (quoting Twombly, 550 U.S. at 565 n.10). Instead, RealNetworks offers the barebones conclusory allegation that "DVD CCA was the

9 instrumentality that [the Studios] used to effectuate the boycott." RealNetworks Counterclaims at ¶16. 10 But RealNetworks's bald statement that DVD CCA was an "instrumentality" lacks any of the 11 specifics--the who, what, where and when--demanded by the Supreme Court and the Ninth Circuit. 12 Kendall, 518 F.3d at 1047-48 (quoting Twombly, 550 U.S. at 565 n.10). 13 RealNetworks's "refusal to deal" claim against DVD CCA also fails as a matter of law for the

14 undisputed reason that DVD CCA did in fact deal with RealNetworks. As RealNetworks admits, DVD 15 CCA's involvement is limited to its role in licensing CSS technology. See, e.g., RealNetworks 16 Counterclaims ¶ 12. As RealNetworks also admits, it "entered into a CSS License Agreement with the 17 DVD CCA on or about August 13, 2007"; in other words, in executing its function of licensing CSS 18 technology, the DVD CCA did not refuse to deal with RealNetworks. Id. at ¶ 59. In fact, RealNetworks 19 has not alleged that it ever asked DVD CCA for anything other than the license that it received. See 20 generally id. Not only do the counterclaims alleging a group boycott against DVD CCA therefore fail 21 the Twombly plausibility test, they also would have failed to satisfy the more liberal Conley pleading 22 standard because, having admitted that DVD CCA granted it a CSS license, RealNetworks cannot 23 provide any "set of facts in support of its claim" that DVD CCA refused to deal with it. 355 U.S. at 4524 46. 25 RealNetworks's conspiracy allegations fall short for another reason: they do not explain how

26 DVD CCA's actions can form the basis for an antitrust conspiracy claim when the actions are those of a 27 single entity. In Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769-71 (1984), the 28
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Supreme Court held that a corporation and its subsidiaries could not conspire to violate the antitrust laws because they effectively constituted a single entity, which could not possibly conspire with itself. After a quarter of a century, the single-entity rule of Copperweld has developed deep roots in antitrust law. As the Ninth Circuit has explained: "Lower courts have since applied Copperweld's reasoning (sometimes

5 referred to as the `single-entity' rule) to a broader variety of economic relationships." Jack Russell 6 7 8 9 Terrier Network of N. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027, 1034 (9th Cir. 2005) (collecting cases). Indeed, the Supreme Court has recognized that a joint venture executing its purpose is acting as a single entity; it cannot conspire with its own constituents to execute that purpose any more than a parent can conspire with its subsidiary. See Texaco, Inc. v. Dagher, 547 U.S. 1, 7 (2006) ("As a single

10 entity, a joint venture, like any other firm, must have the discretion to determine the prices of the 11 12 products that it sells"). Here, there is no question that DVD CCA is a "single entity"; RealNetworks itself has recognized that "DVD CCA is a Delaware nonprofit corporation." RealNetworks

13 Counterclaims ¶ 47. And RealNetworks has not alleged any factual basis for how this corporation could 14 conspire with its own members (in this case, the Studios) in light of the single-entity rule. 15 In summary, RealNetworks (1) has not alleged any plausible basis for DVD CCA's involvement

16 in the alleged group boycott by the Studios; and (2) cannot allege that DVD CCA refused to deal with it 17 in light of DVD CCA's granting it the CSS license it requested. Even if RealNetworks had alleged that 18 DVD CCA had a role in the alleged conspiracy, those allegations would be implausible in light of the 19 single-entity rule and the fact that DVD CCA is a unitary corporate entity. Each of these points 20 independently vitiates the counterclaims against DVD CCA and compels their dismissal as a matter of 21 law. 22 23 24 B. The Sherman Act Claim Must Be Dismissed For The Independent Reason That The Alleged Conspiratorial Conduct of DVD CCA Is Immunized Under The NoerrPennington Doctrine

Under the Noerr-Pennington doctrine, the filing of a lawsuit is immune from the antitrust laws.

