“[Because] the validity of the ‘relevant 1 market’ is typically a factual element, alleged markets may 2 survive scrutiny under Rule 12(b)(6) subject to factual testing 3 by summary judgment or trial.”
How later courts described this case
- “[Because] the validity of the ‘relevant 1 market’ is typically a factual element, alleged markets may 2 survive scrutiny under Rule 12(b)(6) subject to factual testing 3 by summary judgment or trial.”
- explaining that high 2 barriers to entry “eliminates the possibility that the reduced 3 competition caused by the merger will be ameliorated by new 4 competition from outsiders”
- “Antitrust 9 analysis must always be attuned to the particular structure and 10 circumstances or the industry at issue. Part of that attention 11 to economic context is an awareness of the significance of 12 regulation.”
- “[T]he willful acquisition or 3 maintenance of [monopoly] power . . . distinguishe[s] [power] 4 from growth or development as a consequence of a superior 5 product, business acumen, or historic accident.”
Written by the judges who cited it.
The opinion
1
2
3
4
5
6
7
8 UNITED STATES DISTRICT COURT
9 EASTERN DISTRICT OF CALIFORNIA
10 ----oo0oo----
11
12 DAIRY, LLC,1 a Delaware Limited No. 2:21-cv-02233 WBS AC
Liability Company,
13
Plaintiff/
14 Counterdefendant, MEMORANDUM AND ORDER RE:
DAIRY’S MOTION TO STRIKE AND
15 v. MOTION TO DISMISS SECOND
AMENDED COUNTERCLAIMS
16 MILK MOOVEMENT, INC., a foreign
Corporation, and MILK MOOVEMENT
17 LLC, a Delaware Limited
Liability Company,
18
Defendants/
19 Counterclaimants.
20
21 ----oo0oo----
22 Dairy, LLC (“Dairy”) initiated this action against Milk
23 Moovement, Inc. and Milk Moovement, LLC alleging trade secret
24 misappropriation under federal and California law, and
25 intentional interference with contractual relations. (First Am.
26 Compl. (Docket No. 48).) Milk Moovement then alleged five
27
1 Dairy has changed its name to Ever.Ag. However, this
28 order will continue to refer to Dairy for convenience.
1 counterclaims: four claims for declaratory judgment under various
2 trade secret laws and one antitrust claim for sham litigation.
3 (Docket No. 111). The court dismissed the sham litigation
4 counterclaim twice, but permitted the declaratory judgment
5 counterclaims. (Docket Nos. 105, 134.) Upon obtaining new
6 information during discovery, Milk Moovement requested leave to
7 amend its counterclaims and add six new antitrust related
8 counterclaims. (Docket No. 204.) The court granted Milk
9 Moovement’s request. (Docket No. 244.)
10 In its Second Amended Counterclaims, Milk Moovement
11 alleges new facts that Dairy engaged in various types of
12 anticompetitive conduct and asserts ten counterclaims, including
13 the four previously pled declaratory judgment claims: (1) no
14 protectable trade secret under the Defend Trade Secrets Act, 18
15 U.S.C. § 1836; (2) declaratory judgment of no misappropriation
16 under the Defend Trade Secrets Act, id.; (3) declaratory judgment
17 of no protectable trade secret under the California Uniform Trade
18 Secrets Act, California Civil Code § 3426 et seq.; (4)
19 declaratory judgment of no misappropriation under the California
20 Uniform Trade Secrets Act, id.; (5) conspiracy to monopolize
21 under § 2 of the Sherman Act, 15 U.S.C. § 2; (6) monopolization
22 and attempted monopolization under § 2 of the Sherman Act, id.;
23 (7) unlawful restraint of trade under § 1 of the Sherman Act, 15
24 U.S.C. § 1; (8) unlawful restraint of trade under California’s
25 Cartwright Act, Cal. Bus. & Prof. Code §§ 16700 et seq.; (9)
26 unlawful mergers or acquisitions under § 7 of the Clayton Act, 15
27 U.S.C § 18; and (10) unfair competition under California’s Unfair
28 Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200 et seq.
1 (Docket No. 249.)
2 Before the court are Dairy’s motion to strike (Docket
3 No. 270) and motion to dismiss (Docket No. 266) the Second
4 Amended Counterclaims.
5 I. Factual Allegations2
6 Milk is an important and heavily regulated commodity in
7 the United States. (2d Am. Countercls. ¶ 96.) American
8 consumers collectively spend more than $15 billion on milk each
9 year. (Id. ¶ 80.) Participants in the dairy industry manage a
10 large amount of data including milk prices, quantity, location,
11 transit updates, quality testing, and invoices. (Id. ¶ 96.)
12 Under federal law, the United States Department of
13 Agriculture (“USDA”) issues Federal Milk Marketing Orders
14 (“FMMOs”), which then set milk prices across statutorily divided
15 geographic regions. (Id. ¶ 103.) Pursuant to the FMMOs, milk
16 can be “pooled” and therefore subject to regulated pricing. (Id.
17 ¶ 104.) All Class I milk (liquid beverage milk) must be pooled.
18 (Id.) For every other class of milk, milk producers can decide
19 whether to participate in the pool. (Id.)
20 FMMOs set the rules and conditions for producers
21 pooling milk. (Id. ¶ 108.) FMMOs consider many factors
22 including how much milk the producer “pooled” the previous month
23 and whether the producer diverted milk to other plants
24 participating in the pool. (Id.) Depending on that month’s
25
2 While the court already discussed Milk Moovement’s
26 factual allegations as alleged in its Counterclaims and First
Amended Counterclaims, (Docket Nos. 105, 134), the Second Amended
27 Counterclaims contain new factual allegations in support of Milk
Moovement’s six new antitrust counterclaims. The court takes the
28 allegations of the Second Amended Counterclaims as true.
1 uniform price for milk, some producers will have to pay into the
2 pool while others will withdraw from the pool. (Id. ¶ 106.)
3 Milk processors are required to submit monthly reports
4 detailing their total milk receipts by class and specifying how
5 much milk was pooled. (Id. ¶ 109.) Milk processors must also
6 send monthly reports to milk producers. (Id.) These reports
7 must include a variety of metrics including the total pounds of
8 milk received from that producer by date, the minimum payments
9 required to be made to the producer under the FMMOs, and the net
10 amount of payments to the producer. (Id.) The USDA uses these
11 metrics to establish fixed minimum prices for milk and milk
12 products. (Id. ¶ 110.)
13 Because producers try to obtain the highest possible
14 price for milk, they make pooling decisions based on whether the
15 market price for a particular class of milk is higher or lower
16 than the uniform price. (Id. ¶ 107.) Milk producers also try to
17 avoid paying into the pool. (Id. ¶ 112.) Because milk producers
18 are often organized into cooperatives,3 not paying into the pool
19 allows a milk producer to use that money to pay member farms.
20 (Id.) A cooperative only engaged in milk production is motivated
21 to obtain the highest price for milk. (Id. ¶ 113.)
22 Historically, systems for tracking the dairy supply
23 chain used pen and paper and thus were inefficient and prone to
24 error. (Id. ¶ 96.) The advent of supply chain software in the
25 dairy industry, including data processing services, modernized
26 these systems. (Id.)
27
3 Milk cooperatives are entities owned by its farmer-
28 members.
1 Dairy is the largest and most dominant provider of
2 dairy software. (Id. ¶ 97.) Dairy advertises on its website
3 that “over 80 percent of the 100 largest dairy companies in the
4 country are Dairy customers.” (Id. ¶ 81.) Dairy was co-founded
5 by Dairy Farmers of America (“DFA”), which continues to have an
6 ownership interest.4 (Id. ¶ 94.)
7 DFA is the largest milk producer cooperative in the
8 country as well as an owner and operator of numerous milk
9 processors. (Id. ¶ 94.) As both a milk producer and processor,
10 DFA’s interest in the price of milk differs from the typical milk
11 producer cooperative. (Id. ¶ 114.) Whereas milk cooperatives
12 benefit from the highest possible price for milk, DFA -- as a
13 milk processor -- benefits from lower milk prices. (Id.) When
14 DFA sells milk at a low price, it does not impact its net income
15 in the same way low prices impacts other milk producers because
16 DFA can recoup any losses through its profits as a milk
17 processor. (Id. ¶ 117.)
