1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6
7 MDL No. 2796 CRB (JSC) IN RE: GERMAN AUTOMOTIVE
8 MANUFACTURERS ANTITRUST LITIGATION ORDER RE: DEFENDANTS’ 9 _____________________________________/ MOTIONS TO DISMISS
10 This Order Relates To: Dkt. Nos. 391, 392, 409, 410, 411 11 _____________________________________/ 12 13 Consumers and auto dealers (“IPPs” and “DPPs,” respectively) have filed two related 14 consolidated class actions against the five leading German car manufacturers—Audi AG, BMW 15 AG, Daimler AG, Porsche AG, and Volkswagen (“VW”) AG—and their American subsidiaries. 16 Plaintiffs allege that Defendants colluded to restrain competition in violation of the Sherman Act 17 and various state laws. Last June, this Court granted Defendants’ joint motion to dismiss without 18 prejudice, concluding that Plaintiffs’ allegations were insufficient to state a claim. IPPs and DPPs 19 both filed amended complaints. IPPs have narrowed their focus, zeroing in on an alleged 20 agreement to standardize the dosage rate and tank sizes for the substance AdBlue. DPPs continue 21 to allege a broad conspiracy, now styled as a “no arms race” agreement to divide market share by 22 limiting brand differentiation and technical innovation. Neither effort is sufficient to plead 23 Sherman Act violations or Plaintiffs’ related state law claims. Both complaints are dismissed 24 without prejudice. 25 I. BACKGROUND 26 On June 17, 2019, this Court granted without prejudice Defendants’ initial joint motion to 27 dismiss. See generally Order re MTD (dkt. 387). The initial consolidated complaints alleged that 1 Defendants agreed to “slow[ ] down the pace of innovation,” reducing the quality of their cars. Id. 2 at 1–2. But Plaintiffs provided only two specific examples. The first was an alleged agreement 3 that soft-top convertibles should only open or close at speeds under thirty-one miles per hour. Id. 4 at 2. The second example was a series of alleged agreements on the size of AdBlue tanks (AdBlue 5 is a substance that breaks emissions from diesel engines down into less harmful compounds). Id. 6 at 2–3. These allegations (like many in the initial complaints) were based on reports of 7 investigations by the European Commission’s competition department (“ECC”) and Germany’s 8 Federal Cartel Office into a possible antitrust cartel among Defendants. Id. at 3. Plaintiffs also 9 relied on VW and Daimler’s proffers to the ECC as part of that agency’s leniency program. Id. 10 VW’s proffer admitted agreements amongst the defendants about vehicle development, costs, 11 suppliers and markets, discussions about vehicle development, “exchange of . . . sensitive 12 technical data,” jointly established “technical standards” and agreements to use “only certain 13 technical solutions,” and the possibility that Defendants’ actions may have violated cartel law. Id. 14 This Court rejected Plaintiffs’ allegations of a “‘de facto whole car conspiracy’ to reduce 15 innovation.” Id. at 13. It concluded that the two actual examples of agreement “relate[d] to niche 16 vehicle features” and could not support Plaintiffs’ theory of a conspiracy to reduce innovation 17 across the board. Id. It also rejected the significance of VW and Daimler’s proffers to European 18 antitrust authorities, finding the admissions “too general and too vague to plausibly support the 19 broad agreement to reduce innovation that Plaintiffs allege.” Id. at 13–15. The investigations by 20 European antitrust authorities were also unhelpful, because it was “unknown whether the 21 investigation[s] w[ould] result in indictments or nothing at all.” Id. at 15 (citing In re Graphics 22 Processing Units Antitrust Litig., 527 F. Supp. 2d 1011, 1024 (N.D. Cal. 2007). Similarly, 23 “[a]llegations about how Defendants used working groups and trade associations to further their 24 ‘whole car conspiracy’” lacked crucial details such as “what was agreed to in these meetings.” Id. 25 This Court rejected several other alleged agreements as inadequately pled. Relevant here, 26 it concluded that Plaintiffs had not adequately alleged injury from a purported agreement to 27 “coordinate . . . purchases of car parts and steel,” because such an agreement was most likely to 1 Thomas A. Piraino, Jr., A Proposed Antitrust Approach to Collaborations Among Competitors, 86 2 Iowa L. Rev. 1137, 1178 (2001)). Although DPPs alleged they were harmed because “Defendants 3 pocketed the cost savings and did not pass along a single cent to the Dealer Plaintiffs,” they failed 4 to allege that Defendants either agreed to “pocket[ ] the cost savings” or that it was otherwise 5 wrongful for them to do so. Id. at 18. 6 Finally, this Court dismissed IPPs’ various state law claims, because “[t]he factual bases 7 and theories of injury for these claims [were] the same as those for the Sherman Act claims.” Id. 8 at 19. 9 Both IPPs and DPPs filed amended complaints. See IPP Compl. (dkt. 391); DPP Compl. 10 (dkt. 392). The IPP Complaint focuses on an alleged decade-long conspiracy to limit the 11 development and implementation of certain features of diesel emissions control systems. IPP 12 Compl. ¶¶ 3–4. It alleges Defendants agreed to standardize the rate at which AdBlue would be 13 used in their diesel vehicles and the size of those vehicle’s AdBlue tanks. Id. ¶ 119. These 14 agreements allegedly occurred during various meetings and in follow-up communications between 15 Defendants’ managers, beginning in 2006. See, e.g. id. ¶¶ 129–31, 133, 135, 142, 156–57. 16 As before, IPPs’ allegations rely heavily on the ECC’s investigation. In particular, IPPs 17 point to an ECC press release, issued after briefing on the previous motions to dismiss, 18 “announcing that it had sent a Statement of Objections to the Defendant parent companies . . . that 19 reflected the ECC’s current view that the Defendants had in fact violated antitrust law by 20 participating in a collusive scheme ‘to restrict competition on the development of technology to 21 clean the emissions of petrol and diesel vehicles.’” Id. ¶ 150. The Statement of Objections asserts 22 that Defendants “coordinated their strategies” on the size of AdBlue tanks and the rate at which 23 AdBlue would be used in diesel vehicles. Id. The IPP Complaint also relies on Daimler and 24 VW’s leniency proffers. See id. ¶¶ 112–13. 