25 E.g., Prof'l Real Estate Investors v. Columbia Pictures Indus., 508 U.S. 49, 56-57 (1993). That 26 immunity protects not only the filing of the lawsuit itself, but also "conduct incidental to" the filing. 27 28
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The allegedly illegal conduct asserted in RealNetworks's counterclaims is precisely the kind of conduct that is protected under Noerr-Pennington. Virtually all of the alleged factual matter underlying RealNetworks's accusations of conspiracy against DVD CCA comes from submissions for the preliminary injunction hearing in this case, which is protected litigation conduct. RealNetworks Counterclaims ¶¶ 13-15. In fact, all of RealNetworks's direct accusations against DVD CCA attack only DVD CCA's "interpretation of the CSS License Agreement," which is a thinly disguised way of attacking DVD CCA's expressed legal position as to the Agreement--conduct that is indisputably incidental to litigation and hence protected under Noerr-Pennington. Id. at ¶ 37; see also id. at ¶¶ 34, 36, 38, 71, 81, 90. RealNetworks tries to avoid DVD CCA's Noerr-Pennington defense by claiming that it is suing over either the creation of the Agreement or DVD CCA's and the Studios' interpretation of the Agreement, not their litigation positions concerning RealNetworks's breach of the Agreement. Id. at ¶ 39. However, insofar as RealNetworks is attacking DVD CCA's interpretation of the Agreement, this is simply an attack on a litigation position and is therefore foreclosed by Noerr-Pennington. And, as explained above in Section II.A, if RealNetworks is attacking the formation of the Agreement, it has not alleged any of the facts needed to show that DVD CCA played a role in that event. Consequently, RealNetworks has not stated any claim against DVD CCA in connection with the formation of the Agreement. See Kendall, 518 F.3d at 1047-48 (quoting Twombly, 550 U.S. at 565 n.10). In sum, RealNetworks has no way to circumvent DVD CCA's invocation of Noerr-Pennington immunity. C. Alternatively, The Sherman Act Claim Must Be Dismissed At Least Insofar As It Asserts Per Se Liability Against DVD CCA

At the very least, DVD CCA's conduct is not susceptible to per se liability under the Sherman Act. Instead, the alleged conduct must be assessed under the "rule of reason" because, as RealNetworks alleges, DVD CCA and the Studios are involved in a joint venture and "the business practice being challenged [here] involves the core activity of the joint venture itself." Dagher, 547 U.S. at 7; accord In re ATM Fee Antitrust Litig., 554 F. Supp. 2d 1003, 1013 (N.D. Cal. 2008). In Dagher, the Supreme Court considered a price-fixing claim leveled against the gasoline sellers Shell and Texaco based on the 9
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price-setting policies of their joint venture, Equilon. 547 U.S. at 3. The Court concluded that per se

2 liability was inappropriate despite the fact that, by forming Equilon, Shell and Texaco had effectively 3 created uniform gasoline prices for the geographic market in question. Id. at 3-4. In so holding, the 4 Court rejected the approach of the Court of Appeals, which had asked whether Equilon fit into the 5 "ancillary restraints" exception to the per se prohibition against price-fixing. Id. at 7. The Supreme 6 Court concluded that, because "the business practice being challenged involve[d] the core activity of the 7 joint venture itself," per se liability did not apply to begin with, and consideration of any exception to 8 such liability was unnecessary. Id.; accord ATM Fee, 554 F. Supp. 2d at 1013 (no per se liability for an 9 ATM network's setting of interchange fees because setting such fees was the core activity of that 10 network). Instead, the practice had to be evaluated under the rule of reason. Id. 11 Here, RealNetworks's allegation and admission that DVD CCA is a "joint venture" created to

12 administer the licensing of CSS technology brings DVD CCA squarely within the standards articulated 13 by the Supreme Court in Dagher. RealNetworks Counterclaims ¶¶ 12, 31, 47.4 Even if DVD CCA 14 could somehow participate in a conspiracy through its interpretation of the Agreement, as RealNetworks

15 has alleged, and that interpretation was not immunized under Noerr-Pennington, interpreting the 16 Agreement is indisputably part of DVD CCA's licensing function. As such, RealNetworks is attacking 17 the way DVD CCA has executed its "core activity." Consequently, DVD CCA's alleged participation in 18 any conduct allegedly underlying RealNetworks's conspiracy allegations cannot be the basis for per se 19 liability, and RealNetworks's allegations of per se liability should be dismissed.5 20 21 22 23 24 25 26 27 28 DVD CCA does not concede the accuracy of RealNetworks's characterization of DVD CCA as a joint venture dominated by the Studios, but does not contest that characterization for the limited purposes of this Motion. 5 On a fuller record, DVD CCA could advance several additional grounds to support the proposition that RealNetworks's antitrust claims are meritless in whole or in part. Those grounds include the ancillary restraints doctrine (which posits that a restraint is subject to the rule of reason if it is "subordinate and collateral [to a legitimate joint venture] in the sense that it serves to make [the venture] more effective in accomplishing its purpose," Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 224 (D.C. Cir. 1986)); the application of the rule of reason to the conduct of standard-setting organizations in the intellectual property context (see, e.g., Antitrust Modernization Commission, Report and Recommendations 118 (2007); and the fact that the challenged conduct here would pass the "rule of reason" standard for scrutiny of alleged antitrust violations. Because extrinsic evidence would be necessary to advance these grounds, however, DVD CCA has refrained from asserting them in this motion (without prejudice to make these arguments in the future, if necessary). 10
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Per se liability on the part of DVD CCA is precluded on the separate and independent ground that DVD CCA was notified to the United States Department of Justice and Federal Trade Commission in 2001, pursuant to the National Cooperative Research and Production Act, 15 U.S.C. §§ 4301-4305 ("NCRPA"), as acknowledged in RealNetworks's counterclaims. See RealNetworks Counterclaims ¶ 31

