Sumotext Corp. -v- Zoove, Inc., et al
Filing
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ORDER GRANTING 71 MOTION TO DISMISS BROUGHT BY DEFENDANTS ZOOVE AND VHT, AND JOINED BY DEFENDANTS STARSTEVE 77 AND MBLOX 80 , WITH LEAVE TO AMEND. Amended Pleadings due by 12/1/2016. Signed by Judge Beth Labson Freeman on 11/3/2016. (blflc1S, COURT STAFF) (Filed on 11/3/2016)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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SAN JOSE DIVISION
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SUMOTEXT CORP.,
Case No. 16-cv-01370-BLF
Plaintiff,
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v.
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ZOOVE, INC., et al.,
Defendants.
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ORDER GRANTING MOTION TO
DISMISS BROUGHT BY DEFENDANTS
ZOOVE AND VHT, AND JOINED BY
DEFENDANTS STARSTEVE AND
MBLOX, WITH LEAVE TO AMEND
United States District Court
Northern District of California
[Re: ECF 71, 77, 80]
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On October 13, 2016, the Court heard oral argument regarding the motion to dismiss filed
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by Defendants Zoove, Inc. (“Zoove”) and Virtual Hold Technology LLC (“VHT”), joined by
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Defendants StarSteve, LLC (“StarSteve”) and mBlox, Inc. (“mBlox”), and opposed by Plaintiff
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Sumotext Corporation (“Sumotext”). At the end of the hearing, the Court stated its intention to
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grant the motion to dismiss with leave to amend, articulated numerous pleading defects that should
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be addressed in any amended pleading, and set a deadline of December 1, 2016 for the filing of an
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amended complaint. The Court indicated that it would issue a brief written order memorializing
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its ruling. Accordingly, for the reasons stated on the record and discussed below, the motion to
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dismiss is GRANTED WITH LEAVE TO AMEND. The Court concludes that the joinders filed
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by StarSteve and mBlox are appropriate insofar as the claims addressed in the motion also are
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asserted against them.
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I.
BACKGROUND
This action, which began as a fairly straightforward contract dispute, has morphed into a
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complex antitrust action that has spawned a sixty-plus page FAC containing ten claims against
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five defendants. At the heart of the action are the various parties’ rights to operate StarStar
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numbers, which are vanity mobile dial codes such as “**LAW” and “**MOVE.” Zoove has the
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exclusive rights to operate StarStar numbers for AT&T, Verizon Wireless, T-Mobile, and Sprint.
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Sumotext, a provider of mobile marketing software and services, built a business around leasing
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StarStar numbers from Zoove and then subleasing them to clients along with other services related
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to the StarStar numbers. Sumotext claims that VHT and StarSteve conspired to monopolize the
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market for StarStar numbers, and that in furtherance of that conspiracy VHT acquired Zoove from
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mBlox and caused Zoove to terminate Sumotext’s StarStar leases unlawfully.
Zoove and VHT have filed a motion to dismiss under Federal Rule of Civil Procedure
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12(b)(6) (ECF 71), seeking dismissal of the claims against them, which include Claim 1 for breach
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of contract; Claim 3 for breach of the implied covenant of good faith and fair dealing; Claim 5 for
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United States District Court
Northern District of California
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unfair business practices under California Business & Professions Code § 17200; Claim 7 for
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tortious interference with contract; Claim 8 for anticompetitive denial of access to an essential
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facility in violation of the Sherman Act, Section 2; Claim 9 for conspiracy to monopolize in
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violation of the Sherman Act, Section 2; and Claim 10 for acquisition and merger likely to
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substantially lessen competition violation of the Clayton Antitrust Act. StarSteve and mBlox have
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filed joinders in that motion (ECF 77 and 80).
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II.
LEGAL STANDARD
“A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a
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claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation
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Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d
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729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts
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as true all well-pled factual allegations and construes them in the light most favorable to the
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plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the
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Court need not “accept as true allegations that contradict matters properly subject to judicial
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notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or
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unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008)
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(internal quotation marks and citations omitted). While a complaint need not contain detailed
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factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to
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relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
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Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the
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court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
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III.