18 DFA is Dairy’s “most important customer.” (Id. ¶ 94.)
19 DFA will not work with any Dairy competitors. (Id. ¶ 125.) As a
20 partial owner of Dairy, DFA has access to the data of other milk
21 producers who utilize Dairy’s software services. (Id. ¶ 121.)
22 In prior litigation, a district court in Vermont found evidence
23 that DFA indeed accessed the data of competing milk cooperatives.
24 (Id. ¶¶ 119-20.) Further, as the largest milk producer in the
25 country, DFA has the ability to manipulate FMMOs to suppress milk
26 prices. (Id. ¶ 114.) Because of DFA’s access to other milk
27
4 Dairy is also partially owned by the private equity
28 group, Banneker Partners. (2d Am. Countercls. ¶ 95.)
1 producers’ data and its ability to manipulate FMMOs, Dairy and
2 DFA have an incentive to block competitors in the dairy software
3 industry. (Id. ¶ 122.) Blocking competitors in the dairy
4 software industry allows Dairy to maintain and grow its dominance
5 in the dairy software industry. In turn, Dairy grants DFA access
6 to the data of many of its competitors in the milk production and
7 milk processing industry.
8 Milk Moovement is a dairy software start-up and Dairy
9 competitor. (Id. ¶ 97.) Milk Moovement created new methods for
10 tracking and analyzing production data, including a cloud-based
11 software platform which connects all entities in the dairy supply
12 chain. (Id. ¶ 97-98.) Milk Moovement’s software is used to keep
13 track of data such as how much and when milk is picked up from
14 producers. (Id. ¶ 99.) Its software allows its customers to
15 access data in-real time via computer or mobile app. (Id. ¶¶ 99-
16 100.)
17 In 2020, Dairy -- through co-owner Banneker Partners --
18 attempted to acquire Milk Moovement. (Id. ¶¶ 163-167.) Dairy
19 had previously acquired two other entities: Data Specialists,
20 Inc. in 2018 and Ever.Ag in 2022. (Id. ¶ 154.) In addition,
21 Dairy also purchased a software system developed by a dairy
22 cooperative, United Dairymen of Arizona (“United Dairymen”).
23 (Id. ¶ 155.) However, Dairy never brought the software to
24 market. (Id.)
25 Dairy has previously had relationships with other
26 entities in the dairy industry, including California Dairies,
27 Inc. (“California Dairies”) -- a milk marketing and processing
28 cooperative in California. (First Am. Compl. ¶ 32.) In 2014,
1 California Dairies began using Dairy’s software. (Id. ¶ 33.)
2 Because of issues with Dairy’s software, California Dairies then
3 entered into an agreement with Milk Moovement in or around
4 September 2021. (Id. ¶ 37.) California Dairies subsequently
5 gave Dairy notice that it was terminating its agreement effective
6 February 1, 2022. (Id. ¶ 41.) Dairy believes that California
7 Dairies shared Dairy’s trade secrets with Milk Moovement when it
8 switched data processing service providers. (Id. ¶¶ 42-46.)
9 That belief ultimately led Dairy to initiate this lawsuit in
10 December 2021 for various trade secrets violations. (See Compl.
11 (Docket No. 1).)
12 The provisions in Dairy’s contract with Milk Moovement
13 were not unique. Rather, Dairy’s contracts impose exclusivity
14 provisions on its customer which prevent the customers from
15 leaving Dairy for one of its competitors. (2d Am. Countercls. ¶
16 138.) These provisions convert a customer’s raw data to into
17 Dairy trade secrets. (Id. ¶¶ 139-143.) As a result, customers
18 cannot disclose their own data as necessary to change service
19 providers. (Id. ¶ 144.) If a customer does decide to terminate
20 its relationship with Dairy, they would be unable to transfer its
21 own analytics and production data. (Id. ¶ 145.) This
22 information is critical to both the customer as well as the new
23 software provider. (Id. ¶¶ 145-47.) Moreover, these provisions
24 have the effect of precluding a customer from complying with
25 federal and state law relating to the historical accounting and
26 auditing of that customer’s milk pooling and milk pricing
27 activities. (Id. ¶ 148.)
28 In addition to Dairy’s conduct preventing customers
1 from working with Milk Moovement, Dairy has also blocked Milk
2 Moovement from marketing opportunities. In 2022, Dairy barred
3 Milk Moovement from attending, sponsoring, or presenting at
4 DairyTech -- the milk industry’s leading annual technology
5 conference. (Id. ¶ 191.) The DairyTech is organized by the
6 International Dairy Foods Association. (Id.) When Milk
7 Moovement tried to become a sponsor of the event, a requirement
8 for appearing and presenting at the conference, the conference
9 organizers informed Milk Moovement that, due to the organizers’
10 partnership with Ever.Ag (Dairy’s new trade name), any Ever.Ag
11 competitors were precluded as sponsors. (Id. ¶ 193.)
12 Dairy’s efforts against Milk Movement eventually led
13 Milk Movement to file its counterclaims against Dairy. The court
14 will first address Dairy’s motion to strike before addressing its
15 motion to dismiss the amended counterclaims.
16 II. Motion to Strike
17 A. Legal Standard
18 Federal Rule of Civil Procedure 12(f) authorizes the
19 court to “strike from a pleading an insufficient defense or any
20 redundant, immaterial, impertinent, or scandalous matter.” Fed.
21 R. Civ. P. 12(f). See Ready Transp., Inc. v. AAR Mfg., Inc., 627
22 F.3d 402, 404 (9th Cir. 2010) (a district court’s “inherent power
23 to control their docket . . . . includes the power to strike”)
24 (holding district court has power to strike an improperly filed
25 confidential document) (citing Carrigan v. Cal. State
26 Legislature, 263 F.2d 560, 564 (9th Cir. 1959) (discussing an
27 appellate court’s inherent power to strike briefs and pleadings
28 “as either scandalous, impertinent, scurrilous, and/or without
1 relevancy”)) (additional citations omitted). Because motions to
2 strike are “often used as delaying tactics,” they are “generally
3 disfavored” and are rarely granted in the absence of prejudice to
4 the moving party. Rosales v. Citibank, FSB, 133 F. Supp. 2d
5 1177, 1180 (N.D. Cal. 2001); see also N.Y.C. Emps.’ Ret. Sys. v.
6 Berry, 667 F. Supp. 2d 1121, 1128 (N.D. Cal. 2009) (“Where the
7 moving party cannot adequately demonstrate . . . prejudice,
8 courts frequently deny a motion to strike . . . .”) (citation and
9 internal quotation marks omitted).
10 B. Discussion
11 Milk Moovement filed its proposed Second Amended
12 Counterclaims attached as Exhibit 1 to its motion for leave to
13 amend. (See Mot. Leave, Ex. 1 (Docket No. 204-3).) The proposed
14 Second Amended Counterclaims included only Milk Moovement’s
15 factual allegations and its six new antitrust related claims.
16 (See id.) The proposed Second Amended Counterclaims did not
17 include Milk Moovement’s answer, affirmative defenses, or prior
18 declaratory judgment counterclaims from its Counterclaims and
19 First Amended Counterclaims (Docket Nos. 79, 111), which survived
20 two motions to dismiss. (See Docket Nos. 105, 134.) After being
21 granted leave to amend by this court, Milk Moovement filed the
22 Second Amended Counterclaims, which incorporated its previously
23 filed answer, affirmative defenses, and declaratory judgment
24 counterclaims with the new factual allegations and six
25 counterclaims from the proposed Second Amended Counterclaims.
26 (Docket No. 249.)
27 Dairy moves to strike the Second Amended Counterclaims
28 by arguing that the “filing was inappropriate and objectively
1 unreasonable” because it “was substantively and materially
2 different” than the proposed counterclaims. (Mot. Strike at 1
3 (Docket No. 270).) Dairy contends that Milk Moovement’s filing
4 of its Second Amended Counterclaims was a violation of Federal
5 Rules of Civil Procedure 15 and 16, Local Rules 137(c) and 220,
6 and the court’s order granting Milk Moovement leave to amend.
