Arcell v. Google LLC

1

2

3

4 UNITED STATES DISTRICT COURT

5 NORTHERN DISTRICT OF CALIFORNIA

6 SAN JOSE DIVISION

7

8 MARY KATHERINE ARCELL, et al., Case No. 5:22-cv-02499-EJD

9 Plaintiffs, ORDER GRANTING DEFENDANTS'

MOTION TO DISMISS WITH LEAVE

10 v. TO AMEND

11 GOOGLE LLC, et al.,

Re: Dkt. No. 25

Defendants.

12

13 Plaintiffs Mary Katherine Arcell, et al., (collectively “Plaintiffs”) bring this action against

14 Google LLC, Alphabet, Inc., XXVI Holdings, Inc., and Apple, Inc., Tim Cook, Sundar Pichai, and

15 Eric Schmidt (collectively “Defendants”). Before the Court is Defendants’ 12(b)(6) motion to

16 dismiss for failure to plead facts sufficient to state a claim for relief that is plausible on its face,

17 lack of standing, and failure to survive the statute of limitations. Having considered the parties’

18 submissions and oral arguments, the Court GRANTS Defendants’ motion to dismiss with leave to

19 amend.

20 I. BACKGROUND

21 A. The Parties

22 Plaintiffs are twenty-seven individuals who are users of the services provided by internet

23 search engines, including Google. Compl. ¶¶ 47, 48, ECF 1.

24 Defendant Google, LLC (“Google”) is a limited liability company organized and existing

25 under the laws of the State of Delaware and headquartered in Mountain View, California. Id. ¶ 50.

26 Defendant Eric Schmidt is the former CEO and Chairman of Google. Id. ¶ 54. Google is a

27 subsidiary of Defendant XXVI Holdings Inc., which is a subsidiary of Defendant Alphabet Inc.

1 Id. ¶ 50. Alphabet Inc. is a publicly traded company incorporated and existing under the laws of

2 the State of Delaware, and its principal executive offices are in Mountain View, California. Id. ¶

3 50. Defendant Sundar Pichai is the current CEO of Alphabet Inc., and Google. Id. ¶ 53.

4 Defendant Apple, Inc. (“Apple”) is a corporation organized and existing under the laws of

5 the State of Delaware, headquartered in Cupertino, California. Id. ¶ 51. Defendant Tim Cook is

6 the current CEO of Apple. Id. ¶ 52.

7 B. Factual Background

8 Plaintiffs allege Google and Apple entered into a contract in 2005 whereby Apple agreed

9 to not compete by not entering the search engine business. Id. ¶¶ 2, 4, 93. In exchange, Google

10 allegedly agreed to pay Apple a share of its profits, which has since accumulated to billions of

11 dollars. Id. ¶¶ 3, 31–39. To enhance these shared profits, Apple allegedly agreed to use Google as

12 the automatic general search engine for Apple’s products. Id. ¶ 5. Plaintiffs allege that this

13 agreement was formed and reaffirmed over the course of multiple secret clandestine meetings

14 between the CEOs and Chairmen of Apple and Google (originally Steve Jobs and Defendant Eric

15 Schmidt in the early 2000s, but presently Defendants Tim Cook and Sundar Pichai). Id. ¶¶ 9, 10,

16 11, 12. In support of this allegation, Plaintiffs include in their complaint two pictures allegedly

17 depicting Defendant Cook and Defendant Pichai meeting for dinner. Id. ¶¶ 124, 125.

18 Plaintiffs allege that this agreement served as part of a de facto merger. Id. ¶¶ 14, 79.

19 Plaintiffs cite the following alleged quotes as support:

20

• An unidentified senior Apple employee wrote to an unidentified Google

21 counterpart following a joint meeting in 2018: “Our vision is that we work as if we

are one company.” Id. ¶ 130.

22

• Defendant Schmidt stated on stage at an iPhone unveiling in 2007: “[Y]ou can

23 actually merge without merging . . . . If we just sort of merged the two companies,

we could just call them AppleGoo.” Id. ¶ 98.

24

25 • Apple’s former general counsel Bruce Sewell described the relationship between

Apple and Google as one of “co-opetition.” Id. ¶ 131.

