Antitrust Law Daily ‘Rival’ developers might have sat on their antitrust suit against Facebook too long
Friday, July 10, 2020

‘Rival’ developers might have sat on their antitrust suit against Facebook too long

By Wendy Biddle, J.D.

The developers' suit was dismissed because they waited too long to file, but they were given leave to amend, in part, including to cure defects related to fraudulent concealment.

Facebook has won dismissal of a suit by tech companies and developers alleging the social media giant intentionally set out to suppress app developers it saw as potential rivals. The federal district court in San Jose, California, held that the app developers, led by Reveal Chat HoldCo LLC, missed the deadline to file their antitrust suit, but also stated it was unclear the company and developers were injured by Facebook’s allegedly anticompetitive conduct. Further, the court held that the continuing violation doctrine does not apply in the context of anticompetitive mergers. Because it was possible to cure the fraudulent concealment defects, the court granted leave to amend as to that theory only (Reveal Chat Holdco LLC v. Facebook, Inc., July 8, 2020, Freeman, B.).

Online platforms and app developers alleged that Facebook violated the antitrust laws by unlawfully restricting developer access to certain application programming interfaces (APIs), by acquiring Instagram and WhatsApp, and by shutting out direct competitors. The complaint alleged six causes of action, including for violation of section 1 of the Sherman Act, for acquiring and maintaining a monopoly in the relevant markets for social data and social advertising; violation of section 2 of the Sherman Act, for attempting to monopolize markets; violation of section 1 of the Sherman Act under a hub-and-spoke theory because Facebook’s Whitelist and Data Sharing Agreements controlled the supply of social data; and violation of section 7 of the Clayton Antitrust Act, for Facebook’s acquisition and integration of Instagram and WhatsApp.

Statute of limitations. The developers should have been aware of Facebook's allegedly anti-competitive conduct for several years based on publicly available facts, but they didn't launch their lawsuit until after the deadline passed, according to the court. The doctrine of laches applied to the case, and the court found that the developers "past delay is related to Facebook’s ongoing behavior." They challenged Facebook’s 2012 and 2014 acquisitions of Instagram and WhatsApp and sought relief as to the recent decision to integrate Instagram and WhatsApp. The acquisitions were highly publicized.

Additionally, the court held that the developers failed to sufficiently plead fraudulent concealment because they did not plead that Facebook took affirmative acts to mislead them, relying only on Facebook’s private actions. That was not enough to show that Facebook took affirmative steps to mislead them, the court ruled.

Lastly, the court held that the continuing violation doctrine does not apply to anticompetitive mergers and therefore does not apply to Section 7 claims under the Clayton Act. If the continuing violation doctrine applied, every business decision would constitute a continuing violation and the statute of limitations would be obsolete. Therefore the court determined that the plaintiffs were time-barred from bringing the suit and granted Facebook’s motion to dismiss. However the court stated that it was possible to cure the fraudulent concealment defects and granted leave to amend that theory only.

Antitrust injury. Facebook argued that the plaintiffs did not plead antitrust injury; to which the court agreed. The court found that the developers only made "naked assertions" that were conclusory and therefore could not withstand the motion to dismiss. The court also noted that it was unclear if the plaintiffs were competitors or consumers of Facebook, so they failed to satisfy the requirements of antitrust injury. The court granted Facebook’s motion to dismiss but granted the plaintiffs leave to amend.

Relevant market. Although the court noted that it did not need to discuss the remaining arguments why the plaintiffs failed to state a claim because the claims were time-barred and no antitrust injury was plausibly alleged, it nevertheless addressed those issues. The developers alleged that there were two relevant markets: a Social Data Market; and Social Advertising Market. The court found that the developers needed to clearly define the boundaries of the Social Data Market to show what is included. Facebook argued that the plaintiffs failed to plausibly allege that social data is economically distinct from other forms of data, but the court noted that a more factual record would be needed to resolve that.

The court also had concerns over the Social Advertising Market. Many Ninth Circuit courts have rejected antitrust claims that relied on proposed ad markets limited to a single form of advertising, finding that there is no logical basis for distinguishing it from the larger market of Internet advertising, the court noted. The plaintiffs were encouraged to address that issue should they amend and refile.

Monopolization. Facebook argued that the monopolization claims failed because they relied on the theory that Facebook was required to prop up competitors by providing APIs to developers who could create applications that could compete with Facebook. The court primarily agreed, noting there is no duty to deal and the Aspen Skiing exception did not apply to Facebook’s refusal to deal. The developers did not allege that Facebook refused to provide products to its competitors that they sold in a retail market to other customers. The court held that the developers failed to state a claim for monopolization.

Whitelist and data sharing agreements. Facebook argued that the Section 1 Sherman Act claims for the Whitelist and Data Sharing Agreements failed because the developers did not allege all the requisite parts of a hub-and-spoke theory. The developers alleged that the vertical agreements between Facebook and whitelisted developers lacked any legitimate business or technical basis. The court noted that it was unclear if the plaintiffs were still pursuing a hub-and-spoke theory based on their opposition brief, but if so, they failed to adequately state a claim under that theory because they did not allege the horizontal agreements among the spokes, or the "rim of the wheel."

The case is No. 5:20-cv-00363-BLF.

Attorneys: Brian James Dunne (Bathaee Dunne LLP) for Reveal Chat Holdco LLC and USA Technology and Management Services, Inc. Sonal N. Mehta (Wilmer Cutler Pickering Hale and Dorr LLP) for Facebook, Inc.

Companies: Reveal Chat Holdco LLC; USA Technology and Management Services, Inc.; Facebook, Inc.

MainStory: TopStory Antitrust GCNNews CaliforniaNews

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