5 (describing DVD CCA as "a joint venture trade association"), ¶ 32 (citing 66 Fed. Reg. 40,729, in which 6 7 8 the Department of Justice Antitrust Division gave notice of DVD CCA's application under the NCRPA). Congress enacted the NCRPA specifically to ensure that fear of antitrust liability would not discourage firms from forming research and production joint ventures, and specifically provided that a notified joint

9 venture will not be illegal per se, but will "be judged on the basis of its reasonableness, taking into 10 account all relevant factors affecting competition." 15 U.S.C. § 4302. 6 RealNetworks has already 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 The NCRPA also provides that rule of reason analysis applies to claims under state law as well as federal law, and limits claims to actual damages (rather than treble damages). 15 U.S.C. § 4302. 28 11
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effectively admitted that DVD CCA falls under the aegis of the NRCPA. Consequently, the imposition of per se liability on DVD CCA is statutorily barred by 15 U.S.C. § 4302, warranting dismissal of RealNetworks's claims for such liability. D. RealNetworks's Cartwright Act Claim Fails For The Same Reasons As Its Federal Antitrust Claim

While the Cartwright Act and Sherman Act are not mirror images of one another, "[f]ederal law interpreting Sherman Antitrust Act section 1 . . . is useful when addressing issues arising under" the Cartwright Act. Morrison v. Viacom, Inc., 66 Cal. App. 4th 534, 541 (1998) (citing State of Cal. ex rel. Van de Kamp v. Texaco, Inc., 46 Cal. 3d 1147, 1164 (1988) (superseded by statute on other grounds)). And it is especially helpful in this case, where California law has explicitly adopted the aforementioned grounds for dismissal of RealNetworks's Sherman Act claim. See, e.g., Freeman v. San Diego Ass'n of Realtors, 77 Cal. App. 4th 171, 196 (1999) ("California requires a high degree of particularity in the pleading of Cartwright Act violations . . . The unlawful combination or conspiracy must be pled with specificity") (internal quotations omitted); id. at 189 (single-entity rule); Blank v. Kirwan, 39 Cal. 3d 311, 323-27 (1985) (Noerr-Pennington); Exxon Corp. v. Superior Court, 51 Cal. App. 4th 1672, 1682

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(1997) (product market); see also 15 U.S.C. §§ 4302, 4305 (precluding imposition of per se liability

2 against joint ventures "under any State law similar to the [federal] antitrust laws" if notified to the 3 Justice Department and FTC). Accordingly, RealNetworks's Cartwright Act claim should be dismissed 4 in its entirety for the reasons articulated in Sections III.A-B, supra, or alternatively should be dismissed 5 to the extent that it asserts a claim for per se liability for the reasons stated in Section III.C, supra. 6 7 8 E. RealNetworks's UCL Claim Fails For The Same Reasons As Its Federal Antitrust Claim

RealNetworks alleges that DVD CCA's conduct is "unfair" and violative of the UCL for the

9 same reasons that it allegedly violates the antitrust laws. RealNetworks Counterclaims ¶ 97. But 10 "conduct alleged to be `unfair' because it unreasonably restrains competition and harms consumers . . . 11 is not `unfair' if the conduct is deemed reasonable and condoned under the antitrust laws." Chavez v. 12 Whirlpool Corp., 93 Cal. App. 4th 363, 375 (2001); accord SC Manufactured Homes, Inc. v. Liebert, 162 13 Cal. App. 4th 68, 93 (2008). Thus, RealNetworks's UCL claim should be dismissed in its entirety for 14 the reasons articulated in Sections III.A-B, supra. 15 IV. 16 17 18 19 20 21 22 23 24 25 26 27 28
MOTION OF DVD CCA TO DISMISS CASE NO. C08 04548 MHP; C08 CV 04719 MHP

CONCLUSION For the reasons stated above, DVD CCA respectfully submits that RealNetworks's counterclaims

should be dismissed in their entirety; alternatively, they should be dismissed insofar as they allege claims for per se antitrust liability. Dated: July 14, 2009 Respectfully submitted, AKIN GUMP STRAUSS HAUER & FELD LLP WHITE & CASE LLP

By

/s/ REGINALD D. STEER Attorneys for Defendant and Counterclaimant DVD COPY CONTROL ASSOCIATION, INC.

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