Facebook, Inc. v. Power Ventures, Inc.

Filing 67

Reply Memorandum re 58 MOTION to Dismiss Facebook Inc.'s Notice of Motion, Motion and Memorandum in Support of Motion to Dismiss Counterlcaims and Strike Affirmative Defenses filed byFacebook, Inc.. (Pers, Jessica) (Filed on 1/29/2010)

Facebook, Inc. v. Power Ventures, Inc.

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I. NEEL CHATTERJEE (STATE BAR NO. 173985) [e-mail] THOMAS J. GRAY (STATE BAR NO. 191411) [e-mail] JULIO C. AVALOS (STATE BAR NO. 255350) [e-mail] ORRICK, HERRINGTON & SUTCLIFFE LLP 1000 Marsh Road Menlo Park, CA 94025 Telephone: [phone] Facsimile: [phone] JESSICA S. PERS (STATE BAR NO. 77740) [e-mail] ORRICK, HERRINGTON & SUTCLIFFE LLP The Orrick Building 405 Howard Street San Francisco, CA 94105-2669 Telephone: [phone] Facsimile: [phone] Attorneys for Plaintiff FACEBOOK, INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION

FACEBOOK, INC., Plaintiff, v. POWER VENTURES, INC. a Cayman Island Corporation; STEVE VACHANI, an individual; DOE 1, d/b/a POWER.COM, DOES 2-25, inclusive, Defendants.

Case No. 5:08-cv-05780 JF (HRL) FACEBOOK INC.'S REPLY MEMORANDUM IN SUPPORT OF MOTION TO DISMISS AMENDED COUNTERCLAIMS AND STRIKE AMENDED AFFIRMATIVE DEFENSES Date: Time: Judge: Courtroom: February 26, 2010 9:00 a.m. Hon. Jeremy D. Fogel 3

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TABLE OF AUTHORITIES Page INTRODUCTION .............................................................................................................. 1 ARGUMENT ...................................................................................................................... 1 A. POWER HAS FAILED TO STATE CLAIMS FOR MONOPOLIZATION OR ATTEMPTED MONOPOLIZATION UNDER SECTION 2 OF THE SHERMAN ACT .................................................................................................... 1 1. Power Has Not Alleged Facts That Plausibly Establish Facebook's Practices To be Predatory............................................................................ 1 2. Power Still Has Not Alleged Facts Sufficient To Identify A Relevant Product Market In Which Facebook Has Monopoly Power ........ 2 3. Power Does Not Compete With Facebook In A Relevant Market ............. 3 4. Power Has Not Suffered Antitrust Injury.................................................... 4 B. POWER CANNOT STATE A CLAIM UNDER CALIFORNIA BUSINESS AND PROFESSIONS CODE SECTION 17200 ................................ 5 C. POWER'S AFFIRMATIVE DEFENSES SHOULD ONCE AGAIN BE STRICKEN ............................................................................................................. 6 1. Power Has Provided No Facts to Support Its Fair Use Defense ................. 6 2. Power's Copyright Misuse Defense Should Be Stricken ............................ 7 THE COURT SHOULD NOT PERMIT ANOTHER AMENDMENT TO THE COUNTERCLAIMS. .......................................................................................................... 7