25 The DPP Complaint builds on the alleged AdBlue agreements to plead a “no arms race” 26 conspiracy, whose object was ostensibly to ensure “that Defendants would not compete against 27 each other on certain technological innovations to gain market share against each other.” DPP 1 DPPs offer various allegations besides the AdBlue agreements to support the purported 2 “no arms race” conspiracy. They allege additional agreements on parking brakes, convertible 3 tops, and particle filters, id. ¶ 157, and that Defendants’ failure to meaningfully invest in electric 4 vehicles is another example of the “no arms race” principle at work, id. ¶ 254. They point to 5 examples of Defendants updating or refreshing similar vehicle lines around the same time as 6 additional evidence of collusion. Id. ¶¶ 199–200. 7 The DPP Complaint also expands on the previously alleged steel-purchasing agreement. 8 DPPs describe a scheme in which Defendants negotiated a baseline price with steel producers and 9 then agreed to a standardized purchase price index on top of the baseline, which accounted for 10 fluctuations in the cost of raw materials. Id. ¶ 161. 11 DPPs also allege that Defendants prevented dealerships from differentiating their vehicles 12 based on price by setting the highest possible retail price (the MSRP) unusually close to the lowest 13 possible retail price (the inventory price). Id. ¶¶ 204–11. The DPP Complaint alleges that 14 additional economic evidence, including pricing information and Defendants’ relative market 15 shares over time, demonstrates the existence of a successful market allocation conspiracy. Id. 16 ¶¶ 192–98. Finally, DPPs point to various “plus factors” that ostensibly establish that Defendants 17 had the motive or opportunity to collude. Id. ¶¶ 181–89. 18 In the alternative, DPPs allege that the AdBlue agreement, id. ¶ 250, agreement not to 19 develop electric vehicles, id. ¶ 254, and steel-purchasing agreements, DPP Opp’n (dkt. 419) at 5 20 n.6, each constitute Sherman Act violations regardless of whether the “no arms race” conspiracy is 21 adequately pled. 22 Defendants jointly moved to dismiss the IPP and DPP Complaint. See Joint MTD 23 (dkt. 409). VW and BMW also filed individual motions to dismiss. See VW MTD (dkt. 411); 24 BMW MTD (dkt. 410). 25 II. LEGAL STANDARD 26 Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for 27 failure to state a claim upon which relief may be granted. Dismissal may be based on either “the 1 lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal 2 theory.” Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201, 1208 (9th Cir. 2019). A complaint 3 must plead “enough facts to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 4 556 U.S. 662, 697 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A 5 claim is plausible “when the plaintiff pleads factual content that allows the court to draw the 6 reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678. 7 When evaluating a motion to dismiss, the Court “must presume all factual allegations of 8 the complaint to be true and draw all reasonable inferences in favor of the nonmoving party.” 9 Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). “[C]ourts must consider the 10 complaint in its entirety, as well as other sources courts ordinarily examine when ruling on 11 Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by 12 reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues & 13 Rights, Ltd., 551 U.S. 308, 322 (2007). 14 If a court does dismiss a complaint for failure to state a claim, it should “freely give leave 15 [to amend] when justice so requires.” Fed. R. Civ. P. 15(a)(2). A court nevertheless has 16 discretion to deny leave to amend due to “undue delay, bad faith or dilatory motive on the part of 17 the movant, repeated failure to cure deficiencies by amendments previously allowed, undue 18 prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of 19 amendment.” Leadsinger, Inc. v. BMG Music Pub., 512 F.3d 522, 532 (9th Cir. 2008) (citing 20 Foman v. Davis, 371 U.S. 178, 182 (1962)). 21 III. DISCUSSION 22 As explained below, the Amended Complaints fail to plausibly allege any Sherman Act 23 violation that can be traced to a cognizable injury suffered by Plaintiffs. This conclusion is 24 equally fatal for IPPs’ state law claims, which depend on the same factual allegations and theories 25 of injury. See Order re MTD at 19. It is therefore unnecessary to consider Defendants’ other 26 arguments against the Sherman Act claims, including that those claims are time-barred, Joint 27 MTD at 41–47, and that they are barred by the Foreign Trade Antitrust Improvements Act, id. at 1 35–41. It is also unnecessary to address various arguments specific to certain defendants, see 2 generally Volkswagen MTD; BMW MTD, or state law claims, see Joint MTD at 47–54. 3 A. AdBlue Conspiracy 4 Both IPPs and DPPs allege a conspiracy to standardize certain features related to AdBlue, 5 which ostensibly reduced the quality of Defendants’ diesel vehicles. See IPP Compl. ¶¶ 3–4; DPP 6 Compl. ¶ 250. This section first addresses whether Plaintiffs adequately allege the existence of 7 agreements related to AdBlue, and then, concluding that they do, analyzes whether those 8 allegations are sufficient to plead claims under the Sherman Act. 9 1. Whether an agreement is adequately alleged. 10 Section 1 of the Sherman Act forbids competitors from entering agreements that 11 unreasonably restrain trade. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885 12 (2007). The Amended Complaints plausibly allege that Defendants agreed on “the rate at which 13 AdBlue pollution treatment solution would be used in their diesel-powered vehicles, as well as the 14 size of the vehicles’ AdBlue tanks which determined the range that those vehicles could travel 15 before needing to be refilled with AdBlue.” IPP Compl. ¶ 119. Both Amended Complaints 16 contain detailed factual allegations describing Defendants’ “coordination” of AdBlue dosage rate 17 and tank size, including the content of Defendants’ agreements (including direct quotes from 18 allegedly criminal negotiations), see, e.g. id. ¶ 133, the positions of the conspirators within 19 Defendants’ corporate hierarchies, see, e.g. id. ¶ 135, and where and when the agreements were 20 made, see, e.g. id. ¶¶ 130–31; see also DPP Compl. ¶¶ 111–39. “[W]ho, did what, to whom (or 21 with whom), where, and when” is adequately alleged.1 In re Musical Instruments & Equip. 22 Antitrust Litig., 798 F.3d 1186, 1194 n.6 (9th Cir. 2015) (quoting Kendall v. Visa U.S.A., Inc., 23
