Payment Logistics Limited v. Lighthouse Network, LLC et al

Filing 85

ORDER Denying Motion for Preliminary Injunction [ECF No. 25 ]. Signed by Judge M. James Lorenz on 3/18/2019. (lrf)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

SOUTHERN DISTRICT OF CALIFORNIA

10
11

Payment Logistics Limited,

12

Plaintiff,

Case No. 18-cv-00786-L-AGS

v.

13

15

Lighthouse Network LLC, and
Shift4 Corporation, and Shift4
Payments, LLC,

16

ORDER DENYING MOTION FOR
PRELIMINARY INJUNCTION [ECF
No. 25]

Defendants.

14

17
18

Pending before the Court is Plaintiff Payment Logistics Limited’s (“Plaintiff”

19

or “PLL”) motion for preliminary injunction seeking to enjoin the vertical merger of

20

three levels of payment processing by Defendants Lighthouse Network, LLC,

21

SHIFT4 Corporation, and SHIFT4 Payments, LLC’s (“Defendants” or “Shift4”).

22

The Court decides the matter on the papers submitted and without oral argument.

23

See Civ. L. R. 7.1(d.1).

24

Defendants’ motion.

25

//

26

//

27

//

28

//

For the reasons stated below, the Court GRANTS

18-cv-00786-L-AGS

1

I.

BACKGROUND

2

This antitrust case arises out of a vertical merger that united all three levels of

3

the payment processing in the credit and debit card payment industry.1 The merger

4

at issue is a purchase of three point-of-sale (“POS”) companies—Restaurant

5

Manager, Future POS, and POSitouch—and one payment interface, Shift4

6

Corporation (the “Merger”), by a merchant account service provider (“MAS”),

7

Defendant Lighthouse Network. At each level of the payment processing market, it

8

seems, there are multiple competitors vying to serve various types of merchants.

9

Plaintiff PLL is a payment interface competitor that serves mid-to-large table-service

10

restaurants (“MLTSR”). PLL seeks to prevent the Merger because it believes the

11

Merger will substantially lessen the competition among payment interfaces servicing

12

POS companies owned by Defendant and in the broader payment interface market.

13

Accordingly, PLL filed a motion for preliminary injunction. ECF No. 25. PLL

14

subsequently filed a supplemental brief in support of the motion for preliminary

15

injunction. ECF No. 53. Shift4 opposed the supplemental motion. ECF Nos. 64.

16

PLL then filed its reply. ECF No. 67. Each filing, after the initial motion for

17

preliminary injunction, was accompanied by a motion to file certain portions of the

18

briefs and supporting documentation under seal.2 See ECF No. 54, 65, 68.

19

II.

LEGAL STANDARD

20

A party seeking preliminary injunctive relief must demonstrate “(1) that he is

21

likely to succeed on the merits, (2) that he is likely to suffer irreparable harm in the

22

absence of preliminary relief, (3) that the balance of equities tips in his favor, and (4)

23
24
25
26
27
28

1

The three levels of payment processing are as follows: (1) Point of sale (“POS”),
systems where merchants enter orders and accept credit cards; (2) payment
interfaces, conduits that receive and process credit card transaction data from
merchants’ POS and send it payment processors; and (3) merchant account service
providers (“MAS”), payment processors that receive data from payment interfaces
or POS systems and send the data to banks and credit card companies.
2
The Court finds compelling reasons exist to file the specified documents under
seal that outweigh the public’s interest in disclosure. Therefore, each motion to file
documents under seal [ECF No. 54, 65, 68] is GRANTED.
18-cv-00786-L-AGS

1

that an injunction is in the public’s interest.” Stormans, Inc. v. Selecky, 586 F.3d

2

1109, 1127 (9th Cir. 2009) (internal citation and quotation marks omitted).

3

Alternatively, a preliminary injunction can be obtained when “serious questions

4

going to the merits were raised and the balance of hardships tips sharply in the

5

plaintiff’s favor,” allowing preservation of the status quo when further inspection or

6

deliberation is necessary. Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127,

7

1134-35 (9th Cir. 2011).

8

III. DISCUSSION

9

LIKELIHOOD OF SUCCESS ON THE MERITS

10

Both a geographic and a product market must be included in a relevant market.

11

Big Bear Lodging Ass’n v. Snow Summit, Inc., 182 F.3d 1096, 1104 (9th Cir. 1999).

