• Northern District Of California Dismisses “Two-Way Tying” Claim With Leave To Replead
   

  12/19/2023

  On November 30, 2023, Chief Judge Richard Seeborg of the United States District Court for the Northern District of California dismissed a lawsuit alleging that Google illegally ties its mapping applications in violation of U.S. antitrust law. At issue were defendant’s application programing interfaces (“API’s”) “Maps,” “Routes,” and “Places.” Plaintiffs claimed that defendant unlawfully ties these three APIs together, by purportedly refusing to sell one service unless the purchaser also agrees to buy the other mapping services or agrees to refrain from purchasing similar services from any alternative source. According to plaintiffs, because of defendant’s alleged market power, this tying scheme allowed defendant to charge higher prices for its mapping services in violation of the Sherman Act, the Clayton Act, and California’s Unfair Competition Law. Dream Big Media Inc., et al. v. Alphabet Inc., et al., 2023 WL 8285808 (N.D. Cal. Nov. 20, 2023).

  At the outset, Chief Judge Seeborg distinguished this case from a case dismissing a tying claim against Facebook in Sambreel Holdings LLC v. Facebook, Inc., 906 F. Supp. 2d 1070 (S.D. Cal. 2012). There, plaintiffs offered a product which allowed users to add designs—or application “add-ons”—to be displayed when they visited Facebook. Chief Judge Seeborg explained that in Sambreel—unlike in this case—there was no allegation that Facebook’s conduct was intended to increase its share of a second, “tied” market, because Facebook was not competing in the “add-on” market at all. Chief Judge Seeborg’s also rejected defendant’s attempt to seize on language from Sambreel regarding Facebook’s right to “determine” and to “dictate” the terms under which third-party developers use Facebook. The Court explained that though firms may have some rights when it comes to controlling how their products are used, those rights do not trump antitrust law.

  With regard to plaintiffs’ tying claim, Chief Judge Seeborg explained, “[t]ypically a tying arrangement is a device used by a seller with market power in one product market to extend its market power to a distinct product market.” Here, plaintiffs did not allege a traditional tying theory. Instead, “plaintiffs allege that depending on the specific transaction between Google and its customers, any of the three services (Maps, Routes, or Places) can be the tying service, with the remaining two then becoming the tied services.” Hence, as the Court observed, plaintiffs really have a “two-way tying (three-way, actually) theory.” “Two-way” because—as the theory goes—a single product could be the tying product in one sale yet be the tied product in another. The Court observed that “it is not obvious that such allegations present a cognizable tying claim.” The Court explained that typically, the motive behind a tying scheme is to use market power in one market to gain power in another: a market where the firm presently lacks such power. That being the case, as the Court observed, “it is unclear how a single product or service could be either the tying or the tied product/service, depending merely on which one the customer bought first.” Ultimately, Chief Judge Seeborg found that even if two-way tying claims “might be viable in some instances, [] plaintiffs have not shown such circumstances exist here.”

  The Court granted defendant’s motion to dismiss, with leave for plaintiffs to amend their claim. If plaintiffs amend, the Court explained that they will have to proceed under a traditional tying claim (and allege which of Maps, Routes, or Places is the tied service), or “they must be prepared to show why [a two-way tying claim] is viable.”

  Dream Big Media Inc v. Alphabet Inc. provides an example of how courts may be reluctant to credit novel antitrust theories that do not fit neatly into recognized theories of antitrust harm. One strategy defendants facing such claims may employ is identifying the shortcomings of plaintiffs’ novel theories compared to more traditional antitrust theories, as Google did in this case.

  CATEGORIES: Exclusionary Conduct, Sherman Act § 1
  

LINKS & DOWNLOADS

• Dream Big Media Inc., et al. v. Alphabet Inc., et al.