24 1 The Amended Complaints also allege various “plus factors” ostensibly supporting their 25 allegations of unlawful anticompetitive conduct. See IPP Compl. ¶ 176; DPP Compl. ¶ 181. Because Plaintiffs plead direct evidence of agreements on AdBlue-related features, it is 26 unnecessary to evaluate whether the plus factors, when combined with parallel conduct, would adequately allege the existence of such collusion. See B&R Supermarket, Inc. v. Visa, Inc., 27 No. 16-01150 WHA, 2016 WL 5725010, at *6 (N.D. Cal. Sept. 30, 2016) (“An impermissible 1 518 F.3d 1042, 1047 (9th Cir. 2008)). 2 Plaintiffs argue that these allegations are supported by the ECC’s Statement of Objections, 3 which concluded that “Defendants coordinated their strategies on the amount of pollution 4 treatment solution (such as AdBlue) that would be used in diesel-powered German Diesel 5 Vehicles, as well as the size of the vehicles’ AdBlue tanks and the range the vehicles could travel 6 before needing to be refilled with AdBlue.” IPP Compl. ¶ 150. Defendants contest the relevance 7 of the Statement of Objections, pointing out that this Court has previously recognized government 8 investigations typically “carry ‘no weight in pleading an antitrust conspiracy,’ for it is ‘unknown 9 whether the investigation[s] will result in indictments or nothing at all.’” See Order re MTD at 15 10 (quoting In re Graphics Processing Units Antitrust Litig., 527 F. Supp. 2d 1011, 1024 (N.D. Cal. 11 2007)). Plaintiffs respond that they are now relying on the ECC’s Statement of Objections, which 12 is comparable to an indictment. IPP Opp’n at 13–14. 13 It is unnecessary to determine the significance of the Statement of Objections in this 14 proceeding. Even assuming, without deciding, that the analogy to an indictment is sound, and that 15 an indictment is more significant than a mere investigation, the Statement of Objections adds little 16 to Plaintiffs’ case. It establishes agreements on AdBlue tank size and dosing rates. But as 17 explained above, those agreements are already established by Plaintiffs’ other well-pled factual 18 allegations. And while the Statement of Objections may support the conclusion that those 19 agreements violated European cartel law, what matters here is whether Plaintiffs’ have met the 20 requirements for pleading a violation of the Sherman Act.2 That requires more than pointing to 21 the findings of European authorities regarding European law. Similarly, it remains the case that 22 Daimler and Volkswagen’s leniency applications “are too general and too vague” to plausibly 23 allege that those defendants violated American law. See id. at 13–15. 24 While the AdBlue agreements are plausibly alleged, Plaintiffs do not adequately plead the 25 existence of a broader conspiracy “to restrict the development of [Defendants’] vehicles’ diesel 26 emissions control systems and not to compete on quality.” IPP Opp’n at 16. Although this 27 1 purported conspiracy is narrower than a “‘de facto whole car conspiracy’ to reduce innovation,” 2 Order re MTD at 12, it remains broader than the Amended Complaints’ well-pled allegations can 3 support. Every agreement alleged with any amount of detail dealt with AdBlue tank size and 4 dosing rate. See IPP Compl. ¶¶ 119–42; DPP Compl. ¶¶ 102–09, 116–36, 139. Just as 5 agreements on convertible roofs and AdBlue tanks could not plausibly support a “whole car” 6 conspiracy, see Order re MTD at 12–13, agreements on AdBlue tank size and dosing rate alone do 7 not plausibly support the existence of a broader conspiracy covering Defendants’ entire diesel 8 emissions control system. 9 It is therefore necessary to determine whether the allegations of an AdBlue conspiracy 10 adequately state a Sherman Act claim. They do not, because Plaintiffs have failed to plead facts 11 showing that the AdBlue agreements were an unreasonable restraint on competition. 12 2. Whether Plaintiffs adequately allege that the AdBlue agreements 13 constituted an unreasonable restrain on trade in violation of the 14 Sherman Act. 15 Two forms of analysis may be applied to determine whether a restraint on trade is 16 unreasonable. “The rule of reason is the presumptive or default standard, and it requires the 17 antitrust plaintiff to ‘demonstrate that a particular contract or combination is in fact unreasonable 18 and anticompetitive.’” California ex rel. Harris v. Safeway, Inc., 651 F.3d 1118, 1132–33 (9th 19 Cir. 2011) (quoting Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006)). “Some types of restraints, 20 however, have such predictable and pernicious anticompetitive effect, and such limited potential 21 for procompetitive benefit, that they are deemed unlawful per se.” State Oil Co. v. Khan, 522 U.S. 22 3, 10 (1997). Per se treatment is reserved for conduct that is “manifestly anticompetitive” and 23 without “any redeeming virtue.” Leegin, 551 U.S. at 886. “The Supreme Court has ‘expressed 24 reluctance to adopt per se rules where the economic impact of certain practices is not immediately 25 obvious.’” Safeway, 651 F.3d at 1133 (quoting Dagher, 547 U.S. at 5). 