7 (Id.) Dairy asks that the court require Milk Moovement to either
8 proceed with the proposed counterclaims or proceed with the First
9 Amended Counterclaims, thereby abandoning its new antitrust
10 counterclaims. (Mot. Strike at 16.) The court will decline
11 Dairy’s request.
12 As Milk Moovement explains: “Every single word in the
13 [Second Amended Counterclaims] was either (i) already part of the
14 case in the existing answer, defenses or claims, or (ii) the
15 Court had expressly authorized it to be added to the case by
16 granting leave to amend.” (Opp’n Mot. Strike at 3 (Docket No.
17 291).) As discussed below, the court rejects all of Dairy’s
18 arguments. The court sees Dairy’s motion to strike as simply a
19 second attempt to dismiss Milk Moovement’s new antitrust
20 counterclaims in the event its concurrently filed motion to
21 dismiss (Docket No. 266) is unsuccessful.
22 First, Dairy argues that the court should strike the
23 Second Amended Counterclaims because they were filed in violation
24 of Local Rule 220, which states that “every pleading to which an
25 amendment or supplement is permitted as a matter of right or has
26 been allowed by court order shall be retyped and filed so that it
27 is complete in itself without reference to the prior or
28
1 superseded pleading.”5 But the Second Amended Counterclaims, as
2 filed, complies with Rule 220 as it contains Milk Moovement’s
3 answer, affirmative defenses, and counterclaims.6 See L.R. 220
4 Next, Dairy argues that the Second Amended
5 Counterclaims violate the court’s order granting Milk Moovement
6 leave to amend under Rules 15 and 16 of the Federal Rules of
7 Civil Procedure because Milk Moovement was not granted leave to
8 file a “synthesized” pleading.7 (Mot. Strike at 11-13.) Again,
9 the court disagrees. Unlike the cases upon which Dairy relies,8
10
11 5 It appears that Dairy is attempting to argue that
Exhibit 1 attached to its leave to amend -- the proposed
12 Counterclaims -- is a pleading. However, as Milk Moovement
points out, under Fed. R. Civ. P. 7(a), an exhibit is not a
13 pleading. See Fed. R. Civ. P. 7(a) (listing types of pleadings
allowed, including a complaint, an answer, and an answer to a
14 counterclaim designated as a counterclaim).
15 6 Dairy also points out that the filed Second Amended
Counterclaims incorporate by reference earlier pleadings,
16 specifically references to the First Amended Counterclaims. (See
Mot. Strike at 13-14.) Milk Moovement explains that these were
17 typographical errors that were supposed to reference the Second
Amended Counterclaims. (See Opp’n Mot. Strike at 11 n. 5).
18 While counsel is cautioned to avoid such basic errors, the court
declines to find the pleading violated Rule 220 on the basis of a
19 typographical error.
20 7 Dairy suggests that a “synthesized pleading” is a
pleading which is a “synthesis” of the operative parts of other
21
pleadings. Thus, Dairy contends that Milk Moovement’s Second
Amended Counterclaims is a “synthesized pleading” as it contains
22
the operative portions of Milk Moovement’s Answer and First
23 Amended Counterclaims as well as its proposed Second Amended
Counterclaims.
24
8 The cases upon which Dairy relies in support of its
25 motion to strike all involve instances where a party filed an
amended pleading that greatly differed from the proposed
26 pleading. See e.g., Hazdovac v. Mercedez-Benz USA, LLC, No. 20-
cv-00377 RS, 2022 WL 2161506, at *2 (N.D. Cal. June 15, 2022)
27 (“The new [c]omplaint is littered with hundreds of changes
compared to the proposed complaint, with paragraph after
28 paragraph of new material in certain sections.”).
1 the Second Amended Counterclaims include no new facts or claims
2 that were not already asserted in the First Amended Counterclaims
3 or proposed Second Amended Counterclaims. Rather, the answer and
4 affirmative defenses included in the Second Amended Counterclaims
5 are identical to those in the First Amended Counterclaims. Dairy
6 also argues that Milk Moovement abandoned the previously pled
7 declaratory judgment counterclaims because they were not included
8 in the proposed Second Amended Counterclaims. To the extent
9 leave must be given to ensure the previously pled declaratory
10 judgment counterclaims are properly included in the Second
11 Amended Counterclaims, it is hereby granted.
12 Finally, Dairy argues that the court should strike the
13 Second Amended Counterclaims because they were filed in violation
14 of Local Rule 137(c). Local Rule 137(c) provides: “If filing a
15 document requires leave of court, such as an amended complaint
16 after the time to amend as a matter of course has expire, counsel
17 shall attach the document proposed to be filed as an exhibit to
18 moving papers seeking such leave and lodge a proposed order as
19 required by these Rules.” L.R. 137(c).
20 Dairy is correct that Milk Moovement did not comply
21 with the precise requirements of Local Rule 137(c) because it
22 failed to incorporate its new counterclaims into its preexisting
23 answer, affirmative defenses, and declaratory judgment
24 counterclaims. Nevertheless, the court declines Dairy’s
25 invitation to strike the six new counterclaims where Dairy has
26 not adequately shown that it will be prejudiced.9 See Rosales,
27 9 Dairy argues it will be prejudiced because it “relied
upon the proposed [Second Amended Counterclaims] in deciding
28 whether to oppose and evaluating what arguments were available
1 133 F. Supp. 2d at 1180.
2 Moreover, to strike the Second Amended Counterclaims on
3 any procedural ground would be futile. The court would strike
4 these counterclaims without prejudice, allowing Milk Moovement to
5 refile the exact same pleading as their currently filed Second
6 Amended Counterclaims. Dairy would then refile their motion to
7 dismiss. Thus, the case would be in the same position as it is
8 today, except having endured a months long delay. The court
9 therefore declines to strike the six new counterclaims, which it
10 granted leave to amend, on a pure procedural technicality and for
11 which Dairy cannot honestly claim it will suffer any prejudice.
12 Dairy’s motion is to strike is nothing more than a
13 disfavored delay tactic. Such a motion is a waste of the court’s
14 time and resources. Accordingly, Dairy’s motion to strike the
15 Counterclaims (Docket No. 270) is denied.
16 III. Motion to Dismiss
17 A. Legal Standard
18 Federal Rule of Civil Procedure 12(b)(6) allows for
19 dismissal when the plaintiff’s complaint fails to state a claim
20
and should be made in opposition.” (Mot. Strike at 8.) Dairy’s
21 argument is without merit. At the hearing for Milk Moovement’s
motion for leave to amend, Milk Moovement’s counsel made clear
22 its intentions to file one synthesized pleading which would
contain its answer, affirmative defenses, and counterclaims.
23 Moreover, counsel for Milk Moovement again informed Dairy’s
counsel that it was going to file a synthesized pleading by email
24 prior to filing the Second Amended Counterclaims. (Opp’n Mot.
Strike at 9.) Nothing in the Second Amended Counterclaims was
25 new or a surprise to Dairy. Finally, Dairy cannot argue that it
will be prejudiced by having to defend itself against “new and
26 expansive antitrust claims.” See Fru-Con Constr. Corp. v.
Sacramento Mun. Util. Dist., No. CIV. S-05-583 LKK GGH, 2006 WL
27 3733815, at *5 (E.D. Cal. Dec. 15, 2006) (citation omitted) (“The
fact that the amended counterclaim may cause more work does not
28 constitute prejudice.”).
1 upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6).
2 “A Rule 12(b)(6) motion tests the legal sufficiency of a claim.”
3 Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). The inquiry
4 before the court is whether, accepting the allegations in the
5 complaint as true and drawing all reasonable inferences in the
6 plaintiff’s favor, the complaint has alleged “sufficient facts
7 . . . to support a cognizable legal theory,” id., and thereby
8 stated “a claim to relief that is plausible on its face,” Bell
9 Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In deciding
10 such a motion, all material allegations of the complaint are
11 accepted as true, as well as all reasonable inferences to be
12 drawn from them. Id.