26

As a result of this alleged agreement, Plaintiffs state they are threatened with harm and

27

1 damage because they have been deprived of the quality, service and privacy that they otherwise

2 would have enjoyed but for Google’s anticompetitive conduct. Id. ¶ 48. Plaintiffs further allege:

3 [Plaintiffs] have also been forced to withstand prejudicial steering by

Google, as well as the annoying and damaging distortion of search

4 results from Google in favor of Google’s preferred advertisers. In

addition, Plaintiffs have been damaged and continue to be threatened

5 with damage because they have used Google search in their

businesses and have, as a result, been forced to bear the added expense

6 that results from distorted and steered search results. Further, Google

has stunted innovation in new products that could serve as alternative

7 search access points or disruptors to the traditional Google search

model.

8 Id.

9 Plaintiffs filed a private antitrust suit under Sections 4 and 16 of the Clayton Antitrust Act

10 to recover damages caused by and threatened by Defendants’ violations and continued violations

11 of the Sherman Antitrust Act. Id. ¶ 1. Plaintiffs make two claims: (1) Defendants Google and

12 Apple formed a per se illegal agreement in violation of Section 1 of the Sherman Act, id. ¶¶ 135–

13 47, and (2) that the same agreement is a conspiracy to monopolize in violation of Section 2 of the

14 Sherman Act. Id. ¶¶ 148–57. Plaintiffs also allege fraudulent concealment. Id. ¶¶ 152–61.

15 Plaintiffs seek declaratory and injunctive relief, damages, divestiture, and disgorgement. Id. ¶¶

16 161–63.

17 II. LEGAL STANDARD

18 Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain

19 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A

20 defendant may move to dismiss a complaint for failing to state a claim upon which relief can be

21 granted under Rule 12(b)(6). When deciding whether to grant a motion to dismiss under Rule

22 12(b)(6), the court must generally accept as true all “well-pleaded factual allegations.” Ashcroft v.

23 Iqbal, 556 U.S. 662, 664 (2009). While a plaintiff need not offer detailed factual allegations to

24 meet this standard, she is required to offer “sufficient factual matter . . . ‘to state a claim to relief

25 that is plausible on its face.’” Id. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

26 (2007)). The court must construe the alleged facts in the light most favorable to the plaintiff. See

27 Retail Prop. Trust v. United Bd. of Carpenters & Joiners of Am., 768 F.3d 938, 945 (9th Cir.

1 2014) (“[The court] must accept as true all factual allegations in the complaint and draw all

2 reasonable inferences in favor of the nonmoving party.”). However, “courts are not bound to

3 accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678.

4 Claims sounding in fraud must also meet the heightened pleading requirements of Federal

5 Rule of Civil Procedure 9(b). See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1102–03 (9th

6 Cir. 2003). Under Rule 9(b), a party “must state with particularity the circumstances constituting

7 fraud.” Fed. R. Civ. P. 9(b). Typically, Rule 9(b) requires the party alleging fraud to plead “the

8 who, what, when, where, and how” of the misconduct. Vess, 317 F.3d at 1106 (quoting Cooper v.

9 Pickett, 137 F.3d 616, 627 (9th Cir. 1997)).

10 If the court concludes that a 12(b)(6) motion should be granted, the “court should grant

11 leave to amend even if no request to amend the pleading was made, unless it determines that the

12 pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d

13 1122, 1127 (9th Cir. 2000) (en banc) (quotation omitted).

14 III. DISCUSSION

15 A. Per Se Illegal Agreement, Sherman Act Section 1

16 Plaintiffs claim Defendants entered into a per se illegal agreement in violation of Section 1

17 of the Sherman Act. Section 1 provides: “[e]very contract, combination in the form of trust or

18 otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with

19 foreign nations, is declared to be illegal.” 15 U.S.C.A. § 1. Liability under Section 1 thus requires

20 the existence of a “contract, combination . . . , or conspiracy, in restraint of trade or commerce.”