26 IPPs argue the AdBlue agreements constitute a per se Sherman Act violation, because an 27 agreement to reduce quality is tantamount to output reduction. IPP Opp’n at 28–29. This Court’s 1 previous order endorsed the logic of this theory, though not its underlying assumption that the 2 AdBlue agreements necessarily constituted agreements to reduce quality. Order re MTD at 12. In 3 the alternative, IPPs suggest that even if “Defendants’ misconduct does not fit into established per 4 se categories,” it is of a type which “always or almost always tend[s] to restrict competition and 5 decrease output.”3 IPP Opp’n at 29. 6 These arguments fail, because it is not “immediately obvious” that the AdBlue agreements 7 had an exclusively anticompetitive impact. Safeway, 651 F.3d at 1133. As this Court recognized 8 in its previous order, an agreement to use only certain technical solutions may have 9 procompetitive benefits, even if it reduces a product’s quality in other respects. Order re MTD at 10 14. For example, standard setting may “serve[ ] . . . useful ends, such as protecting consumers 11 from inferior goods, increasing compatibility among products that must be interchangeable with 12 the products of other manufacturers, or focusing customer comparison on essential rather than 13 nonessential differences.” Id. (internal quotations and citations omitted). Similarly, 14 “[c]ollaboration for the purpose of developing and commercializing new technology can result in 15 economies of scale and integrations of complementary capacities that reduce costs, facilitate 16 innovation, eliminate duplication of effort and assets, and share risks that no individual member 17 would be willing to undertake alone.” Princo Corp. v. Int’l Trade Comm’n, 616 F.3d 1318, 1335 18 (Fed. Cir. 2010). Because procompetitive effects are possible, per se treatment is inappropriate for 19 joint ventures and standard setting. See Leegin, 551 U.S. at 886. 20 This logic applies to the alleged AdBlue agreements. The well-pled allegations in the 21 Amended Complaints describe agreements to abide by certain technical standards and adopt the 22 same or similar technical solutions. Plaintiffs’ effort to transmogrify those agreements into output 23 restrictions or pricing agreements is strained. See, e.g. IPP Compl. ¶ 5. And their argument that 24 the standard setting and joint venture cases are inapplicable because the alleged conspiracy does 25 not resemble other standard setting organizations, see IPP Opp’n at 27–28; DPP Opp’n at 10–11, 26 misses the point. Defendants do not need to demonstrate that the alleged misconduct fell into a 27 1 narrow category of behavior governed by the rule of reason. The opposite is true—per se 2 treatment is reserved for narrowly defined categories of collusion that clearly have no redeeming 3 virtues. Leegin, 551 U.S. at 886. The question is not whether the alleged AdBlue conspiracy 4 resembles other standard setting groups. It is whether its anticompetitive economic impact is so 5 obvious that this type of coordination should be per se illegal. Dagher, 547 U.S. at 5. 6 The Amended Complaints’ own allegations demonstrate that the answer to that question is 7 no, because the AdBlue agreements may have had procompetitive effects. Plaintiffs acknowledge 8 that the standards Defendants agreed to were beneficial in some respects. Having fewer AdBlue 9 injections reduced engine clogging and the risk of damage to the vehicle. IPP Compl. ¶ 155. 10 Smaller AdBlue tanks took up less space, leaving more room for other features. DPP Compl. 11 ¶ 115. True, Plaintiffs also plead that these benefits came at a cost—increased NOx emissions. 12 See id. ¶ 115. But Plaintiffs’ own allegations demonstrate that the trade-off did not necessarily 13 result in vehicles of inferior quality. Defendants may have agreed to a standard that they believed 14 would ultimately benefit all consumers. This is not to say that the agreements necessarily 15 improved the quality of Defendants’ diesel vehicles or were clearly not unreasonable. It simply 16 demonstrates that whether the agreements were reasonable or not should be assessed under the 17 rule of reason. 18 And, contrary to Plaintiffs’ position, which framework to apply can be determined at the 19 pleading stage. It is true that in some cases courts have concluded that which framework applied 20 was a fact-bound determination that could not be determined on the pleadings. See Kamakahi v. 21 Am. Soc’y for Reprod. Med., No. C 11-cv-01781, 2013 WL 1768706, at *8 (N.D. Cal. Mar. 29, 22 2013). But as with any other claim, a Court can determine that a complaint fails to adequately 23 allege a per se violation of the Sherman Act. See, e.g. Analogix Semiconductor, Inc. v. Silicon 24 Image, Inc., No. C 08-2917 JF (PVT), 2008 WL 8096149, at *1, *4 (N.D. Cal. Oct. 28, 2008) 25 (determining, on a motion to dismiss, that rule of reason analysis applied). That is the case here, 26 because Plaintiffs’ own allegations contradict their assertion that the AdBlue agreements 27 necessarily lacked any procompetitive effect. It is therefore appropriate to consider whether 1 They have not. The rule of reason requires Plaintiffs to “plead a relevant market” impacted 2 by Defendants’ anticompetitive conduct. Hicks v. PGA Tour, Inc., 897 F.3d 1109, 1120 (9th Cir. 3 2018). A relevant market “include[s] both a geographic market and a product market.” Id. The 4 product market “must encompass the product at issue as well as all economic substitutes for the 5 product.” Id. (quoting Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1045 (9th Cir. 6 2008)). Economic substitutes are the goods and services that have “reasonable interchangeability 7 of use” or “cross-elasticity of demand” with the product in question. Id. (quoting Newcal, 513 8 F.3d at 1045). This standard ensures that the relevant market includes all “sellers or producers 9 who have actual or potential ability to deprive each other of significant levels of business.” Id. 10 (quoting Newcal, 513 F.3d at 1045). Failure to plead a relevant market is grounds to dismiss. Id. 11 Submarkets may “constitute product markets for antitrust purposes” if they are 12 “economically distinct from the general product market.” Id. at 1121 (internal citations omitted). 