13 “In order to survive a motion to dismiss under Rule
14 12(b)(6), an antitrust complaint ‘need only allege sufficient
15 facts from which the court can discern the elements of an injury
16 resulting from an act forbidden by the antitrust laws.’” Cost
17 Mgmt. Servs. Inc. v. Washington Nat. Gas Co., 99 F.3d 937, 950
18 (9th Cir. 1996) (citation omitted). “A motion to dismiss a
19 counterclaim brought pursuant to Rule 12(b)(6) is evaluated under
20 the same standard as motion to dismiss a plaintiff’s complaint.”
21 Niantic, Inc. v. Gobal++, 19-cv-03425 JST, 2020 WL 1548465, at *2
22 (N.D. Cal. Jan. 30, 2020).
23 B. Relevant Market
24 As the first step in any antitrust action, a “plaintiff
25 must allege both that a relevant market exists and that the
26 defendant how power within that market.” Newcal Indus., Inc. v.
27 Ikon Office Sols., 513 F.3d 1038, 1044 (9th Cir. 2008). See FTC
28 v. Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020) (“A threshold
1 step in any antitrust case is to accurately define the relevant
2 market . . .”) (citations omitted); Netafirm Irrigation, Inc. v.
3 Jain Irrigation, Inc., 562 F. Supp. 3d 1073, 1081 (E.D. Cal.
4 2021) (Ishii, J.) (citations omitted) (“Setting the relevant
5 market boundaries is a critical first step as it enables the
6 court to assess issues regarding market share, defendant’s
7 ability to lessen or destroy competition, and the alleged
8 antitrust injury.”).
9 A ‘market’ is the group of sellers or produces who have
10 the ‘actual or potential ability to deprive each other of
11 significant levels of business.’” Rebel Oil Co. v. Atl.
12 Richfield Co., 51 F.3d 1421, 1434 (9th Cir. 1995) (citations and
13 quotation omitted). “The relevant market must include both a
14 geographic market and a product market.” Hicks v. PGA Tour,
15 Inc., 897 F.3d 1109, 1120 (9th Cir. 2019) (citation omitted).
16 1. Product Market
17 “[T]he [product] market must encompass the product at
18 issue as well as all economic substitutes for the product.”
19 Newcal, 513 F.3d at 1045 (citation omitted). “The outer
20 boundaries of a product market are determined by the reasonable
21 interchangeability of use or the cross-elasticity of demand
22 between the product itself and substitutes for it.” Id. (quoting
23 Brown Shoe v. United States, 370 U.S. 294, 325 (1962)). “The
24 analysis looks to both ‘whether two products can be used for the
25 same purpose, and if so, whether and to what extent purchasers
26 are willing to substitute one for the other.” FTC v. Facebook,
27 Inc., 560 F. Supp. 3d 1, 17 (D.D.C. 2021) (citation omitted).
28 Here, Milk Moovement defines the relevant product
1 market as “the market for data services for milk producers and
2 processors.”10 (2d Am. Countercls. ¶ 124.) As Milk Moovement
3 explains, “both Dairy and Milk Moovement package their supply
4 chain data as integrated systems of software” for the dairy
5 industry. (Opp’n Mot. Dismiss at 10.) The dairy industry’s
6 regulatory scheme limits the types of products which could offer
7 these services.11 See Verizon Commc’ns Inc. v. Law Offs. of
8 Curtis V. Trinko, LLP, 540 U.S. 398, 411 (2004) (“Antitrust
9 analysis must always be attuned to the particular structure and
10 circumstances or the industry at issue. Part of that attention
11 to economic context is an awareness of the significance of
12 regulation.”). That both Dairy and Milk Moovement offer data
13 processing services for the dairy industry is sufficient to
14 define the product market at this stage. See Thurman Indus.,
15 Inc. v. Pay ‘N Pak Stores, Inc., 875 F.2d 1369, 1374 (9th Cir.
16 10 Milk Moovement also alleges that the market for milk
production and the market for milk processing are additional
17
relevant markets because DFA -- the largest milk producer and one
18 of the largest milk processors in the United States -- has an
ownership interest in Dairy. (2d Am. Countercls. ¶ 125.)
19
11 Dairy attempts to argue that Milk Moovement was
20 required to specifically identify other competitors because “data
service providers” could include countless technology companies
21
including Amazon’s AWS and SAP. (Mot. Dismiss at 16). The court
22 is unpersuaded. While presumably any company that provides data
services could build the capabilities to provide data processing
23 services for the dairy industry, the fact that they do not do so
at this time means that they do not compete within the relevant
24 product market. See Facebook, 560 F. Supp. 3d at 17 (“[T]he fact
that other services are not primarily used for the sort of
25
personal sharing that is the hallmark of a [social media] service
seems a plausible reason why little switching would occur.”).
26
Moreover, “the question of whether the market should include
27 other products is better resolved at the summary judgment stage.”
Klein v. Facebook, Inc., 580 F. Supp. 3d 743, 765 (N.D. Cal.
28 2022) (citation and quotations omitted).
1 1989) (“The goods and services that sellers or producers offer
2 provide the best indicia of who competes in the same market.”).
3 While identifying other competitors in the market would provide a
4 clearer picture of the market, particularly given Milk
5 Moovement’s allegations that the market is heavily concentrated,
6 there is no requirement that Milk Moovement identify every
7 competitor. See Klein, 580 F. Supp. 3d at 765 (“A plaintiff is
8 not required to identify every alleged competitor in its
9 pleadings.”) (citation and internal quotations omitted).
10 Similarly, the court finds no issue with Milk
11 Moovement’s limitation that the data services are “for milk
12 producers and processors.” Contrary to Dairy’s argument, this
13 limitation describes the product, not the consumers. See Brown
14 Shoe, 370 U.S. at 325 (a market “may be determined by examining
15 such practical indicia as . . . the product’s peculiar
16 characteristics and uses . . . [and] distinct customers”).
17 Accordingly, the court finds Milk Moovement has sufficiently pled
18 a relevant product market.
19 2. Geographic Market
20 “The geographic market extends to the area of effective
21 competition where buyers can turn for alternative sources of
22 supply.” Tanaka v. Univ. of S. Cal., 252 F.3d 1059, 1063 (9th
23 Cir. 2011) (citations and internal punctuation omitted). There
24 are two ways that courts define a geographic market: (1) the
25 location of the relevant suppliers, which “must include all the
26 firms with the relevant production, sales, or service facilities
27 in the specific region”; or (2) the location of the relevant
28 customers, which must include “all the firms that sell to
1 customers in the geographic region, regardless of the location of
2 the supplier making those sales.” Pacific Steel Grp. v. Com.
3 Metals Co., 600 F. Supp. 3d 1056, 1068 (N.D. Cal. 2022) (citing
4 2010 Dep’t of Justice and FTC Horizontal Merger Guidelines §§
5 4.2.1, 4.2.2).
6 Here, Milk Moovement defines the geographic market as
7 the United States or, in the alternative, the sub-national
8 regions for milk purchasing established by the USDA: Northeast,
9 Appalachian, Florida, Southeast, Upper Midwest, Central, Midwest,
10 California, Pacific Northwest, Southwest, and Arizona. (2d Am.
11 Countercls. ¶ 126-27.)
12 At this stage, the court finds both geographic markets
13 are sufficiently pled. The dairy industry is heavily regulated
14 by the federal government. Thus, while Milk Moovement and Dairy
15 both operate overseas, federal regulation determines the
16 geographic boundaries in which milk producers and processors must
17 operate. Further, the FMMO system does not apply outside of the
18 United States. Cf. Brown Shoe, 370 U.S. at 336-37 (“The
19 geographic market selected must . . . correspond to the
20 commercial realities of the industry . . . .”) (internal
21 quotations omitted). The court finds it plausible that industry
22 regulations control whether one sub-region could turn to another
23 for alternative supply. Accordingly, the court finds Milk
24 Moovement has sufficiently pled a relevant geographic market.
25 Because Milk Moovement has plausibly defined both a
26 relevant product market and a relevant geographic market, it has
27 sufficiently pled a relevant market at this stage. See Newcal,
28 513 F.3d at 1045 (“[Because] the validity of the ‘relevant
1 market’ is typically a factual element, alleged markets may
2 survive scrutiny under Rule 12(b)(6) subject to factual testing
3 by summary judgment or trial.”) (citations omitted); Netafirm,
4 562 F. Supp. 3d at 1081 (relevant market allegations are often
5 able to survive scrutiny under Rule 12(b)(6) because “relevant
6 market determinations are typically fact-intensive, with actual
7 inquiry into the commercial realities faced by consumers”)
8 (citations and internal quotations omitted).