21 Id.; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 548 (2007). To survive a 12(b)(6) motion to

22 dismiss, Plaintiffs must allege facts showing that Google and Apple reached the agreement to not

23 compete and to share profits. They may do so by alleging either direct or circumstantial evidence

24 of an agreement. See In re Musical Instruments & Equip. Antitrust Litig., 798 F.3d 1186, 1193–94

25 (9th Cir. 2015); In re Citric Acid Litig., 191 F.3d 1090, 1093–94, 1104 n.8 (9th Cir. 1999).

26 1. Direct Evidence

27 Direct evidence of an agreement allows the Court to determine that an agreement exists

1 with minimal further inference. In re Citric Acid Litig., 191 F.3d at 1093–94. However, the bare

2 allegation that an agreement or conspiracy exists is conclusory and insufficient to satisfy pleading

3 standards. Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047–48 (9th Cir. 2008) (citing Twombly,

4 550 U.S. at 553–58). It is not enough to plead ultimate facts (i.e., existence of an agreement)—

5 Plaintiffs must plead evidentiary facts that could be used to prove existence of an agreement.

6 Kendall, 518 F.3d at 1047.

7 Here, Plaintiffs largely rely on conclusory allegations of an agreement for Apple not to

8 develop its own search engine. To the extent they plead evidentiary facts, those facts are thin. For

9 example, Plaintiffs allege statements without context and sometimes without identifying the

10 speaker: “[Y]ou can merge without merging,” Compl. ¶ 98; “If we just sort of merged the two

11 companies, we could call them AppleGoo,” id.; “Our vision is that we work as if we are one

12 company,” id. ¶ 130; describing the relationship between Google and Apple as “co-opetition.” Id.

13 ¶ 131. These statements are too vague and are not alleged to be directed specifically to the issue

14 of search engines, and therefore they do not constitute direct evidence. Likewise, Plaintiffs

15 include in their complaint photos allegedly showing Defendants Tim Cook and Sundar Pichai

16 having dinner to support allegations that senior leadership is having meetings. Id. ¶¶ 124, 125.

17 Again, bare, conclusory allegations of meetings without more are insufficient.

18 2. Circumstantial Evidence

19 Circumstantial evidence, on the other hand, can demonstrate agreement if allegations

20 demonstrate parallel conduct with certain plus factors. Twombly, 550 U.S. at 553–54; see In re

21 Musical Instruments Antitrust Litig., 798 F.3d at 1193–94 (discussing plus factors).

22 Plaintiffs argue the parallel conduct here is the fact that Apple has not entered the search

23 engine industry pursuant to the agreement and Google’s payment to Apple for not entering the

24 search engine industry. Tr. at 14, ECF 64. Defendants argue there is no parallel conduct here

25 because parallel conduct occurs amongst horizontal competitors, and Apple and Google are not

26 competitors in the same industry. Id. at 25; Defs.’ Mot. to Dismiss at 8–9, ECF 25. Even

27 assuming that either fact constitutes parallel conduct, there are still no “plus factors” that are

1 discernable from the complaint.

2 Plus factors are defined as actions and outcomes inconsistent with economic self-interest

3 but consistent with coordinated conduct. Persian Gulf Inc. v. BP W. Coast Prods. LLC, 2022 WL

4 4830698, at *6 (S.D. Cal. Sept. 30, 2022). “Allegations of facts that could just as easily suggest

5 rational, legal business behavior by the defendants as they could suggest an illegal conspiracy” are

6 insufficient to plead a Section 1 violation. Kendall, 518 F.3d at 1049 (citing Twombly, 550 U.S. at

7 553–58 & n.5); see also Iqbal, 556 U.S. at 668 (“Where a complaint pleads facts that are merely

8 consistent with a defendant’s liability, it stops short of the line between possibility and plausibility

9 of entitlement to relief.” (quoting Twombly, 550 U.S. at 557) (internal quotation marks omitted)).