13 “[I]ndustry or public recognition of the submarket as a separate economic entity, the product’s 14 peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, 15 sensitivity to price changes, and specialized vendors” may all indicate an economically distinct 16 submarket. Id. (internal citations omitted). 17 A plaintiff who successfully pleads a relevant market must also allege “that the defendant 18 has power within that market.” Newcal, 513 F.3d at 1044–45. Once a relevant market has been 19 pled, market power can be demonstrated by evidence “that the defendant owns a dominant share 20 of [the relevant] market” and “that there are significant barriers to entry and . . . existing 21 competitors lack the capacity to increase their output in the short run.” Id. Alternatively, “direct 22 evidence of the injurious exercise of market power,” such as “supracompetitive prices” and 23 “restricted output,” may be an adequate substitute for “elaborate market analysis.” FTC v. Indiana 24 Fed. of Dentists, 476 U.S. 447, 461 (1986). 25 Plaintiffs efforts to plead a relevant market are facially deficient. IPPs do not argue that 26 they have pled a relevant product market, see IPP Opp’n at 29, nor could they. To the extent the 27 IPP Complaint suggests that “German Diesel Vehicles” are a cognizable submarket, that 1 diesel” technology by competition from Japanese hybrids. IPP Compl. ¶ 84; see also Apple Inc. v. 2 Psystar Corp., 586 F. Supp. 2d 1190, 1199 (N.D. Cal. 2008) (complaint that acknowledged that 3 Apple computers running Mac OS faced competition, but which did not include those competitors 4 in its market definition or explain why they should be excluded, failed to plead a relevant market). 5 DPPs’ efforts suffer similar flaws. Their complaint alleges a submarket of “German 6 Luxury Vehicles.” DPP Compl. ¶¶ 69–80. But again, that claim is belied by DPPs’ own 7 allegations, which acknowledge that Defendants competed with Italian, American, and Japanese 8 brands. See DPP Compl. ¶¶ 80, 95, 130–32, 164. And even if DPPs’ own allegations did not 9 undermine their theory, “judicial experience and common sense” would. See Hicks, 897 F.3d at 10 1121. Non-German luxury cars exist (Tesla, Lexus, and Maserati all come to mind). It is 11 implausible that national origin alone puts German automakers in a separate market from their 12 high-end foreign rivals, or that a buyer looking at a Mercedes would not consider a Tesla if it were 13 cheaper or of higher quality. DPPs rely on a supposed price premium for German cars, see DPP 14 Compl. ¶ 72, but a price differential alone is insufficient to establish an economically distinct 15 submarket. Psystar Corp., 586 F. Supp. 2d at 1199. And if anything, German automakers 16 attempts to set themselves apart with advertising demonstrate that they were competing with non- 17 German luxury brands. See id. (“[V]igorous advertising is a sign of competition, not a lack 18 thereof.”); see also DPP Compl. ¶ 75. 19 In the alternative, DPPs allege a more plausible submarket of luxury vehicles. DPP 20 Compl. ¶ 80 n.15. But these allegations fail for a different reason: DPPs have not alleged facts to 21 support a finding that Defendants have market power in the luxury car market writ large. The only 22 evidence they offer in support of this claim is their estimate that Defendants enjoy approximately a 23 50% share “of the broader luxury car market.” DPP Opp’n at 23 n.17. But “[c]ourts generally 24 require a 65% market share to establish a prima facie case of market power.” Image Tech. Servs., 25 Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1206 (9th Cir. 1997). 26 Nor have DPPs “alleged actual adverse effects,” see DPP Opp’n at 23 n.17, that would 27 excuse their failure to show a relevant market and market power. DPPs do not support this claim 1 they believe they have alleged. See id. To the extent DPPs argue that the AdBlue agreements 2 were tantamount to price fixing or output restrictions, those claims are inadequately alleged for the 3 same reasons that Plaintiffs have failed to plead a per se Sherman Act violation. 4 The failure to plead a relevant market is fatal to Plaintiffs’ contention that the AdBlue 5 agreements state a cognizable Sherman Act claim. It is equally fatal to DPPs’ alternative theories 6 of liability, which fail to plausibly allege per se Sherman Act violations for the reasons explained 7 below. Indeed, DPPs’ other allegations of anticompetitive agreements fail for an additional reason 8 besides the failure to plead a relevant market. DPPs fail to plausibly allege either the existence of 9 or injury from those agreements. 10 B. “No Arms Race” Conspiracy 11 DPPs allege that “[t]he operating principle of [Defendants’] conspiracy was ‘no arms race,’ 12 which was a euphemism for avoiding competition for market share on the basis of technological 13 developments and brand differentiation.” DPP Compl. ¶ 10. This theory fails for the same reason 14 as its very similar predecessor, the “whole car conspiracy” rejected by this Court in its previous 15 order. See Order re MTD at 12–17. Once again, DPPs attempt to plead a broad conspiracy with 16 untenably narrow allegations. This Order proceeds by explaining why each of DPPs’ several 17 categories of allegations fails to plausibly demonstrate a “no arms race” conspiracy, even when 18 considered as a whole. 19 1. Agreements to limit technological innovation. 20 DPPs’ chief evidence of the “no arms race” conspiracy is the AdBlue agreement discussed 21 above. The Court previously rejected agreements on AdBlue tank size as insufficient to plead a 22 similarly broad “de facto whole car conspiracy,” even in combination with a second example of 23 collusion on technical standards. Id. at 13. DPPs offer no real argument for a different result here. 24 Their position is that they do not need to “argue that all, or even most, of the class vehicles’ 25 components and features were subject to the conspiracy,” because they “contend that Defendants 26 refrained from innovating or improving features on the class vehicles in such a way that their 27 respective market shares would remain the same.” DPP Opp’n at 10. But DPPs’ Complaint and 1 briefing offer no explanation for why an agreement to standardize what the Court has previously 2 described as a “niche vehicle feature[ ]” would be adequate to maintain each Defendants’ market 3 share. Order re MTD at 13. 