9 C. Market Power
10 “Along with a relevant market definition, a plaintiff
11 must plead that the defendant has power within that market.”
12 Netafirm, 562 F. Supp. 3d at 1085 (citing Newcal) (additional
13 citations omitted). “The essence of market power is a firm’s
14 ‘ability to raise prices profitably by restricting output.’”
15 Pacific Steel, 600 F. Supp. 3d at 1072 (quoting Ohio v. Am.
16 Express Co., 138 S. Ct. 2274, 2288 (2018)). “[Courts] rely on
17 market power to help distinguish between restraints that are
18 likely to substantially impair competition and those that are
19 not.” Flaa v. Hollywood Foreign Press Ass’n, 55 F.4th 680, 693
20 (9th Cir. 2022) (citations omitted). “A plaintiff may prove that
21 a restraint has anticompetitive effect either ‘directly or
22 indirectly.” Qualcomm, 969 F.3d at 989 (quoting Am. Express, 138
23 S. Ct. at 2284).
24 1. Direct Evidence
25 “Direct evidence includes proof of actual detrimental
26 effects on competition, such as reduced output, increased prices,
27 or decreased quality in the relevant market.” Qualcomm, 969 F.3d
28 at 989 (citations and internal quotations omitted). Here, Milk
1 Moovement alleges that Dairy “charge[s] supracompetitive prices
2 and wrongly restricts customers’ ability to freely choose their
3 service providers.” (2d Am. Countercls. ¶ 136.) Milk Moovement
4 further alleges that Dairy “is able to charge [their]
5 supracompetitive prices to its customers even while it provides
6 poor, lackluster service.” (Id. ¶ 137.)
7 In support of these allegations, Milk Moovement refers
8 to documents produced in discovery which purport to show that:
9 there were significant problems with Dairy’s software that went
10 uncorrected for years; Dairy did not have the software capacity
11 that at least one customer, California Dairies, required; Dairy
12 sought to charge California Dairies an additional $120,000 to
13 provide the requested services; and Dairy’s CEO not only knew
14 about Dairy’s failure to provide these services but also thought
15 that charging for such services should be Dairy’s standard
16 practice. (2d Am. Countercls. ¶¶ 169, 172, 176.)
17 Milk Moovement further alleges that the various
18 exclusivity provisions in Dairy’s customer contracts meant that
19 any customer seeking to leave Dairy “would be forced to leave
20 behind years of its own analytics and production data --
21 information that Dairy knows forms the lifeblood of strategic
22 decision making in the industry.” (2d. Am. Countercls. ¶ 145.)
23 Not only would such provisions deter any customer from leaving
24 Dairy, but they would also deny any Dairy competitor “the
25 functionality necessary to permit an ‘apples to apples’
26 comparison between different time periods.”12 (Id. ¶ 146.)
27
12 Dairy argues that the fact California Dairies left
28 Dairy after Dairy tried to charge a higher price shows that Dairy
1 Because its customers were barred from leaving, Dairy could
2 provide lower quality services. See Qualcomm, 969 F.3d at 989.
3 2. Circumstantial Evidence
4 “To demonstrate market power circumstantially, a
5 plaintiff must: (1) define the relevant market, (2) show that the
6 defendant owns a dominant share of that market, and (3) show that
7 there are significant barriers to entry and show that existing
8 competitors lack the capacity to increase their output in the
9 short run.” Rebel Oil, 51 F.3d at 1434 (citations omitted). As
10 discussed above, Milk Moovement has sufficiently defined the
11 relevant market.
12 i. Market Share
13 “Measurement of market share is necessary to determine
14 whether the defendant possesses sufficient leverage to influence
15 marketwide output.” Rebel Oil, 51 F.3d at 1437; see Pacific
16 Steel, 600 F. Supp. 3d at 1073 (“[A] dominant share of the market
17 often carries with it the power to control output across the
18 market and in so doing control prices.”) (citing Image Tech
19 Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1206 (9th Cir.
20 1997)). Generally, a 65 percent market share is sufficient to
21 establish a prima facie case of market power. Optronic Techs.,
22 Inc. v. Ningbo Sunny Elec. Co., 20 F.4th 466, 484 (9th Cir. 2021)
23 (citation omitted). A lower market share is permissible for
24 claims of attempted monopolization. See Rebel Oil, 51 F.3d at
25
could not in fact charge supracompetitive prices. (See Mot.
26
Dismiss at 26.) Dairy, however, chooses to look at the factual
27 allegations only in isolation. While California Dairies did
leave Dairy for Milk Moovement, doing so led Dairy to initiate
28 this action.
1 1438 (finding 44 percent sufficient in an attempted
2 monopolization case).
3 Here, Milk Moovement alleges that Dairy’s market share
4 exceeds 80 percent because, as Dairy advertises on its website,
5 “over 80 percent of the 100 largest dairy companies in the
6 country are Dairy.com customers.” (2d. Am. Countercls. ¶ 134.)
7 The court shares Dairy’s concerns that Milk Moovement appears to
8 have premised its market share allegation solely upon this 80
9 percent figure. However, plaintiffs are not required to plead
10 market share with specificity or to explain how they arrived at
11 their market share allegation. See United Energy Trading, LLC v.
12 Pac. Gas & Elec., 200 F. Supp. 3d 1012, 1020 (N.D. Cal. 2016)
13 (finding sufficient an alleged market share of 70 to 90 percent);
14 Teradata Corp. v. SAP SE, No. 18-cv-03670 WHO, 2018 WL 6528009,
15 at *19 (N.D. Cal. Dec. 12, 2018) (finding sufficient an alleged
16 market share of 60 to 90 percent “on information and belief”).
17 Moreover, Dairy’s arguments that Milk Moovement’s market share
18 allegation is insufficient are predominately factual and thus not
19 suitable at the motion to dismiss stage.13 Because a market share
20 of above 80 percent is more than sufficient to establish market
21 power, see Optronic, 20 F.4th at 484, Milk Moovement has
22 sufficiently alleged market power at this stage.
23 ii. Entry Barriers
24 “Market power cannot be inferred solely from a dominant
25 market share.” Pacific Steel, 600 F. Supp. 3d at 1073 (citation
26 13 Dairy further argues that Milk Moovement failed to
offer an explanation as to why the 80 percent figure is relevant
27 to relevant geographic markets when three of the top ten
companies on the list of the 100 largest dairy companies have
28 locations outside of the United States. (Mot. Dismiss at 23.)
1 omitted). “The plaintiff must show that new rivals are barred
2 from entering the market and show that existing competitors lack
3 the capacity to expand their output to challenge the predator’s
4 high price.” Rebel Oil, 51 F.3d at 1439 (citation omitted).
5 “Entry barriers are ‘additional long-run costs that were not
6 incurred by incumbent firms but must be incurred by new
7 entrants,’ or ‘factors in the market that deter entry while
8 permitting incumbent firms to earn monopoly returns.’” Id. at
9 1439 (citation omitted).
10 “In evaluating entry barriers, we focus on their
11 ability to constrain not those already in the market, but . . .
12 those who would enter but are prevented from doing so.” Id. at
13 1439 (citation and internal quotation omitted). “The fact that
14 entry has occurred does not necessarily preclude the existence of
15 ‘significant’ entry barriers. . . . Barriers may still be
16 ‘significant’ if the market is unable to correct itself despite
17 the entry of small rivals.” Id. at 1440.