10 The only plus factor that Plaintiffs identify is that Google and Apple executives allegedly had

11 secret meetings. Pls.’ Opp’n to Defs.’ Mot to Dismiss (“Opp’n”) at 13, ECF 32; Tr. at 11, ECF

12 64. However, this allegation could just as easily suggest rational, legal business behaviors as it

13 could suggest an illegal conspiracy, making it insufficient to plead a Section 1 violation. See

14 Kendall, 518 F.3d at 1049.

15 The Court finds that Plaintiffs have failed to allege either direct or circumstantial plausible

16 evidentiary facts showing that Google and Apple reached the alleged agreement in violation of

17 Section 1. Therefore, the Court GRANTS Defendants’ motion to dismiss count 1 with leave to

18 amend. See Lopez, 203 F.3d at 1127 (stating courts should grant leave to amend even if no request

19 was made “unless it determines that the pleading could not possibly be cured by the allegation of

20 other facts”).

21 B. Conspiracy to Monopolize, Sherman Act Section 2

22 Plaintiffs also claim that Defendants’ alleged agreement is a conspiracy to monopolize in

23 violation of Section 2 of the Sherman Act. Section 2 provides that “[e]very person who shall

24 monopolize, or attempt to monopolize, or combine or conspire with any other person or persons,

25 to monopolize any part of the trade or commerce among the several States, or with foreign nations,

26 shall be deemed guilty.” 15 U.S.C. § 2. To prove a conspiracy to monopolize, a plaintiff must

27 establish: “(1) the existence of a combination or conspiracy to monopolize; (2) an overt act in

1 furtherance of the conspiracy; (3) the specific intent to monopolize; and (4) causal antitrust

2 injury.” Paladin Assocs., Inc. v. Montana Power Co., 328 F.3d 1145, 1158 (9th Cir. 2003).

3 For the reasons discussed above, see supra Part III.A, Plaintiffs’ complaint fails to allege

4 plausible facts showing direct or circumstantial evidence to prove the existence of any agreement

5 preventing Apple from entering the search engine market, including a conspiracy agreement to

6 monopolize.1 Therefore, the Court also GRANTS Defendants’ motion to dismiss count 2 with

7 leave to amend.

8 C. Standing

9 Private plaintiffs bringing antitrust suits must establish “antitrust standing,” distinct from

10 Article III standing. Am. Ad Mgmt., Inc. v. Gen. Tel. Co. of Cal., 190 F.3d 1051, 1054 (9th Cir.

11 1999). To evaluate whether a plaintiff has antitrust standing, courts balance several factors,

12 including: “(1) the nature of the plaintiffs’ alleged injury . . .; (2) the directness of the injury; (3)

13 the speculative measure of the harm; (4) the risk of duplicative recovery; and (5) the complexity in

14 apportioning damages.” Id. A court “need not find in favor of the plaintiff on each factor,” id. at

15 1055, but “[a] showing of antitrust injury is necessary.” Cargill, Inc. v. Monfort of Colorado, Inc.,

16 479 U.S. 104, 110 (1986). To establish “antitrust injury” and satisfy the first factor, a plaintiff

17 must meet four requirements: “(1) unlawful conduct, (2) causing an injury to the plaintiff, (3) that

18 flows from that which makes the conduct unlawful, and (4) that is of the type the antitrust laws

19 were intended to prevent.” Am. Ad Mgmt., Inc., 190 F.3d at 1054. Further, a threshold step to

20 identifying antitrust injury “is to accurately define the relevant market, which refers to ‘the area of

21 effective competition.’” Fed. Trade Comm’n v. Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020)

22 (citing Ohio v. Am. Express Co., 138 S. Ct. 2274, 2285 (2018)) (internal quotations omitted).

23 Here, Plaintiffs have failed to plead an actionable antitrust injury. Plaintiffs make various

24 vague and conclusory allegations as to injury: prices are higher, production is lower, innovation is

25 suppressed, quality is less (in terms of privacy, data protection, and use of consumer data), user

26

27 1 The Court also did not find facts alleged in Plaintiffs’ complaint to establish specific intent or

injury. See infra Part III.C for further discussion on antitrust injury.

1 choice is reduced, and search results are distorted or steered. Compl. ¶ 48. These claims are

2 insufficient as plead to establish antitrust injury.