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TABLE OF AUTHORITIES Page FEDERAL CASES A&M Records v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001)................................................................................................... 7 Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079 (9th Cir. 2005)................................................................................................... 7 Am. Ad. Mgmt. v. General Telephone Co. of California, et al., 190 F.3d 1051 (9th Cir. 1997)................................................................................................... 4 America Online, Inc. v. GreatDeals.Net, 49 F. Supp. 2d 851 (E.D. Va. 1999).......................................................................................... 3 Apple Inc. v. Psystar Corp., 586 F. Supp. 2d 1190 (N.D. Cal. 2008) .................................................................................... 5 Atlantic Richfield v. USA Petroleum, 495 U.S. 328 (1990) .................................................................................................................. 4 Bell Atlantic Corp. v. Twombly, 550 U.S. 544.............................................................................................................................. 4 Brunswick Corp. v. Pueblo Bowl-o- Mat, Inc., 429 U.S. 477 (1977) .................................................................................................................. 4 Campbell v. Acuff-Rose Music, 510 U.S. 569 (1994) .................................................................................................................. 6 Cargill Inc. v. Budine, et al., No. CV-F-07-349-LJO, 2007 U.S. Dist. LEXIS 67526 (E.D. Cal. Aug. 30, 2007) .................................................................................. 3 Harper House, Inc. v. Thomas Nelson, Inc., 889 F.2d 197 (9th Cir. 1989)..................................................................................................... 6 LiveUniverse, Inc. v. MySpace, Inc., No. CV 06-6994 AHM, 304 Fed. Appx. 554, 557 2008 U.S. App. LEXIS 27141 (9th Cir. Dec. 22, 2008) ..................................................................................... 5 Quabon.com, Inc. v. eHelp Corp., 315 F. Supp. 2d 1046 (N.D. Cal. 2004) .................................................................................... 6 Streamcast Networks, Inc. v. Skype Techs., S.A., No. CV 06-391 FMC (Ex), 2006 U.S. Dist. LEXIS 97392 (C.D. Cal. Sep. 14, 2006) ......................................................... 3 Western Mining Council v. Watt, 643 F.2d 618 (9th Cir. 1981)..................................................................................................... 4

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TABLE OF AUTHORITIES (continued) Page STATE CASES Chavez v. Whirlpool Corp., 93 Cal. App. 4th 363 (2001)...................................................................................................... 5 MISCELLANEOUS ABA Section of Antitrust Law Developments 400 (4th ed. 1997) ................................................... 3

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I.

INTRODUCTION This case is about one thing: Power wants to have access to Facebook's website and its

users without complying with Facebook's Terms of Use. When Power first tried to fashion an antitrust claim out of its displeasure with Facebook's right to control access to its site, this Court appropriately dismissed Power's counterclaims. In response, Power has repeated the same argument ­ it wants access to Facebook's site without complying with the Terms of Use ­ but now asserts that the Terms of Use are anticompetitive because other, unrelated websites allow third-party access different from Facebook's and because Facebook enforces its policies. Those allegations cannot save these counterclaims; far from it. It is now clear that Power cannot state any antitrust or unfair competition claims against Facebook and the Court should grant Facebook's motion to dismiss without leave to amend. II. ARGUMENT A. POWER HAS FAILED TO STATE CLAIMS FOR MONOPOLIZATION OR ATTEMPTED MONOPOLIZATION UNDER SECTION 2 OF THE SHERMAN ACT 1. Power Has Not Alleged Facts That Plausibly Establish Facebook's Practices To be Predatory.

Since the filing of Facebook's motion to dismiss, both Power and Facebook have brought cross-motions for judgment on the pleadings or, in the alternative, for summary judgment on Facebook's claim that Power has improperly accessed, used, or induced others to access or use Facebook's computer system, network or service in violation of California Penal Code Section 502(c). See Dkt Nos. 56 and 62, respectively. If the Court determines that Power has violated Penal Code Section 502(c), then it follows that Facebook's efforts to protect itself from those criminal attacks cannot plausibly be considered "predatory." That alone should lead the Court to grant this motion to dismiss. Even without the pending cross motions, Power's allegations of "predation" are insufficient. First, Power claims that Facebook has engaged in a campaign to enforce its Terms of Use against "new entrants" into the social networking market so as to "stifle competition." This conclusory statement is made without any supporting factual allegations whatsoever and -1FACEBOOK'S REPLY ISO MOTION TO DISMISS CASE NO. 08-5780 JF (HRL)

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merely alleges that Facebook's unspecified actions against unidentified other parties were "baseless." If those actions are similar to Facebook's actions against Power ­ acting to stop improper access to the Facebook site in violation of the Terms of Use ­ they are neither baseless nor predatory. Second, Power asserts that Facebook must allow unfettered third-party access to its website simply because other websites might allow unfettered access to theirs. See Dkt. No. 63 at 5:2-5. In essence, this is the core of Power's complaint ­ it does not like Facebook's Terms of Use and wants Facebook to adopt different ones. Under Power's view of the world, Facebook is engaging in a predatory practice merely by enforcing a Term of Use that is different from that of some other website. That makes no sense and Power's failure to cite any authority for this proposition speaks volumes. Nor has Power explained how Facebook's policies have stopped Power from getting information directly from users, from other websites that allow third party access or even from Facebook, through the Facebook Connect program. In short, Facebook's policy has not stopped Power from getting the information it needs; it has merely stopped it from getting that information by violating Facebook's Terms of Use. 2. Power Still Has Not Alleged Facts Sufficient To Identify A Relevant Product Market In Which Facebook Has Monopoly Power.