DISCUSSION
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As noted above, the Court identified at the hearing those aspects of the FAC that require
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amendment. Before summarizing those defects here, the Court makes two general observations
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regarding the manner in which Sumotext has alleged its claims. The complaint is lengthy,
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containing 331 paragraphs that span 61 pages. In requesting more specificity regarding
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Sumotext’s claims, the Court is not inviting a lengthier pleading. In part, the problem with the
FAC is that all of the factual detail appears in the recitation of events preceding the claims, but the
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United States District Court
Northern District of California
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claims themselves are quite succinct. That manner of pleading requires the Court to guess which
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facts Sumotext intends to support each claim.
Claim 1 – Breach of Contract
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A.
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Turning to the claims that are the subject to the motion to dismiss, the Court first addresses
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Claim 1, alleging breach of contract by Zoove. Under California law, a plaintiff must plead and
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prove four elements: (1) a contract, (2) the plaintiff’s performance or excuse for non-performance,
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(3) the defendant’s breach, and (4) damages to the plaintiff from the defendant’s breach. Walsh v.
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W. Valley Mission Cmty. Coll. Dist., 66 Cal. App. 4th 1532, 1545 (1998). Sumotext alleges that
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Zoove breached “seven Post-Modification ASP Service Orders” by terminating Sumotext’s
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StarStar leases. FAC ¶ 258, ECF 50. Sumotext also alleges that “Zoove breached its other
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agreements with Sumotext by shutting down the ‘Toolkit’ services.” Id. ¶ 260. Sumotext has
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neither attached the relevant contracts to the FAC nor pleaded their terms with adequate
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particularity. The claim is subject to dismissal on that basis. See McAfee v. Francis, No. 5:11-
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CV-00821-LHK, 2011 WL 3293759, at *2 (N.D. Cal. Aug. 1, 2011) (contract claim failed to
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allege facts upon which relief could be granted where the agreements were not attached to the
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complaint and their essential terms were not alleged).
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However, the Court denies the motion to dismiss to the extent that it is based upon
Defendants’ contention that termination of Sumotext’s StarStar leases did not constitute an
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actionable breach of contract because termination was permissible under the Terms of Service
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contained in the Master Services Agreement. As noted, the essential terms of the contracts at issue
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have not been pled, and Defendants have not submitted copies of the contracts for consideration
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by the Court under the incorporation by reference doctrine. Moreover, the Court is not persuaded
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that it would be appropriate to make the determination requested by Defendants at this stage of the
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proceedings.
Claim 3 – Breach of the Implied Covenant of Good Faith and Fair Dealing
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B.
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As presently framed, Claim 3, alleging Zoove’s breach of the implied covenant of good
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faith and fair dealing, alleges nothing beyond the breach of contract alleged in Claim 1 and thus is
subject to dismissal as duplicative. See FAC ¶¶ 269-272, ECF 50. When the allegations of a
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United States District Court
Northern District of California
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claim for breach of the implied covenant “do not go beyond the statement of a mere contract
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breach and, relying on the same alleged acts, simply seek the same damages or other relief already
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claimed in a companion contract cause of action, they may be disregarded as superfluous as no
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additional claim is actually stated.” Careau & Co. v. Security Pacific Business Credit, Inc., 222
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Cal. App. 3d 1371, 1395 (1990). Moreover, Claim 3 does not allege with specificity which
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contracts are at issue or how Zoove has frustrated the purpose of those contracts. See Avidity
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Partners, LLC v. State of Cal., 221 Cal. App. 4th 1180, 1204 (2013) (“The implied promise of
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good faith and fair dealing requires each contracting party to refrain from doing anything to injure
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the right of the other to receive the benefits of the agreement.”) (internal quotation marks, citation,
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and alteration omitted).
Claim 5 – Unfair Competition
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C.