18 “The main sources of entry barriers are: (1) legal
19 license requirements; (2) control of an essential or superior
20 resource; (3) entrenched buyer preferences for established
21 brands; (4) capital market evaluations imposing higher capital
22 costs on new entrants; and, in some situations, (5) economies of
23 scale.” Id. at 1439 (citations omitted). See e.g., id. at 1439-
24 40 (municipal regulations and state laws regarding oil and gas
25 are entry barriers); United Energy, 200 F. Supp. 3d at 1021-23
26 (regulations regarding natural gas are entry barriers); Pacific
27 Steel, 600 F. Supp. 3d at 1074 (environmental regulations, cost
28 and time, and complexity involved in building and operating a
1 steel mill are entry barriers); Klein, 580 F. Supp. 3d at 779
2 (the switching costs between social media networks are entry
3 barriers).
4 Here, Milk Moovement alleges that there are substantial
5 barriers to entry in the market for data services for milk
6 producers and processors. Because the milk industry is heavily
7 regulated, it is both more complicated and costly for new
8 entrants to comply with those regulations than an existing
9 competitor. (2d. Am. Countercls. ¶ 129.) Milk Moovement also
10 alleges that Dairy has created multiple barriers including: (1)
11 Dairy’s de facto exclusive contracts, which restrict new entrants
12 to the market; (2) Dairy’s customer-owner relationship with DFA,
13 the largest milk producer and one of the largest milk processors
14 in the country; and (3) Dairy’s confidentiality provisions, which
15 frustrate a new entrant’s ability to speak with a potential
16 customer about their user requirements and data. (Id. ¶ 129-
17 132.) Milk Moovement has thus alleged facts which plausibly show
18 that Dairy charges supracompetitive prices, restricts customers
19 from choosing their dairy data service provider, has a market
20 share of over 80 percent, and has created multiple barriers to
21 entry.
22 For the reasons stated above, the court finds Milk
23 Moovement has sufficiently alleged both direct and circumstantial
24 evidence showing anticompetitive restraint. Accordingly, Milk
25 Moovement has sufficiently pled that Dairy has market power
26 within the relevant market. The court will next address Milk
27 Moovement’s various antitrust claims.
28 D. Sherman Act § 2
1 Section 2 of the Sherman Act provides: “Every person
2 who shall monopolize, or attempt to monopolize, or combine or
3 conspire with any other person or persons, to monopolize any part
4 of the trade or commerce among the several States, or with
5 foreign nations, shall be deemed guilty . . . .” 15 U.S.C. § 2.
6 Here, Milk Moovement asserts two claims under § 2 of the Sherman
7 Act: conspiracy to monopolize (Claim 5) and monopolization and
8 attempted monopolization (Claim 6).
9 1. Antitrust Injury
10 “A plaintiff may only pursue an antitrust action if it
11 can show ‘antitrust injury, which is to say injury of the type
12 the antitrust laws were intended to prevent and that flows from
13 that which makes defendants’ acts unlawful.’” Am. Ad. Mgmt, Inc.
14 v. Gen. Tel. Co. of Cal., 190 F.3d 1051, 1055 (9th Cir. 1999)
15 (citations and internal quotations omitted). “[C]onduct that
16 eliminates rivals reduces competition. But reduction of
17 competition does not invoke the Sherman Act until it harms
18 consumer welfare.” Rebel Oil, 51 F.3d at 1433 (citations
19 omitted). “[A] causal antitrust injury is a substantive element
20 of an antitrust claim, and the fact of injury or damage must be
21 alleged at the pleading stage.” Somers v. Apple, Inc., 729 F.3d
22 953, 963 (9th Cir. 2013).
23 An antitrust injury consists of five elements: “(1)
24 unlawful conduct, (2) causing an injury to the plaintiff, (3)
25 that flows from that which makes the conduct unlawful, . . . (4)
26 that is of the type that the antitrust laws were intended to
27 prevent,’ and (5) ‘the injured party [is] a participant in the
28 same market as the alleged malefactors.” Id. (citation omitted).
1 “There can be no antitrust injury if the plaintiff stands to gain
2 from the alleged unlawful conduct.” Am. Ad., 190 F.3d at 1056
3 (citation omitted); see Reveal Chat Holdco, LLC v. Facebook,
4 Inc., 471 F. Supp. 3d 981, 998 (N.D. Cal. 2020) (“An increase in
5 market prices, ‘though harmful to competition, actually
6 benefit[s] competitors.’”) (quoting Matsushita Elec. Indus. Co.
7 v. Zenith Radio Corp., 475 U.S. 574, 583 (1986)).
8 Courts have recognized various types of antitrust
9 injuries, including limiting consumer choice, reducing output and
10 innovation, and increasing prices for lower quality and fewer
11 services. See e.g., Glen Holly Ent., Inc. v. Tektronix Inc., 343
12 F.3d 1000, 1011 (9th Cir. 2003) (“One form of antitrust injury is
13 ‘[c]oercive activity that prevents its victims from making free
14 choices between market alternatives.’”) (citation omitted);
15 Klein, 580 F. Supp. 3d at 804 (“[Plaintiffs] have suffered an
16 injury because Facebook ‘detrimentally changed the market make-up
17 and limited consumers’ choice to one source of output.’”)
18 (citation omitted); In re Juul Labs Labs, Inc. Antitrust Litig.,
19 555 F. Supp. 3d 932, 959 (N.D. Cal. 2021) (antitrust injury
20 plausible where plaintiff asserted allegations of
21 “supracompetitive process, reduced output, and reduced
22 innovation”); Sumotext Corp. v. Zoove, Inc., No. 16-cv-01370 BLF,
23 2017 WL 2774382, *10 (N.D. Cal. 2017) (allegations that customers
24 “have been forced to pay supracompetitive prices while receiving
25 lower quality and few services with more onerous and adhesive
26 contract terms” and that the market has suffered “price
27 increases, lower quality products, and few market alternatives”
28 are sufficient to plead antitrust injury at the motion to dismiss
1 stage).
2 Here, Milk Moovement alleges that Dairy’s
3 anticompetitive scheme included locking customers into de facto
4 exclusive contracts, unlawfully acquiring competitors, and
5 barring Milk Moovement from marketing opportunities. (2d Am.
6 Countercls. ¶¶ 140-43, 151-67, 193.) Milk Moovement further
7 alleges that “Dairy’s conduct has inhibited Milk Moovement and
8 other competitors from entering the market and deterred customers
9 from freely switching service providers, all of which has
10 increased prices, decreased consumer choice, and resulted in
11 worse services than would otherwise exist.” (Id. ¶ 168.)
12 Dairy’s arguments that Milk Moovement failed to
13 plausibly allege antitrust injury are unpersuasive. First, Dairy
14 contends that any claims concerning its 2015 purchase of United
15 Dairymen’s software system and the 2018 acquisition of Data
16 Specialists, Inc. are barred by the statute of limitations. (See
17 Mot. Dismiss at 28-29.) Milk Moovement’s antitrust claims all
18 have a four-year statute of limitations. See 15 U.S.C. § 15b
19 (Sherman Act and Clayton Act); Cal. Bus. & Prof. Code § 16750.1
20 (Cartwright Act); Cal. Bus. & Prof. Code § 17208 (UCL). The fact
21 that some acquisitions occurred outside the four-year statute of
22 limitations does not mean that Milk Moovement has failed to
23 plausibly allege antitrust injury at this stage. Moreover, Milk
24 Moovement notes that while only the 2022 acquisition of Ever.Ag
25 can give rise to damages, there is no statute of limitations for
26 injunctive relief claims under Section 16 of the Clayton Act.
27 (Opp’n Mot. Dismiss at 24.) Thus, if the time-barred acquisition
28 is found to violate antitrust laws, Dairy can be ordered to
1 divest that acquisition. See California v. Am. Stores Co., 495
2 U.S. 271, 282 (1990) (“[T]he plain text of § 16 [of the Clayton
3 Act] authorizes divestiture decrees to remedy § 7 violations.”).
4 The court likewise rejects Dairy’s argument that Milk
5 Moovement failed to plausibly allege that the companies Dairy
6 acquired were “competitors” of Dairy. (See Mot. Dismiss at 29-
7 31.) For example, the press releases which explain how the
8 acquisitions were intended to further develop Dairy’s services
9 plausibly suggest that the acquisitions were of competitors.14
10 (See Opp’n Mot. Dismiss at 24-25 (Docket No. 289).) Dairy’s
11 arguments to the contrary involve factual determinations and
12 therefore are not appropriate at the motion to dismiss stage.15
13 Milk Moovement has alleged facts showing that Dairy’s
14
15 14 The press release announcing the acquisition of Data
Specialists stated that the “[Data Specialists] manufacturing
16 suite” was “a powerful solution that handles complex in-plant
processing, further extending Dairy.com traceability capabilities
17
across the supply chain.” (Opp’n Mot. Strike at 24-25.) The
press release for the Ever.Ag acquisition was similar: “[Dairy
18
is] now even more capable of supporting the connected supply
19 chain and ultimately empowering it to feed a growing world.”