4 DPPs suggest Defendants reached agreements on several other vehicle features, such as 5 “particulate filters, convertible roofs, and parking brakes.” DPP Compl. ¶ 157. Most of these 6 allegations lack any detail at all. The DPP complaint does not allege what was agreed to regarding 7 parking brakes, who agreed to it, or when and where such an agreement took place. And it alleges 8 only that Defendants agreed they would not allow convertible roofs to open and close at speeds 9 above thirty-one miles per hour, an allegation the Court has previously rejected as insufficient to 10 plead a broad “whole car” conspiracy, even combined with allegations of the AdBlue agreements. 11 Order re MTD at 13. 12 Only the agreement on particle filters is supported by any factual allegations regarding 13 “who, did what, to whom (or with whom), where, and when.” See In re Musical Instruments, 798 14 F.3d at 1194 n.6. DPPs allege that “[b]eginning in 2009, Defendants also entered into agreements 15 to avoid, or at least to delay, the introduction of particle filters in their new (direct injection) 16 gasoline passenger car models between 2009 and 2014.” DPP Compl. ¶ 137. But DPPs admit 17 these “filters were used predominantly in passenger vehicles sold in Europe.” Id. ¶ 137 n.68. The 18 alleged agreement on an additional niche feature predominantly used in cars irrelevant here does 19 not plausibly support the existence of a conspiracy meant to divide the American market into static 20 shares. 21 2. Steel-buying conspiracy. 22 DPPs allege that Defendants unlawfully agreed not to compete for the lowest price on 23 steel. DPP Compl. ¶¶ 158–65. Even assuming the existence of an unlawful conspiracy regarding 24 steel prices, this allegation does little to support the “no arms race” theory.4 DPPs insist that by 25 avoiding competition on the cost of steel, Defendants helped ensure their respective shares of the 26 27 1 market would remain static. Id. ¶ 165. Just as it is implausible to infer that standardizing a few 2 niche technical features would enable Defendants to keep their respective market shares stable, it 3 is unlikely that adopting similar formulas for the price of a single raw material (albeit an important 4 one) would be enough to keep shares of the American market in an agreeable equilibrium. The 5 leap from steel prices to overall market allocation is not “plausible on its face,” even considered 6 alongside DPPs’ other allegations. See Twombly, 550 U.S. at 570. 7 3. Electric cars. 8 As explained in greater detail below, the alleged conspiracy to avoid developing electric 9 vehicles has an obvious innocent explanation posited by the DPP Complaint itself. And DPPs do 10 not even allege that all Defendants’ conduct was parallel with respect to this alleged conspiracy. 11 See infra Section III.C. These allegations add little or nothing to the “no arms race” conspiracy. 12 4. Parallel conduct. 13 Other allegations amount to little more than parallel conduct with obvious innocuous 14 explanations. DPPs’ allege that Defendants “coordinated major product updates and refreshes,” 15 and provide three examples of similar product lines being updated or refreshed within a year or 16 two of each other. DPP Compl. ¶ 199–200. But as Defendants point out, the fact that they all 17 released new products at similar times tends to suggest that they were competing with each other, 18 rather than the opposite. Joint Reply (dkt. 425) at 10; see also In re Musical Instruments, 798 F.3d 19 at 1193 (“In an interdependent market, companies base their actions in part on the anticipated 20 reactions of their competitors.”). Allegations that Defendants’ prices remained mostly constant 21 relative to each other is equally uninformative, DPP Compl. ¶ 194–98, because firms may lawfully 22 set prices in reaction to their competitors, In re Musical Instruments, 798 F.3d at 1193. 23 Relatedly, DPPs claim that “Defendants prevented dealers from using sales price to upset 24 the status quo.” DPP Opp’n at 11. Their complaint explains that Defendants set their vehicles’ 25 maximum price (the MSRP) and minimum price (the inventory price) unusually close together, 26 reducing variation in the final sales price. DPP Compl. ¶¶ 204–11. DPPs do not claim that such 27 “manipulation,” standing alone, would be unlawful, and in fact acknowledge that “[u]nder the 1 automotive franchise system, Defendants have absolute and sole control over [wholesale] prices” 2 and the MSRP. Id. ¶¶ 205, 210. But the DPP Complaint also does not allege any unlawful 3 collusion in setting wholesale prices and MSRPs, other than a half-hearted claim that it is “highly 4 likely that the manufacturers coordinated the setting of dealer wholesale prices and MSRP.” Id. at 5 204. Apparently, this is because all Defendants set wholesale prices and MSRPs unusually close 6 together and stood to benefit from the thin margins. See id. ¶¶ 207–09, 211. But parallel pricing 7 alone does not demonstrate collusion, even (or especially) when market participants stand to 8 benefit from reacting to each other’s decisions or “similar market pressures.” In re Musical 9 Instruments, 798 F.3d at 1193. 10 Because the parallel conduct alleged in the DPP Complaint could just as easily (or even 11 more plausibly) reflect legitimate conscious parallelism as opposed to collusion, it does not 12 support their “no arms race” theory. Id. at 1194 (“Allegations of facts that could just as easily 13 suggest rational, legal business behavior by the defendants as they could suggest an illegal 14 conspiracy are insufficient to plead a § 1 violation.” (internal quotation marks and citations 15 omitted)). 16 5. Plus factors. 