Although Power claims the relevant market is limited to "social networking websites," id. at 3:13-14, that is not what the counterclaims say. In fact, the Amended Answer and Counterclaim defines the market to include "websites that allow users to create personal profiles, manage contacts, and provide a variety of ways for users to interact with contacts." Dkt. No. 54 ¶ 172; see also Dkt. 63 at 2:16-21. As Facebook noted in its opening brief, this definition encompasses at least photo sharing websites, email websites and dating websites, in addition to sites like Facebook and MySpace. Because it is impossible to determine which websites are included within this alleged market, it is impossible to assess the plausibility of Power's allegation that Facebook possesses illegitimate monopoly power. Courts routinely grant Rule 12(b)(6) motions to dismiss when a plaintiff's definition of the relevant market is found to be overly broad or narrow "with respect to its identification of the relevant product pool." See -2FACEBOOK'S REPLY ISO MOTION TO DISMISS CASE NO. 08-5780 JF (HRL)

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Streamcast Networks, Inc. v. Skype Techs., S.A., No. CV 06-391 FMC (Ex), 2006 U.S. Dist. LEXIS 97392, at *29-30 (C.D. Cal. Sep. 14, 2006). That description certainly applies to these counterclaims. 3. Power Does Not Compete With Facebook In A Relevant Market.

Even if Power has adequately alleged a relevant product market, the allegations of the Amended Counterclaims show that Power does not compete in that market and that it thus lacks standing to bring its antitrust claims. The "boundaries of a relevant market ... are determined by reasonable interchangeability of use," which refers to "consumers' practicable ability to switch from one product or service to another." America Online, Inc. v. GreatDeals.Net, 49 F.Supp.2d 851, 858 (E.D. Va. 1999) ("America Online"), citing, ABA Section of Antitrust Law Developments 400 (4th ed. 1997). Power's Opposition never so much as mentions "reasonable interchangeability," let alone argues that the services offered by Power fill the same consumer need as the websites included within the alleged product market. In Cargill Inc. v. Budine, et al., No. CV-F-07-349-LJO, 2007 U.S. Dist. LEXIS 67526, at *15 (E.D. Cal. Aug. 30, 2007), the Eastern District of California dismissed plaintiff's Sherman Act claims because its allegations did not establish that it competed in the relevant market as the plaintiff had defined it. The Court should dismiss Power's counterclaims for the same reasons. As the Court has already noted, Power merely operates a "website designed to integrate various social networking or email accounts into a single portal." Dkt. 38 at 3:12-13. Rather than operating a competing social networking site, Power admits that it only provides "users with tools necessary to access Facebook through Power.com." Dkt. No. 54 at ¶ 64. In his recently filed declaration, Power CEO Steven Vachani stated that "Power offered Facebook users a different and potentially superior browser through which they could access their Facebook accounts to copy, update, and/or port their own `User Content.'" Dkt. 65 at ¶ 2, defining Power as a "browser" not a social networking website. There can be no dispute: Power does not operate a social networking website. Power tries to avoid this problem by alleging, without more, that "Power.com is a competitor in the market for social networking websites." Dkt. 63 at 5:21. But such a bare, -3FACEBOOK'S REPLY ISO MOTION TO DISMISS CASE NO. 08-5780 JF (HRL)

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conclusion is not sufficient. Power admits that it has provided no support for this allegation and instead, argues incorrectly that it "is not obligated to explain how it seeks to compete with Facebook. It need only allege that it does." Id. at 5:28-6:1. That argument clearly violates federal pleading requirements requiring more than a mere "blanket assertion of entitlement to relief." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555; see also Cargill, 2007 U.S. Dist. LEXIS 67526, at *5-6 ("Although Courts assume the facts alleged as true, courts do not `assume the truth of legal conclusions merely because they are cast in the form of factual allegations.") (quoting Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981)). Here, there are no factual allegations that plausibly demonstrate how Power competes with Facebook. On the contrary, the facts alleged show that Power seeks to exploit Facebook, not compete with it. 4. Power Has Not Suffered Antitrust Injury