(Id. at 25.)
20
15 In addition to arguing that Milk Moovement failed to
21 allege that the acquisitions were of competitors, Dairy argues
that (1) Milk Moovement failed to plead that it suffered a
22 legally cognizable antitrust injury because Milk Moovement stood
to gain from the alleged increase in prices, (2) Milk Moovement’s
23 allegations that Dairy had an inferior product in fact created
Milk Moovement’s business opportunity, (3) contractual
24 restrictions in software and grant-base licenses are reasonable,
and (4) enforcement of contractual rights is entitled to Noerr-
25 Pennington protection. (Mot. Dismiss at 32-34.) The Noerr-
Pennington doctrine “provides that those who petition any
26 department of the government for redress,” including the judicial
branch, “are generally immune from statutory liability for their
27 petitioning conduct.” B&G Foods N. Am., Inc. v. Embry, 29 F.4th
527, 535 (9th Cir. 2022).
28
1 conduct, including acquisition of competitors and exclusive
2 contracts, prevented Milk Moovement from growing in the market
3 for dairy data processing services, limited consumer choice, and
4 increased prices. The court therefore finds that Milk Moovement
5 has sufficiently alleged antitrust injury.
6 2. Conspiracy to Monopolize (Claim 5)
7 To state a claim for conspiracy to monopolize under § 2
8 of the Sherman Act, a plaintiff must show: “(1) an agreement or
9 understanding [alleged conspirators]; (2) a specific intent to
10 monopolize; and (3) overt acts in furtherance of the alleged
11 conspiracy.” Optronic, 20 F.4th at 482 (citation and internal
12 quotations omitted).
13 Here, Milk Moovement alleges that Dairy and DFA
14 conspired to monopolize the relevant market by virtue of their
15 customer-owner relationship, DFA’s refusal to work with Dairy’s
16 competitors in the dairy data processing market, and DFA’s
17 ability to restrict competition in the milk production market by
18 suppressing milk prices. (2d Am. Countercls. ¶ 223.)
19 Contrary to Dairy’s argument, the court does not read
20 Milk Moovement’s counterclaim as advancing a “shared monopoly”16
21 theory because DFA does not operate in the relevant market. See
22 Standfacts Credit Servs. Inc., v. Experian Info. Sol., 405 F.
23 Supp. 2d 1141, 1152 (C.D. Cal. 2005) (“[A]n allegation of
24 conspiracy to create a shared monopoly does not plead a claim of
25 conspiracy under section 2.”) (citation omitted); see also United
26
27 16 A “shared monopoly” is an oligopoly. See Consol.
Terminal Sys. Inc., v. ITT World Comms., Inc., 535 F. Supp. 225,
28 228-29 (S.D. N.Y. 1982).
1 Food & Com. Workers Local 1776, et al. v. Teikoku Pharma USA,
2 Inc., 74 F. Supp. 3d 1052, 1076 (N.D. Cal. 2014) (“A monopoly, by
3 definition, consists of a single firm, and both monopolization
4 and attempted monopolization are single-firm violations[.]”)
5 (citation omitted).
6 Rather, Milk Moovement’s allegations plausibly show
7 that Dairy and DFA “conspired to endow” Dairy with market power
8 in the data processing market. See United Food, 74 F. Supp. 3d
9 at 1077 (dismissing claim because complaint “d[id] not allege
10 that the parties conspired to endow either [party] with market
11 power”). Milk Moovement’s theory is that DFA’s suppression of
12 milk prices prevents other milk producers from entering or
13 growing in the market for milk production. This limits the
14 number of milk producers who could seek data processing services
15 from a Dairy competitor. The limited number of milk producers
16 thus blocks data processing companies from entering and growing
17 in the relevant market. Dairy thus “leverage[s] [its] monopoly
18 to prevent other market participants . . . from reaching scale as
19 a viable competitor.” (Id. ¶ 223.) Accordingly, the court finds
20 that Milk Moovement has alleged facts sufficient to support a
21 claim for conspiracy under § 2 of the Sherman Act.
22 2. Monopolization and Attempt (Claim 6)
23 Milk Moovement also asserts a claim for monopolization
24 and attempted monopolization under § 2 of the Sherman Act. To
25 state a claim for monopolization under § 2 of the Sherman Act, “a
26 plaintiff must show: (a) the possession of monopoly power in the
27 relevant market; (b) the willful acquisition or maintenance of
28 that power, and (c) causal antitrust injury.” Qualcomm, 969 F.3d
1 at 990 (internal quotations and citations omitted); see also
2 Verizon, 540 U.S. at 878-79 (“[T]he willful acquisition or
3 maintenance of [monopoly] power . . . distinguishe[s] [power]
4 from growth or development as a consequence of a superior
5 product, business acumen, or historic accident.”) (citation and
6 quotation omitted).
7 To state a claim for attempted monopolization under §
8 2, a plaintiff must show: “(1) specific intent to control prices
9 or destroy competition; (2) predatory or anticompetitive conduct
10 to accomplish the monopolization; (3) dangerous probability of
11 success; and (4) causal antirust injury.” Cost Mgmt. Servs.,
12 Inc. v. Wash. Nat. Gas Co., 99 F.3d 937, 949-50 (9th Cir. 1996);
13 see also Optronic, 20 F.4th at 481-82. “A plaintiff may
14 establish specific intent to monopolize through either direct
15 evidence of unlawful design or circumstantial evidence
16 principally of illegal conduct.” Optronic, 20 F.4th at 483
17 (citation and internal quotations omitted).
18 For reasons similar to those already discussed, the
19 court finds Milk Moovement plausibly alleges its claim for
20 monopolization and attempted monopolization under § 2. Milk
21 Moovement alleges that Dairy acquired competitors and used
22 exclusivity contracts to prevent customers from leaving Dairy to
23 work with its competitors. (2d. Am. Countercls. ¶¶ 138-45, 151-
24 55.) Such allegations are sufficient to show that Dairy both
25 acquired and maintained monopoly power as well as acted with the
26 specific intent to destroy competition. Moreover, Milk
27 Moovement’s allegation of Dairy’s market share is sufficient to
28 show that Dairy had a high probability of success in monopolizing
1 the market. See Cost Mgmt., 99 F.3d at 949-50. Accordingly,
2 Milk Moovement has alleged facts sufficient to support a claim
3 for monopolization and attempted monopolization under § 2 of the
4 Sherman Act.
5 E. Sherman Act § 1 (Claim 7)
6 In addition to its § 2 conspiracy claim, Milk Moovement
7 asserts a conspiracy claim under § 1 of the Sherman Act.
8 “Section 1 ‘targets concerted anticompetitive conduct, [whereas]
9 [Section 2] targets independent anticompetitive conduct.’”
10 Optronic, 20 F.4th at 481 (citation omitted). Section 1 of the
11 Sherman Act provides: “Every contract, combination in the form of
12 trust or otherwise, or conspiracy, in restraint of trade or
13 commerce among the several States, or with foreign nations, is
14 declared to be illegal.” 15 U.S.C. § 1.17 To state a claim under
15 § 1, a plaintiff must show: “(1) a contract, combination or
16 conspiracy; (2) ‘that unreasonably restrained trade . . . ; and
17 (3) that restraint affected interstate commerce.’” Optronic, 20
18 F.4th at 479 (citation omitted).
19 Here, the court finds Milk Moovement’s allegations are
20 sufficient to support a conspiracy claim under § 1. Milk
21
17 “Although on its face, Section 1 appears to outlaw
22 virtually all contracts, it has been interpreted as ‘outlaw[ing]
only unreasonable restraints’ of trade.” In re Nat’l Football
23 League’s Sunday Ticket Antitr. Lit., 933 F.3d 1136, 1149-50 (9th
Cir. 2019) (quoting State Oil Co. v. Khan, 522 U.S. 3, 10
24 (1997)). “Because § 1 . . . only [prohibits] restraints effected
by a contract, combination, or conspiracy, the crucial question
25 is whether the challenged anticompetitive conduct stems from an
independent decision or from an agreement, tacit or express.”
