Monopolization Complaint Dismissed For Failure To Adequately Define The Relevant Product Market Or Plead Anticompetitive Conduct
05/26/2021On May 13, 2021, U.S. District Judge Beth Labson Freeman of the Northern District of California dismissed, with leave, to amend a monopolization claim against Google and its parent company for failure to properly define the relevant product market or to adequately plead anticompetitive conduct. In re Google Digital Advertising Antitrust Litigation, No. 20-CV-03556-BLF (N.D. Cal. May 13, 2021).
In May 2020, the plaintiff’s digital advertisers filed a putative class action lawsuit against Google, asserting violations of Section 2 of the Sherman Act and California’s Unfair Competition Law (“UCL”) based the alleged monopolization of the purported market for programmatic display advertising services. Search adverting is the placement of advertisements above or alongside results generated by a search engine. Display advertising, on the other hand, appears next to website content, often in the form of banners, images, and videos. Website operators that supply display advertising spots purchased by advertisers are referred to as “publishers.” The sale of display advertising involves a number of different intermediary exchanges and platforms that perform a host of tasks for both the supply side and demand side of the sale. This set of intermediary exchanges and platforms that advertisers and publishers use to buy, sell, and place display ads is referred to as the ad tech stack. According to plaintiffs, defendants captured “well over 50% of the market across the ad tech stack,” including through a series of horizontal and vertical acquisitions that enabled it to allegedly “dominate and control the ad tech stack as a whole.” As a result of its dominance in the search advertising market, plaintiffs alleged, defendants were also able to harm purchasers and sellers within the online advertisement ecosystem by tying their display advertising to their search advertising services and by exploiting user data and foreclosing technological compatibility to competitors in the market. Plaintiffs sought to represent a putative class of advertisers in claims for damages and injunctive relief.
Google moved to dismiss on the grounds that plaintiffs failed to adequately plead claims under the Sherman Act and California’s UCL because they did not allege a relevant product market or actionable anticompetitive conduct. According to defendants, plaintiffs’ proposed market had two main flaws: (1) it included services for both advertisers and publishers, which meant that it could not be described as a single relevant product market, and (2) it improperly excluded alternative means of accessing online display advertising that could be used as a substitute. Defendants also argued that plaintiffs had not sufficiently alleged anticompetitive acts by defendants, as opposed to merely alleging anticompetitive effects suffered by plaintiffs.
The Court agreed with defendants that plaintiffs’ proposed market was too broad as pled because it included services for publishers that plaintiffs and the other proposed class members do not use, a point the plaintiffs acknowledged in the motion to dismiss briefing by suggesting that they would file an amended complaint limiting their claims to digital advertisers. The Court also agreed that the plaintiffs had not pled facts that showed that alternatives such as social-media advertising and the purchase of digital advertising via direct negotiations were not economic substitutes for the services within plaintiffs’ defined market. Noting that a product market definition must encompass the product at issue, as well as all economic substitutes for the product, the Court held that plaintiffs must allege specific facts to demonstrate that excluded categories, such as services offered by Facebook, Amazon, Twitter, and Snapchat (among other web businesses) are not economic substitutes to display advertising brokering services. Conclusory statements that these alternatives are not “reasonable substitutes” and “do not compete for the same business” do not suffice.
Turning to the anticompetitive conduct element of a Section Two claim, the Court began with the proposition that it was not enough to plead the anticompetitive effects of the defendant’s conduct; the mere possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct. The Court explained that plaintiffs need to specifically identify facts that illustrated the anticompetitive acts that Google took to obtain and maintain its monopoly over the alleged market. With regard to tying, for example, plaintiffs would need to allege facts that establish defendants’ conduct was coercive, as opposed to merely persuasive. The Court also raised concerns about plaintiffs’ reliance on a “duty to deal” theory of antitrust liability. Plaintiffs alleged that “Google protected its monopoly by taking affirmative acts to negate the interoperability of systems that previously were interoperable,” but the Court pointed out that a monopolist has no duty to help its competitors survive or expand when introducing an improved product design. Thus, the Court suggested, it was “unlikely to entertain” an Aspen Skiing duty-to-deal claim without additional facts.
Although the failures to meet either the market definition and anticompetitive conduct requirements for a Section Two claim were each independently fatal to the complaint, the Court went on to address antitrust standing, finding that plaintiffs had successfully pled antitrust standing by pleading facts that traced an injury to the alleged unlawful conduct and reasoned that, especially given plaintiffs’ “holistic theory of liability” as to market-wide effects, no extra granularity in pleading standing was needed.
The Court also dismissed the plaintiffs’ UCL claim as derivative of its Sherman Act claim and deferred resolution of the defendants’ claim that the plaintiffs’ claims were subject to arbitration, pending the filing of an amended complaint.
This case is an important reminder that, although market definition is a factual issue, the burden is on plaintiffs to plead specific facts, not mere conclusions, that establish the contours of the market at the complaint stage. Similarly, a complaint must plead specific factual allegations of anticompetitive conduct, not mere conclusory assertions of alleged high prices or other effects, to survive a motion to dismiss.