17 Nor is this a case where “plus factors . . . inconsistent with unilateral conduct” can push 18 DPPs’ otherwise inadequate allegations over the line. See id. (“This court has distinguished 19 permissible parallel conduct from impermissible conspiracy by looking for certain ‘plus 20 factors.’”). Most of DPPs’ plus factors go either to Defendants’ alleged “strong motive to 21 conspire” or the susceptibility of the relevant market to collusion. See DPP Compl. ¶¶ 182, 185– 22 89. The Ninth Circuit has rejected comparable arguments, noting that “alleging ‘common motive 23 to conspire’ simply restates that a market is interdependent (i.e., that the profitability of a firm’s 24 decisions regarding pricing depends on competitors’ reactions).” Musical Instruments, 798 F.3d at 25 1194–95. “Interdependence, however, does not entail collusion, as interdependent firms may 26 engage in consciously parallel conduct through observation of their competitors’ decisions, even 27 absent agreement.” Id. at 1195. DPPs’ allegations that the market was susceptible to collusion or 1 gave Defendants a motive to conspire reduce to allegations that the market is interdependent,5 and 2 are therefore of little help in pleading an antitrust conspiracy. See DPP Compl. ¶¶ 182, 185–89. 3 DPPs allege that “Defendants had and took advantage of literally thousands of 4 opportunities to conspire through secret meetings” and during trade meetings. DPP Compl. ¶ 183. 5 This Court has previously rejected the significance of similar allegations because Plaintiffs failed 6 to “identify what was agreed to in the[ ] meetings.” Order re MTD at 16. Once again DPPs do not 7 allege what was agreed to during the alleged meetings, see DPP Compl. ¶ 183, aside from the 8 purported collusion on certain niche features discussed above. 9 Defendants’ ostensible actions against self-interest are similarly redundant of the 10 insufficient allegations of agreement. DPPs allege “Defendants engaged in conduct inconsistent 11 with their independent self-interests by, among other things, revealing to each other proprietary 12 technological information and trade secrets.” Id. ¶ 184. But the only such revelations alleged in 13 any kind of detail would have to be related to the agreements on AdBlue and particle filters. 14 Those agreements do not plausibly establish a “no arms race” conspiracy for the reasons discussed 15 above. 16 Finally, DPPs allege “economic . . . outcomes” supposedly inconsistent with independent 17 action. See In re Musical Instruments, 798 F.3d at 1194 (defining “plus factors” as “economic 18 actions and outcomes that are largely inconsistent with unilateral action but largely consistent with 19 explicitly coordinated action”). They allege that Defendants’ overall market share grew even as 20 each Defendant’s market share remained stable relative to the other alleged conspirators, 21 demonstrating the success of the conspiracy. DPP Compl. ¶¶ 192–93. But although DPPs 22 conclusorily state that “[t]he stability of Defendants’ market shares is economically consistent 23 5 One arguable exception is DPPs’ allegation that “commonality of suppliers increased 24 transparency into cost functions of each of the firms within the German Luxury Car Market, providing mechanisms to police the cartel.” DPP Compl. ¶ 185. Since this allegation goes to the 25 ease of enforcing collusive agreements, rather than the extent to which a firm’s pricing decisions will be driven by competitors’ behavior, it may be distinguishable from allegations that the market 26 is interdependent. However, by facilitating “observation of their competitors’ decisions,” the alleged “transparency” would facilitate “conscious parallelism” by Defendants just as much as 27 unlawful agreement. See In re Musical Instruments, 798 F.3d at 1195. This allegation, like others 1 with the existence of a market allocation agreement,” id. ¶ 193, they make no effort to allege that 2 it is inconsistent with conscious parallelism or some other innocent explanation. And they 3 undermine their own argument by acknowledging that the inter-Defendant market was not, in fact, 4 completely static. Id. At best these allegations provide only mild support for DPPs’ alleged 5 conspiracy. 6 In sum, DPPs’ narrow allegations of agreements to standardize niche features or prices for 7 steel cannot support the wide-ranging conspiracy they attempt to plead. Additional allegations of 8 parallel conduct and plus factors are too speculative and conclusory to cover the gap. 9 C. Electric Car Conspiracy 10 In the alternative, DPPs plead a narrower conspiracy not to engage in an arms race to 11 develop electric vehicles. Once again, this parallel conduct is insufficient to support an antitrust 12 claim, because it has a perfectly innocuous explanation. Indeed, that explanation is provided by 13 the DPP Complaint itself. Defendants did not invest in electric vehicles because they “had already 14 invested heavily in diesel engines.” DPP Compl. ¶ 112. That suggests it is just as if not more 15 plausible that Defendants “arrive[d] at identical decisions independently, [because] they [were] 16 cognizant of—and reacting to—similar market pressures.” In re Musical Instruments, 798 F.3d at 17 1193. 18 The plausibility of a conspiracy not to invest in electric vehicles is further undercut by the 19 DPP Complaint’s admission that Audi, BMW, and Porsche did produce electric and hybrid 20 vehicles in 2013 and 2014. DPP Compl. ¶ 144. The DPP Complaint tries to reconcile this fact 21 with the claimed conspiracy by alleging that the electric and hybrid vehicles produced were not 22 advanced enough. Id. This simply underscores the weakness of their theory. DPPs are reduced to 23 arguing that Defendants must have unlawfully agreed to underinvest in electric vehicles, because 24 absent such an agreement they would have made a better electric vehicle. Absent direct evidence 25 of agreement, or more robust allegations of plus factors than the ones discussed above, this 26 (barely) parallel conduct cannot support an antitrust claim. 