26 Twombly, 550 U.S. at 553 (citations and internal quotations
omitted); see Optronic, 20 F.4th at 479 (“To establish a
27 conspiracy, the available evidence must tend ‘to exclude the
possibility that the alleged conspirators acted independently.’”)
28 (citation and internal quotations omitted).
1 Moovement alleges that DFA is both a co-founder and owner of
2 Dairy and will not work with Dairy’s competitors. (2d. Am.
3 Countercls. ¶ 94.) As both a milk producer and milk processor,
4 DFA is not only motivated to suppress milk prices, but also their
5 market share in fact enables it to manipulate FMMOs and milk
6 prices. (Id. ¶ 114.) Moreover, Milk Moovement alleged that
7 evidence produced in prior litigation showed DFA had accessed
8 competing producers’ pricing data in an effort to manipulate milk
9 prices. (Id. ¶ 120.) By allegedly suppressing milk prices, DFA
10 prevents other milk producers, who may seek data processing
11 services from a Dairy competitor, from growing in the market for
12 milk production. As a result, Dairy can “leverage [its] monopoly
13 to prevent other market participants . . . from reaching scale as
14 a viable competitor.” (Id. ¶ 223.)
15 The court finds these allegations constitute “enough
16 fact to raise a reasonable expectation that discovery will reveal
17 evidence of illegal agreement.” Name.Space, Inc. v. Internet
18 Corp. for Assigned Names & Numbers, 795 F.3d 1124, 1129 (9th Cir.
19 2015) (quoting Twombly, 550 U.S. at 556). Accordingly, Milk
20 Moovement has alleged facts sufficient to support a claim for
21 conspiracy to monopolize under § 1 of the Sherman Act.
22 F. Cartwright Act (Claim 8)
23 Milk Moovement also asserts a claim under California’s
24 Cartwright Act. The Cartwright Act is California’s antitrust
25 law. See Cal. Bus. & Prof. Code §§ 16700 et seq. The Cartwright
26 Act “bans agreements that ‘prevent competition in . . . [the]
27 sale or purchase of . . . any commodity.’” Pacific Steel, 600 F.
28 Supp. 3d at 1080 (quoting Cal. Bus. & Prof. Code § 16720(c)).
1 The inquiry under the Cartwright Act is similar to that under
2 Section 1 of the Sherman Act. See Jain Irrigation, Inc. v.
3 Netafirm Irrigation, Inc., 386 F. Supp. 3d 1308, 1314 (E.D. Cal.
4 2019) (Drozd, J.) (“[T]he analysis under [the Cartwright Act]
5 ‘mirrors the analysis under Federal Law because the Cartwright
6 Act . . . was modeled after the Sherman Act.”) (quoting Cnty of
7 Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1160 (9th Cir.
8 2001)) (additional citation omitted). Here, as already
9 discussed, Milk Moovement has alleged facts sufficient to support
10 a claim under § 1 of the Sherman Act. Accordingly, it has also
11 sufficiently alleged its claim under the Cartwright Act.
12 G. Clayton Act § 7 (Claim 9)
13 Milk Moovement asserts a claim for unlawful mergers and
14 acquisitions under § 7 of the Clayton Act. “Section 7 [of the
15 Clayton Act] prohibits mergers that tend ‘substantially to lessen
16 competition’ or ‘create a monopoly.’” Optronic, 20 F.4th at 485
17 (citing 15 U.S.C. § 18). “To establish a prima face [Section 7]
18 case, [a plaintiff] must (1) propose the proper relevant market
19 and (2) that that the effect of the merger in that market is
20 likely to be anticompetitive.” Id. (citation and quotations
21 omitted); see Saint Alphonsus Med. Ctr.-Nampa Inc. v. Saint
22 Luke’s Health Sys. Ltd., 778 F.3d 775, 788 (9th Cir. 2015)
23 (“Section 7 does not require proof that a merger or other
24 acquisition has caused higher prices in the affected market. All
25 that is necessary is that the merger create an appreciable danger
26 of such consequences in the future.”) (citation and quotations
27 omitted). “[T]he anticompetitive effect of [a] merger is further
28 enhanced by high barriers to market entry.” FTC v. H.J. Heinz
1 Co., 246 F.3d 708, 718 (D.C. Cir. 2001) (explaining that high
2 barriers to entry “eliminates the possibility that the reduced
3 competition caused by the merger will be ameliorated by new
4 competition from outsiders”); see also Saint Alphonsus Med., 778
5 F.3d at 788.
6 Here, Milk Moovement alleges that Dairy’s various
7 acquisitions of competing supply-chain software products and
8 services, including of Data Specialists, Inc. and Ever.Ag,
9 “substantially lessened competition in the market for data
10 services to milk producers and processors in the United States .
11 . . .” (2d Am. Countercls. ¶ 258.) Moreover, Milk Moovement
12 alleges that Dairy terminated competition through acquisitions by
13 purchasing United Dairymen’s competing software system, but never
14 bringing it to market. (Id. ¶ 155.)
15 As already discussed, Milk Moovement has sufficiently
16 pled a relevant market. The court also found plausible Milk
17 Moovement’s allegations that the relevant market has high
18 barriers to entry, that Dairy’s market power exceeds 80 percent,
19 and that the companies Dairy acquired were competitors. Because
20 these acquisitions limit the amount of available software
21 providers in a market with high entry barriers, see H.J. Heinz
22 Co., 246 F.3d at 718, the court finds it plausible that these
23 acquisitions further concentrate an already concentrated market.
24 Thus, the effect of the acquisitions “is likely to be
25 anticompetitive.” See Optronic, 20 F.4th at 485. Accordingly,
26 Milk Moovement has alleged facts sufficient to support a claim
27 under § 7 of the Clayton Act.
28 H. UCL (Claim 10)
nen ne enn mean en nn nnn nnn en nn ee enn nn nen nn on ne I NO OE EE
1 Finally, Milk Moovement asserts a claim under
2 California’s UCL. “California’s UCL[] prohibits ‘any unlawful,
3 unfair, or fraudulent business act or practice.’ This cause of
4 action is generally derivative of some other illegal conduct or
5 fraud . . .”). Castaneda v. Saxon Mortg. Servs., Inc., 687 F.
6 | Supp. 2d 1191, 1202 (E.D. Cal. 2009) (Shubb, J.) (quoting Cel-
7 Tech Comme’ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163,
8 187 (1999)). Here, Milk Moovement’s asserts its UCL claim for
9 | Dairy’s alleged violations of the Sherman Act and Clayton Act.
10 (Id. 97 263.) Because Milk Moovement has adequately pled its
11 antitrust claims, it has also adequately pled its unfair
12 competition claim. See Name.Space, 795 F.3d at 1134 (“Statutory
13 liability can be premised on antitrust or trademark
14 | violations.”).
15 For the reasons stated above, the court finds that Milk
16 | Moovement has plausibly alleged facts sufficient to support its
17 counterclaims for conspiracy to monopolize under § 2 of the
18 Sherman Act, monopolization and attempted monopolization under §
19 2 of the Sherman Act, unlawful restraint of trade under § 1 of
20 the Sherman Act, unlawful restraint of trade under California’s
21 Cartwright Act, unlawful mergers or acquisitions under § 7 of the
22 Clayton Act, and unfair competition under California’s UCL.
23 IT IS THEREFORE ORDERED that Dairy’s motion to strike
24 (Docket No. 270) and motion to dismiss (Docket No. 266) be, and
25 the same hereby are, DENIED.
26 | Dated: May 12, 2023 pete . 4h. Ag Le
27 WILLIAM B. SHUBB
38 UNITED STATES DISTRICT JUDGE
36