12

A product market “must encompass the product at issue as well as all economic

13

substitutes for the product.” Newcal Indus., 513 F.3d at 1045. Within relevant

14

product markets, economic substitutes have a “reasonable interchangeability of use”

15

or sufficient “cross-elasticity of demand” with the relevant product. Id. (quoting

16

Brown Shoe v. United States, 370 U.S. 294, 325 (1962)). A relevant market lacking

17

economic substitutes falls short of incorporating “the group or groups of sellers or

18

producers who have actual or potential ability to deprive each other of significant

19

levels of business.” Id. (quoting Thurman Indus., Inc. v. Pay ‘N Pak Stores, Inc., 875

20

F.2d 1369, 1374 (9th Cir. 1989)). “[W]ell-defined submarkets may exist which, in

21

themselves, constitute product markets for antitrust purposes.” Brown Shoe, 370

22

U.S. at 325. To bring an antitrust claim grounded on a submarket, “the plaintiff must

23

be able to show (but need not necessarily establish in the complaint) that the alleged

24

submarket is economically distinct from the general product market.” Newcal Indus.,

25

513 F.3d at 1045. The Supreme Court laid out “practical indicia” of an economically

26

distinct submarket in Brown Shoe: “industry or public recognition of the submarket

27

as a separate economic entity, the product’s peculiar characteristics and uses, unique

28

production facilities, distinct customers, sensitivity to price changes, and specialized
18-cv-00786-L-AGS

1

vendors.” 370 U.S. at 325.

2

PLL asserts that the two relevant product markets3 here are “(1) Payment

3

Interfaces for Defendant-Owned POS Systems for MLTSR[] and (2) Payment

4

Interfaces for Other POS Systems for MLTSR[.]” ECF No. 25-1 at 17. Shift4

5

contends that the “markets are improperly defined because they exclude relevant

6

products, competitors, and customers.” ECF No. 66 at 12. The Court agrees with

7

Shift4’s contention. As the Court explained in its October 24, 2018 order granting

8

Shift4’s motion to dismiss, the Court finds that PLL’s proposed relevant market does

9

not include all economic substitutes for the PLL’s payment interfaces. See ECF No.

10

57; Newcal Indus., 513 F.3d at 1045. PLL asserts that cloud-based and enterprise

11

systems’ operational features are not realistic alternatives for MLTSR customers.

12

ECF No. 25-1 at 18-19.

13

customers have considered and even installed cloud-based systems. See ECF No.

14

25-6 at 3-4. For that reason, the Court finds a “reasonable interchangeability of use”

15

or “cross-elasticity of demand” remains between these competing payment systems.

16

Also, PLL’s contention that the payment interfaces market here is akin to the

17

service parts aftermarket as illustrated in Eastman Kodak Co. v. Image Technical

18

Services, Inc., 504 U.S. 451, 481-82 (1992) is off base. Unlike the Kodak service

19

parts, which were not interchangeable, the payment interfaces market is not unique

20

to Defendant’s POS systems servicing MLTSR merchants. In fact, Shift4’s POS

21

Systems, Restaurant Manager, Future POS, POSitouch, and Lighthouse were

22

serviced by multiple payment interfaces prior to the merger—PLL, DataCap and

23

PAX. See ECF No. 25-6. PLL has not shown that a raised price, or “toll,” to use a

24

competitor’s payment interface forecloses that competitor’s interchangeability of use

25

on Shift4’s POS platforms. Neither has PLL shown that an increase cost to the

26

merchant consumer affects competitors to integrate on Shift4’s or other’s POS

27
28

However, the evidence demonstrates that restaurant

3

The parties agree that the relevant geographic market is the United States. See
ECF Nos. 25-1 at 17 fn. 56, 66 at 12 fn. 6.
18-cv-00786-L-AGS

1

systems. As such, the Court finds that the evidence does not support Shift4’s POS

2

systems as single brand relevant market.

3

In addition, the record is rife with examples of merchant customers willfully

4

selecting Shift4 over PLL for procompetitive reasons, such as waived fees, lower

5

prices, and more customized features. See ECF Nos. 25-16, 53-25; Cascade Health

6

Solutions v. PeaceHealth, 515 F.3d 883, 895 (9th Cir. 2008) (“Bundled discounts

7

generally benefit buyers because the discounts allow the buyer to get more for

8

less[]”); Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S.2, 12 (1984) (“Buyers

9

often find package sales attractive; a seller’s decision to offer such packages can

10

merely be an attempt to compete effectively—conduct that is entirely consistent with

11

the Sherman Act[]”). Thus, the Court finds that the evidence demonstrates consumer

12

support of discounted bundled packages rather than being “locked in” to Shift4’s

13

payment interface.

14

Moreover, PLL has not defined a relevant product submarket using the

15

practical indicia of an economically distinct submarket. For the foregoing reasons,

16

the Court finds PLL has not sufficiently shown a relevant payment interface market

17

or submarket. Accordingly, PLL failed to establish a relevant market for antitrust

18

analysis, a “necessary predicate” for success on the merits of PLL’s Clayton Act

19

claim. See Malaney v. UAL Corp., 434 Fed.Appx.620 (9th Cir. 2011).

20

IV. CONCLUSION

21
22
23

For the reasons stated above, PLL’s motion for preliminary injunction [ECF
No. 25] is DENIED.
IT IS SO ORDERED.

24
25

Date: March 18, 2019

26
27
28
18-cv-00786-L-AGS