Finally, Power cannot just assert that it has suffered cognizable antitrust injury without providing facts that plausibly support that allegation. Antitrust injury "stems from a competitionreducing aspect or effect of the defendant's behavior," Atlantic Richfield v. USA Petroleum, 495 U.S. 328, 344 (1990) (citations omitted) (emphasis in original), and "requires the plaintiff to have suffered its injury in the market where competition is being restrained." Am. Ad. Mgmt. v. General Telephone Co. of California, et al., 190 F.3d 1051, 1057 (9th Cir. 1997). The "injury" Power claims to have suffered ­ not being able to have its users access Facebook through the Power website ­ is an injury caused by Power's refusal to comply with Facebook's Terms of Use. That is not the kind of injury that the antitrust laws were designed to prevent. See Brunswick Corp. v. Pueblo Bowl-o- Mat, Inc., 429 U.S. 477 (1977). The allegations added in the Amended Counterclaims and stressed by Power in its Opposition are merely other ways of saying that Facebook seeks to enforce its Terms of Use and protect its intellectual property. Those actions do not become antitrust violations nor supply the antitrust injury necessary for standing merely by Power's bald assertion that they were designed to "stifle competition." There are still no facts alleged that even hint at that purpose and certainly none that can plausibly be interpreted in that way. As in LiveUniverse, Inc. v. MySpace, Inc., No. CV 06-6994 AHM, 304 Fed. Appx. 554, 557 2008 U.S. App. LEXIS 27141 (9th Cir. Dec. 22, 2008), where plaintiff claimed that consumers -4FACEBOOK'S REPLY ISO MOTION TO DISMISS CASE NO. 08-5780 JF (HRL)

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could not access its website through the MySpace site because of MySpace's policies, the "failure to allege causal antitrust injury . . . serves as an independent basis for dismissal." 1 B. POWER CANNOT STATE A CLAIM UNDER CALIFORNIA BUSINESS AND PROFESSIONS CODE SECTION 17200

If Power's antitrust claims fail, so do its unfair competition claims because a "determination that the conduct is not an unreasonable restraint of trade necessarily implies that the conduct is not `unfair.'" See Chavez v. Whirlpool Corp., 93 Cal. App. 4th 363, 375 (2001). Facebook's opening brief cites other opinions, including some by this Court, that reach the same conclusion. See Dkt. 58 at 8:19-28. Power's Opposition brief does not deal with this precedent and instead points to the broad reach of the UCL. But that argument has been rejected time and again. See, e.g., Apple Inc. v. Psystar Corp., 586 F. Supp 2d 1190, 1204 (N.D. Cal. 2008) ("Apart from its conclusory allegations regarding the `sweeping nature of section 17200,' Psystar fails to explain a relevant distinction in the standards.") Power argues that "[a] business practice need not violate the antitrust law to be found an `unfair competition practice' under 17200." Dkt. 63 at 6: 10-13. That is certainly true. However, Chavez makes it clear that where a party claims its opponent's actions violate the antitrust laws but they do not, those same actions cannot be deemed "unfair" under 17200. Power does not, and cannot, deny that it challenges the same actions in both its antitrust and Section 17200 claims. As discussed above, there is a separate and independent ground to dismiss Power's UCL claim. If Facebook is within its right to "prevent. . . [Facebook]. . . users from porting their own data to other websites," like Power.com, then it cannot be unfair for Facebook to stop Power from obtaining that data by violating Facebook's Terms of Use.2 Nor can it be unfair for Facebook to enforce its Terms of Use against others attempting to do the same thing. And finally, it is not "unfair" for Facebook to have Terms of Use that are different from other websites. Power's Opposition does not contain any argument or analysis directed at its attempted monopolization claim against Facebook. The claim should be dismissed for the reasons set forth in Facebook's opening brief. See Dkt. No. 58 at 7:24-8:4. 2 Similarly, if Power's attempts to violate Facebook's Terms of Use also violate California Penal Code Section 502(c), then Facebook's efforts to curb those violations cannot possibly be deemed an "unfair" business practice. See Section II.B. below.
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Actions do not become unfair merely because Power uses words like "scheme" and "stifle competition" to describe them. C. POWER'S AFFIRMATIVE DEFENSES SHOULD ONCE AGAIN BE STRICKEN