27 1 D. Steel-Buying Conspiracy 2 This Court has previously considered DPPs’ allegations that “the five leading German car 3 makers agreed to coordinate their purchases of . . . steel.” Order re MTD at 17; see also DPP 4 Compl. ¶¶ 158–65. In its prior order, the Court concluded that even if Defendants had agreed on 5 the price of steel, “the prices they paid for those inputs would presumably have dropped,” which 6 “would likely have benefited car purchasers, not harmed them.” Order re MTD at 17. DPPs seek 7 to avoid a similar result this time around by alleging that Defendants colluded to pay higher prices, 8 because their goal was to pay the same price for steel as their competitors, even if that meant 9 everyone paid more. According to the DPP Complaint, this allowed Defendants to avoid 10 competing for market share based on steel prices and assured they could pass any price increase on 11 to their customers. DPP Compl. ¶¶ 161–65. 12 This theory is not supported by DPPs’ factual allegations. Those allegations describe a 13 scheme in which each Defendant agreed with the steel manufacturers on a baseline price for steel. 14 DPP Compl. ¶ 161. Additionally, and apparently unlawfully, Defendants agreed to a standardized 15 “purchase price ‘index’ on top of the baseline price to account for fluctuations in the market for 16 raw materials—this element of the cost was calculated at shorter intervals and, if the index rose or 17 fell, the automobile manufacturers paid more or less, respectively.” Id. This arrangement 18 accommodated the steel manufacturers’ need to account for short term fluctuations in the cost of 19 raw materials, but also Defendants’ desire for a “fixed, predictable [steel] cost[ ]” that would allow 20 them “to set car model prices for the year.” Id. ¶ 160. 21 Other than conclusory claims to the contrary, DPPs never adequately explain why this 22 agreement would raise the prices they paid to Defendants. Although the index price was 23 additional to the baseline price, that does not mean it increased the price Defendants paid for steel. 24 Absent the baseline/index formula, Defendants presumably would have paid a single, higher price 25 that accounted for the cost of raw materials. See id. The July 12, 2018, Bundeskartellamt press 26 release DPPs seek to rely on is unhelpful, because it discusses only the steel manufacturers—it 27 does not even mention Defendants, let alone support the allegation that they agreed to pay higher 1 Bundeskartellamt, Press Release, Bundeskartellamt imposes first fines totaling approx. 205 2 million euros on special steel companies, (July 12, 2018) http://tinyurl.com/seeloqn).6 3 Finally, DPPs’ allegations that Defendants offset rising steel costs by increasing prices do 4 nothing to support their theory of injury from the alleged agreement on steel purchases. DPP 5 Compl. ¶ 162–65. Notably, DPPs do not allege that the increased prices were caused by 6 Defendants’ agreement. To the contrary, they acknowledge that Japanese automobile 7 manufacturers were also impacted by the alleged price increase. Id. ¶ 164. 8 DPPs allege that Daimler was able to offset higher steel costs by raising prices and that as 9 a group Defendants maintained higher margins than their Japanese competitors. The DPP 10 Complaint concludes these outcomes are inconsistent with any explanation other than collusion. 11 Id. ¶¶ 162–65. But this bare allegation of collusion is belied by the DPP Complaint’s factual 12 allegations, which are more consistent with lawful conscious parallelism. DPPs allege that 13 Daimler, discussing its willingness to raise prices, stated that it preferred to “not be the last to 14 move forward on the pricing front, but rather on the other end.” Id. ¶ 162. This suggests not an 15 agreement to raise prices, but various firms watching their competitors’ pricing decisions and 16 adjusting their own prices in response. This type of “follow the leader” pricing (in which Daimler 17 aspired to be the leader, rather than a follower) is a well-recognized form of lawful conscious 18 parallelism. In re Musical Instruments, 798 F.3d at 1195 (“[S]o long as prices can be easily 19 readjusted without persistent negative consequences, one firm can risk being the first to raise 20 prices, confident that if its price is followed, all firms will benefit.”). 21 In sum, neither more recent press releases nor DPPs’ amended pleadings change the 22 Court’s earlier conclusion (and DPPs’ original contention) that the steel-purchasing agreements, 23 even if unlawful, most plausibly led to lower prices. Order re MTD at 17; see also Original DPP 24 Compl. (dkt. 244) ¶ 87 (alleging that the steel-purchasing agreements created “cost savings”). 25 They have therefore failed to plead an injury resulting from this alleged agreement. See Order re 26 MTD at 17–18 (failure to plead injury resulting from steel-buying agreements meant those 27 1 allegations could not support an antitrust claim). 2 E. State Law Claims 3 This Court has previously concluded that “[t]he factual bases and theories of injury for 4 [IPPs’ various state law] claims are the same as those for the Sherman Act claims.” Id. at 19. 5 Because the Sherman Act claims were not well pled, the state law claims were dismissed as well. 6 Id. IPPs do not contend that this was error, or that their state law claims should not live and die 7 with their Sherman Act claim. See IPP Opp’n at 41, 43, 46. IPPs’ state law claims are therefore 8 dismissed without prejudice. ° IV. CONCLUSION For the foregoing reasons, the motions to dismiss are granted.’ It is not a certainty, " however, that Plaintiffs cannot allege facts sufficient to plead a relevant market or injury from the alleged steel-buying agreements. The Court thus grants them leave to amend their complaints to 4 attempt to salvage these claims. To the extent that they choose to do so, they must file their S amended complaints within 45 days of this Order. 5 IT IS SO ORDERED. Q 16 Dated: March 31, 2020
a 1 CHARLES R.BREYER 0 United States District Judge 21 22 23 24 25 26 27 28 7 VW’s motion to file under seal (dkt. 412) is also granted.