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Claim 5 alleges that Zoove engaged in unfair and unlawful business practices in violation
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of California’s Unfair Competition Law, California Business & Professions Code § 17200.
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However, Sumotext fails to allege with specificity what conduct forms the basis for this claim,
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alleging only in general terms that Zoove’s “conduct described in this Complaint that is
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inconsistent with normal industry practices” is unlawful, unfair, and fraudulent. FAC ¶¶ 280-81.
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These allegations are insufficient to meet even the lenient standards of Federal Rule of Civil
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Procedure 8(a), and also are insufficient to meet the more stringent requirements of Federal Rule
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of Civil Procedure 9(b), which are applicable to claims asserted under the fraud prong and under
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the unfair prong to the extent the alleged unfairness is based upon fraudulent conduct. See Kearns
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v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (allegations of fraud, and allegations of
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unfairness if based on fraud, must satisfy the heightened pleading standard of Rule 9(b)).
Claim 7 – Tortious Interference with Contract
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D.
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Claim 7 alleges that VHT and StarSteve tortiously interfered with valid and enforceable
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contracts between Sumotext and its customers. Under California law, the elements of the tort of
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intentional interference with a contract are: “(1) a valid contract between plaintiff and a third
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party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to
induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the
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Northern District of California
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contractual relationship; and (5) resulting damage.” United Nat. Maintenance, Inc. v. San Diego
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Convention Center, Inc., 766 F.3d 1002, 1006 (9th Cir. 2014). For the most part, the Court is
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satisfied that this claim is pled adequately. However, since it will be amending its pleading for
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other reasons, Sumotext may wish to add additional specificity regarding VHT’s conduct as
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opposed to that of StarSteve.
Claims 8, 9, and 10 – Antitrust
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E.
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Claim 8 alleges that VHT and StarSteve denied Sumotext access to an essential facility, the
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National Mobile Dial Code Registry, in violation of the Sherman Act, Section 2. Claim 9 alleges
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a conspiracy to monopolize StarStar numbers in violation of the Sherman Act, Section 2. And
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finally, Claim 10 alleges that “[b]y financing the acquisition of Zoove through an entity they
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control, VHT and StarSteve have made an acquisition that is likely to substantially lessen
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competition in the market for leasing, subleasing, and syndicating StarStar numbers.” FAC ¶ 323,
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ECF 50.
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Sumotext has not alleged fact sufficient to show injury to competition, which is required
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for all three claims. See Paladin Assocs., Inc. v. Montana Power Co., 328 F.3d 1145, 1158 (9th
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Cir. 2003) (“Where the defendant’s conduct harms the plaintiff without adversely affecting
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competition generally, there is no antitrust injury.”). Moreover, it is unclear which Defendants
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participated in the alleged conspiracy. Although Sumotext’s counsel stated at the hearing that
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Sumotext intended to allege that mBlox was a co-conspirator, and that counsel believed those
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allegations to be present in the FAC, the Court finds the allegations of the FAC to be confusing
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and contradictory on that point. The Court also finds the allegations of the relevant market to be
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unclear, and it disagrees with Sumotext that the relevant market need not be alleged at the
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pleading stage. See Newcal Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1044 & n.3 (9th Cir.
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2008) (a plaintiff alleging a claim under either Section 1 or Section 2 of the Sherman Act must
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allege the existence of a relevant market and that the defendant has power within that market).
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Sumotext’s counsel indicated that Sumotext could add additional allegations to, and could clarify,
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the antitrust claims if given leave to amend.
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IV.
ORDER
United States District Court
Northern District of California
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Accordingly, for the reasons discussed above,
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(1)
The motion to dismiss is GRANTED WITH LEAVE TO AMEND consistent with
this order;
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(2)
Any amended complaint shall be filed on or before December 1, 2016; and
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(3)
Leave to amend is limited to the claims asserted by Plaintiff in its FAC; Plaintiff
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may not add new claims or parties without express leave of the Court.
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Dated: November 3, 2016
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BETH LABSON FREEMAN
United States District Judge
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