Power does not dispute that "affirmative defenses are governed by the same pleading standard as complaints." Quabon.com, Inc. v. eHelp Corp., 315 F. Supp. 2d 1046, 1049 (N.D. Cal. 2004). Despite that rule, Power has not made any factual allegations that would give rise to a fair use or copyright misuse defense. Accordingly, the Court should strike these affirmative defenses as it did previously. 1. Power Has Provided No Facts to Support Its Fair Use Defense

Power claims that it has provided "a detailed statement of its fair use defense." Dkt. No. 63 at 8:1-28. Power may have described its view of what the fair use doctrine should be, but its description does not reflect how the fair use defense has been analyzed by any court. A defendant does not raise a cognizable fair use defense merely by asserting that its copying of plaintiff's protectable expression was "ephemeral" or "momentary." Dkt. 63 at 8:17-22 (citing Dkt. No. 54 ¶¶ 161- 64). In other words, it is not a "fair use" just because it is a brief one. The specific elements of the fair use doctrine ­ the purpose and character of the use, the commercial nature of the use, the nature of the copyrighted work, the amount and substantiality of the portion used in relation to the copyrighted work, the amount and substantiality of the portion used in relation to the copyrighted work as a whole or the effect of the use upon the potential market for or the value of the copyrighted work ­ must be pled and supported by facts. See Dkt. 58 at 11:8-16 (citing Campbell v. Acuff-Rose Music, 510 U.S. 569, 576-77 (1994)).3 Power has failed to meet this standard.

3

See also Dkt. No. 38 at 6:15-19 ("Defendants correctly assert that Facebook does not have a copyright on user content, which ultimately is the information that Defendants' software seeks to extract. However, if Defendants first have to make a copy of user's entire Facebook profile page in order to collect that user content, such action may violate Facebook's proprietary rights") (citing Harper House, Inc. v. Thomas Nelson, Inc., 889 F.2d 197, 204 (9th Cir. 1989)) (holding that a collection of non-copyrighted material arranged in an original way is subject to copyright protection). -6FACEBOOK'S REPLY ISO MOTION TO DISMISS CASE NO. 08-5780 JF (HRL)

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2.

Power's Copyright Misuse Defense Should Be Stricken.

The defense of copyright misuse is typically reserved for cases in which a copyright holder licenses rights to a third-party on the condition that the third-party will not also use a competitor's products. See Dkt. No. 58 at 10:1-15. Indeed, both cases that Power relies upon in asserting its defense involved license agreements. See Dkt. No. 63 at 9:2-6. For instance, the court in A&M Records v. Napster, Inc., 239 F.3d 1004, 1026 (9th Cir. 2001), held that "most of the cases that recognize the affirmative defense of copyright misuse involve unduly restrictive licensing schemes" (citations omitted). Similarly, the court in Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079, 1090 (9th Cir. 2005), dealt with allegations that Apple Computer had misused its end user license agreements. In the face of this precedent, Power has made a completely different claim: that Facebook has used its copyright "to restrict users ability to access their own content." Id. at 10:1-3 (quoting Dkt. No. 54 ¶ 168). Power has provided no support for claiming that Facebook's policies constitute copyright misuse. This affirmative defense should be stricken. III. THE COURT SHOULD NOT PERMIT ANOTHER AMENDMENT TO THE COUNTERCLAIMS. Power has already been granted one opportunity to amend its counterclaims and it should not be given another chance. Power may have added more words to its pleading, but its claim is the same: It does not want to comply with Facebook's Terms of Use. That is not the basis for an antitrust or unfair competition counterclaim. Dated: January 29, 2010 ORRICK, HERRINGTON & SUTCLIFFE LLP /s/ Jessica S. Pers JESSICA S. PERS Attorneys for Plaintiff FACEBOOK, INC.

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OHS West:260814384.6

CERTIFICATE OF SERVICE I hereby certify that this document(s) filed through the ECF system will be sent electronically to the registered participants as identified on the Notice of Electronic Filing (NEF) and paper copies will be sent to those indicated as non registered participants on January 29, 2010. Dated: January 29, 2010 Respectfully submitted, /s/ Jessica S. Pers JESSICA S. PERS

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