Antitrust Class Action Monopolization Claims Against eBay Will Proceed; Tying Arrangement Claims Dismissed
On March 4, 2008, a federal district court in San Jose, CA, refused to dismiss an antitrust class action complaint against eBay, the online auction company, brought by online auction participants seeking to represent a class of all eBay auction sellers and a subclass of all auction sellers on eBay who accept PayPal as the method of online payment. See In re Ebay Seller Antitrust Litigation, No. 07-1882 N.D. Cal., No. C 07-01882 JF (RS) (2008). As a result, the class action plaintiffs can pursue claims of abuse of monopoly power and monopoly maintenance claims. However, the class action plaintiffs’ claim that eBay engaged in an illegal tying arrangement has been dismissed.
In 2002, eBay purchased the PayPal online payment service. In the lawsuit, plaintiffs allege that eBay engaged in anticompetitive behavior through, among other things, eBay's controls over its payment methods, elimination of buyer-protection for non-PayPal transactions, and requirement that sellers who would otherwise accept only money transfers accept credit card payments. Plaintiffs also allege, that prior to eBay's acquisition of PayPal, eBay engaged in anticompetitive activity through its acquisition of two of PayPal's competitors and implementation of anticompetitive policies, including entering into agreements with AOL, Yahoo, and Google which purportedly eliminate competition by, inter alia, preventing potential competition and creating territorial market divisions. Plaintiffs also allege that eBay's exclusive marketing of PayPal and exclusion of competitor person-to-person online payment systems constitutes an illegal tying arrangement under the antitrust laws.
Based on the foregoing allegations, plaintiffs allege that eBay violated Sections 1 and 2 of the Sherman Act and Sections 1620 and 17200 of the California Business & Professional Code, and assert claims for: (1) abuse of monopoly power and monopoly maintenance for online auctions; (2) attempted monopolization of the market for online auctions; (3) abuse of monopoly power and monopoly maintenance in the market for person-to-person online payment systems; (4) attempted monopolization of the market for person-to-person online payment systems; (5) per se unreasonable tying; (6) unlawful trust, combination, or conspiracy in restraint of trade and commerce; and (7) unfair business practices. On June 8, 2007 eBay moved to dismiss the bulk of the class action claims.
The Court's Decision
eBay moved to dismiss plaintiffs’ monopolization and attempted monopolization claims on the grounds that plaintiffs do not plead the existence of interchangeable alternatives to both eBay and PayPal and, therefore, failed to plead an identifiable relevant market. However, the court stated that plaintiffs do not allege that eBay’s product alone constituted the relevant market, and have satisfied the elements of a prima facie case of anticompetitive behavior. In addition, while the court noted that plaintiffs' market theory "may be implausible as a theoretical matter," the court noted that there has not yet been any discovery and plaintiffs are entitled to the opportunity to develop their claims.
eBay also moved to dismiss plaintiffs’ monopolization and attempted monopolization claims on the grounds that plaintiffs failed to identify any exclusionary or anticompetitive conduct arising from eBay’s acquisition of PayPal and online payment policies. The court rejected eBay's argument and held that plaintiffs' allegation –– that eBay’s acquisition of PayPal and related policies are anticompetitive because it prevents online auction competitors from breaking into the online auction market–– satisfy the initial pleading requirements.
As a result, the court denied eBay’s motion to dismiss and plaintiffs can pursue abuse of monopoly power and monopoly maintenance claims.
eBay also sought dismissal of plaintiffs’ claims on the grounds that plaintiffs failed to plead an antitrust injury, arguing that plaintiffs did not identify any consumers other than the named plaintiffs who were harmed by the alleged anticompetitive conduct. The court rejected eBay's argument as misplaced because the requirement that a complaining competitor must show harm to consumers does not apply when the complaining plaintiff is himself a consumer. Thus, the court ruled that plaintiffs adequately pled an antitrust injury.
Next, eBay moved to dismiss plaintiffs’ allegation that eBay’s online payment policies support a claim of an illegal tying arrangement. Relying on Ninth Circuit case law that requires an allegation of tying to include a claim of “pernicious effect on competition and lack . . . of any redeeming virtue,” Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958), the court held that plaintiffs failed to sufficiently allege that any tying arrangement actually caused harm to online auction market competitors.
Noting that California's unfair competition laws define unfair competition broadly, the court concluded that plaintiffs adequately pled claims for abuse of monopoly power and monopoly maintenance and, therefore, adequately pled a predicate claim.