3 First, plaintiffs are users of search engines, and because search engines are free, Plaintiffs

4 have not explained how prices could not be higher. Second, the remaining injuries rely on a

5 highly attenuated causal chain that Plaintiffs fail to explain. Plaintiffs have not drawn any line

6 between Apple’s alleged agreement not to create a search engine and reductions in innovation or

7 production, poorer privacy practices, or distortion of search results. Arguably user choice is less

8 because Apple is not an option, but even that claim is too speculative to establish standing at this

9 stage. Further, Plaintiffs have failed to define the relevant market from which their injuries flow.

10 Plaintiffs reference multiple separate markets at various paints in their complaint—such as “U.S.

11 mobile search engine market,” id. ¶ 24, “U.S. computer search engine market,” id. ¶ 25, “U.S.

12 search engine market,” id. ¶ 26, “the search market” id. ¶ 93, and “search advertising market” id. ¶

13 134—without once defining any market, let alone which market is relevant to Plaintiffs’ injuries.

14 Thus, Plaintiffs have failed to allege facts plausible to establish antitrust injury, and

15 therefore have failed to establish standing at this stage.

16 D. Statute of Limitations

17 A four-year statute of limitations applies to this action on its face. See 15 U.S.C. § 15(b).

18 Thus, Plaintiffs claims are generally precluded to the extent they seek relief for injuries predating

19 April 22, 2018, four years before they filed suit. Plaintiffs’ attempts to invoke exceptions are

20 unsuccessful.

21 First, Plaintiffs allege “a continuing violation in that the unlawful revenue-sharing

22 continued from 2005 to the present.” Opp’n at 21; see Compl. ¶¶ 30–31. While Plaintiffs are

23 correct that each overt act that injures a plaintiff begins the statutory period under the Clayton Act,

24 “the commission of a separate new overt act generally does not permit the plaintiff to recover for

25 the injury caused by old overt acts outside the limitations period.” Klehr v. A.O. Smith Corp., 521

26 U.S. 179, 189 (1997). In other words, even if Plaintiffs properly alleged continuing overt acts that

27 caused injury within the statute of limitations, they are only entitled to relief for injuries occurring

1 from that overt act within the statute of limitations. See Cal. Crane Sch., inc. v. Google LLC, No.

2 || 21-CV-10001-HSG, 2023 WL 2769096 (N.D. Cal. Mar. 31, 2023) (evaluating the Clayton Act

3 statute of limitations on the same factual issues and reaching the same conclusion). Further,

4 || because Plaintiffs have failed to establish any overt act in their complaint, see supra Part □□□□□□□

5 || they have certainly failed to establish a continuing violation that would restart the clock.

6 Second, Plaintiffs allege the fraudulent concealment exception applies. A fraudulent

7 concealment allegation must establish (1) defendant engaged in affirmative acts to mislead the

8 || plaintiff; (2) plaintiff lacked actual or constructive knowledge; and (3) plaintiff acted diligently in

9 seeking to uncover facts. Hexcel Corp. v. Ineos Polymers, Inc., 681 F.3d 1055, 1060 (9th Cir.

10 |} 2012). Allegations of fraud are also subject to the heightened pleading standards in Federal Rule

11 of Civil Procedure 9(b). Fed. R. Civ. P. 9(b) (a party “must state with particularity the

12 || circumstances constituting fraud”). Here, the only alleged affirmative act in Plaintiffs’ complaint

13 || is that Google and Apple executives had secret “clandestine” meetings, but the fact that Google

14 and Apple did not announce meetings to the world is not fraud. Especially considering the

15 heightened pleading standard applicable here, this alleged affirmative act is not sufficient to

a 16 || plausibly plead a claim of fraud.”

2 17 || IV. CONCLUSION

Z 18 For the foregoing reasons, the Court GRANTS Defendants’ motion to dismiss WITH

19 || LEAVE TO AMEND.

20 IT IS SO ORDERED.

21 Dated: August 18, 2023

22

23 ep. □

EDWARD J. DAVILA

24 United States District Judge

25

26

27 > The Court finds Plaintiffs also did not plead facts sufficient to establish the two remaining

elements of fraudulent concealment.

28 || Case No.: 5:22-cv-02499-EJD

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS