De Coster v. Amazon.com Inc

• Court: District Court, W.D. Washington
• Decided: January 24, 2023
• Docket: 2:21-cv-00693
• Status: Unknown

Opinion

2 UNITED STATES DISTRICT COURT 3 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 4

5 ELIZABETH DE COSTER et al., on behalf of Case No. C21-693RSM 6 themselves and all others similarly situated, ORDER GRANTING IN PART AND 7 Plaintiffs, DENYING IN PART MOTION TO 8 DISMISS v. 9 AMAZON.COM, INC., a Delaware 10 corporation, 11 Defendant. 12 13 I. INTRODUCTION 14 This matter comes before the Court on Defendant Amazon.com, Inc. (“Amazon”)’s 15 16 Motion to Dismiss, Dkt. #35. Plaintiffs have filed an opposition brief, Dkt. #39. The parties 17 have filed numerous notices of supplemental authority. Dkts. #44, #45, #47, #51, #52, and #55. 18 The Court can rule on this Motion without oral argument. For the reasons stated below, 19 the Court GRANTS IN PART AND DENIES IN PART Amazon’s Motion. 20 II. BACKGROUND 21 22 For purposes of this 12(b)(6) Motion, the Court will accept all facts in the Consolidated 23 Amended Complaint (“CAC” or “Amended Complaint”), Dkt. #20, as true. Unless stated 24 otherwise, the following facts are drawn from that pleading. 25 Defendant Amazon operates the largest online retail marketplace in the United States. 26 Amazon sells its own goods, but also designed its marketplace to be a platform where third- 27 28 party merchants can register and list their goods for Amazon to sell. Third-party merchants post their products on the platform, which Amazon presents to 1 2 users together with its own goods according to a certain algorithm that takes the form of a 3 ranking list. 4 At the time the pleading was drafted, Amazon’s marketplace accounted for over 50% of 5 all online retail sales revenue in the United States. By comparison, Amazon’s two closest 6 competitors, eBay and Walmart, accounted for only 6.1% and 4.6%, respectively, of that 7 8 revenue. 9 Many third-party merchants listing their goods on Amazon’s marketplace also sell their 10 goods on other platforms—including on their own websites and on competing online 11 marketplaces. 12 13 Amazon competes both (a) as a retailer against the third-party merchants that list their 14 goods on Amazon’s marketplace, and (b) as a marketplace, against other online retail 15 marketplaces, such as eBay and Walmart, where third-party merchants can list their goods. 16 Amazon is critical to the financial success of its third-party merchants. Almost half of 17 the third-party merchants who list their goods on Amazon’s marketplace generate between 81% 18 19 and 100% of their revenues on it. 20 The Amended Complaint asserts that Amazon charges higher fees for third-party 21 merchants than competitor marketplaces and that these inflated fees are passed on to customers 22 like Plaintiffs through higher prices. 23 In a competitive market, third-party merchants would be able to sell their products for 24 25 less in competitor marketplaces. Amazon bars this type of competition by imposing on third- 26 party merchants Platform “Most Favored Nation (“MFN”) policies, or did so during the 27 28 relevant time period. Amazon’s MFN policies forbid third-party merchants from listing their 1 2 goods anywhere else on the internet at prices lower than their Amazon list prices. 3 An investigation by the House of Representatives Judiciary Committee’s Subcommittee 4 on Antitrust, Commercial, and Administrative Law (the “House subcommittee on antitrust”) 5 found that “Amazon has a history of using MFN clauses to ensure that none of its suppliers or 6 third-party sellers can collaborate with an existing or potential competitor to make lower-priced 7 8 or innovative product offerings available to consumers.” 9 Amazon imposes its MFN policies on third-party merchants through the Amazon 10 Business Solutions Agreement (BSA). Every third-party merchant that registers to list goods 11 on Amazon’s marketplace must “agree[] to the terms of the [BSA] and the policies 12 13 incorporated in that agreement.” 14 Until March 2019, Amazon enforced its MFN policies through BSA’s “Price Parity 15 Clause,” which expressly prohibited third-party merchants from listing goods on other online 16 retail platforms—whether marketplaces or single-merchant websites—at prices lower than their 17 Amazon list prices. In late 2013, because of German and United Kingdom antitrust 18 19 proceedings, Amazon voluntarily abandoned its price parity clause on an EU-wide basis. 20 Amazon continued to enforce that clause in the United States for six more years. 21 Even after withdrawing this clause, Amazon continues to enforce MFN-type policies 22 through its so-called “Fair Pricing” Policy. This policy in the BSA states that, if a third-party 23 merchant engages in pricing practices with regard to “a marketplace offer that harms customer 24 25 trust,” Amazon may impose sanctions. According to the policy, a “pricing practice that harms 26 customer trust” occurs if a merchant lists goods on a competing online retail platform at prices 27 that are significantly below its Amazon list prices. Sanctions include making the merchant’s 28 product ineligible for a feature (the “Buy Box” button) that would make the product the most 1 2 visible and easiest to purchase among similar goods; removing the third-party merchant’s 3 goods from Amazon’s marketplace; suspending shipping options for the merchant’s goods; and 4 terminating or suspending the merchant’s ability to have any goods sold on Amazon’s 5 marketplace. 6 The intent and effects of the “Fair Pricing” Policy are the same as those of the former 7 8 Price Parity Clause. These effects can be anticompetitive by, e.g., preventing merchants from 9 listing their goods at lower prices on other platforms that charge lower (or no) fees, and 10 preventing other online retail marketplaces from competing with Amazon by hosting those 11 third-party merchants’ products at lower prices. Taking these pled facts as true, Amazon’s 12 13 MFN policies cause Amazon customers to pay more for goods purchased on its marketplace 14 than they would pay in a competitive market. 15 Amazon enforces these policies by, e.g., systematically monitoring the prices listed by 16 third-party merchants on other online retail platforms. 17 Named Plaintiffs are residents of Maryland, Washington, D.C., Illinois, Texas, 18 19 Tennessee, and Connecticut who purchased numerous goods from Amazon’s marketplace, 20 including those listed by third-party merchants. They bring this action on behalf of themselves, 21 and as a class action on behalf of all persons who, on or after May 26, 2017, purchased one or 22 more goods on Amazon’s marketplace. 23 The Amended Complaint includes causes of action for per se and not per se violation of 24 25 the Sherman Act under 15 U.S.C. § 1 (First and Second Causes of Action), violation of the 26 Sherman Act under 15 U.S.C. § 2 for monopolization (Third Cause of Action), and violation of 27 the Sherman Act under 15 U.S.C. § 2 for attempted monopolization (Fourth Cause of Action). 28 III. DISCUSSION 1 2 A. Legal Standard under Rule 12(b)(6) 3 In making a 12(b)(6) assessment, the court accepts all facts alleged in the complaint as 4 true, and makes all inferences in the light most favorable to the non-moving party. Baker v. 5 Riverside County Office of Educ., 584 F.3d 821, 824 (9th Cir. 2009) (internal citations omitted). 6 However, the court is not required to accept as true a “legal conclusion couched as a factual 7 8 allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 9 550 U.S. 544, 555 (2007)). The complaint “must contain sufficient factual matter, accepted as 10 true, to state a claim to relief that is plausible on its face.” Id. at 678. This requirement is met 11 when the plaintiff “pleads factual content that allows the court to draw the reasonable inference 12 13 that the defendant is liable for the misconduct alleged.” Id. The complaint need not include 14 detailed allegations, but it must have “more than labels and conclusions, and a formulaic 15 recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. Absent 16 facial plausibility, a plaintiff’s claims must be dismissed. Id. at 570. 17 B. Analysis 18 19 Amazon’s first argument for dismissal is that its MFN policies are legal as a matter of 20 law. Dkt. #35 at 16. Amazon recharacterizes the policies found in the Amended Complaint as 21 a “Retail Competitive Price Provision” and an “Anti-Gouging Policy.” Id. Amazon argues that 22 its policies “provide for competitive prices to consumers, rather than for itself” and that “[n]o 23 court has ever condemned competitive price policies like these.” Id. 24 25 The fact that no Court has ever found a policy like these to violate the Sherman Act 26 does not, in itself, render these claims implausible. Amazon goes on to argue that certain cases 27 28 have found that “competitive price provisions favoring consumers… do not violate the antitrust 1 2 laws.” Id. (citing Kartell v. Blue Shield of Mass. Inc., 749 F.2d 922, 928-29 (1st Cir. 1984)). 3 The Court finds that the facts alleged in this case are not sufficiently analogous to those 4 in Kartell or its progeny of insurance cases. Making all inferences in the light most favorable 5 to the non-moving party, Plaintiffs’ facts are adequate to escape the legal conclusions of those 6 cases. To the extent Amazon is asking the Court to construe the facts in an unfavorable light, 7 8 such is contrary to Rule 12(b)(6) and premature given the undeveloped factual record. See, 9 e.g., Dkt. #35 at 18-19 (“…to the extent Plaintiffs’ claims are based on the MFPP, they should 10 be dismissed because the CAC’s characterization of the policy as an MFN is demonstrably 11 incorrect…. The Court should hold the MFPP procompetitive as a matter of law because it 12 13 benefits consumers”). 14 Amazon’s second point is that the First Cause of Action fails to allege any “concerted 15 action.” Id. at 19. It argues “[c]ourts routinely dismiss Section 1 claims where the claim rests 16 only on one party’s establishment or enforcement of contract terms or policies that another 17 party is required to follow.” Id. at 20. Amazon cites to, inter alia, Sambreel Holdings LLC v. 18 19 Facebook, Inc., 906 F. Supp. 2d 1070, 1076 (S.D. Cal. 2012) where “the plaintiff alleged that 20 Facebook’s contract with Application Developers ‘includes a provision that obligates 21 Application Developers to use only the Advertising Partners that have been approved by 22 Facebook,’ and…. The court held the complaint lacked ‘sufficient facts to support the 23 allegation that there was concerted effort among the Application Developers and Facebook, as 24 25 is required by the express terms of Sherman Act § 1, as opposed to unilateral action on the part 26 of Facebook.’” Id. Plaintiffs respond that “Amazon seeks to pass off its binding agreements 27 containing price restrictions with third-party merchants as if the conduct at issue were nothing 28 1 more than Amazon’s own ‘independent’ or ‘unilateral’ conduct…. But here the third-party 2 merchants are active participants in the price restraint, even if Amazon is the one driving it.” 3 Dkt. #39 at 17. Plaintiffs run through Amazon’s other cited cases supporting its argument and 4 conclude: 5 These cases do not control here, because Amazon’s MFN policies 6 are neither vertical price restraints (they do not place conditions on the resale of Amazon’s own products), nor intrabrand price 7 restraints (they restrain competitive pricing across all brands and 8 unbranded goods that third-party merchants sell on Amazon’s platform, even though produced and supplied by companies other 9 than Amazon). Put simply, Amazon and each third-party merchant has entered into a horizontal price-fixing agreement that controls 10 how third-party merchants set prices for goods that directly 11 compete with Amazon’s goods. The merchants participate in this conduct—albeit unwillingly—by setting prices in compliance with 12 the agreed-upon price restraint. This conduct plainly satisfies the 13 requirement of a concert of action under Section 1.

14 Id. at 19–20. 15 For purposes of this Motion to Dismiss, the Court agrees with Plaintiffs that Amazon 16 has failed to demonstrate a lack of concerted action, or that concerted action is implausible. 17 Taking the facts in the light most favorable to Plaintiffs, the third-party merchants are active 18 19 participants who set their prices and otherwise engage with Amazon’s policies in an active, 20 albeit allegedly unwilling, way. This affects horizontal competitors in a unique way not 21 analogous to the cases cited by Amazon. 22 Amazon next maintains that the third cause of action, for per se violation of Section 1, 23 should be dismissed because that rule is limited to agreements between horizontal competitors. 24 25 Dkt. #35 at 21–22. Per se liability is reserved for only those agreements that are “so plainly 26 anticompetitive that no elaborate study of the industry is needed to establish their illegality.” 27 Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (citing National Soc. of Professional Engineers v. 28 United States, 435 U.S. 679, 692, 98 S. Ct. 1355, 55 L. Ed. 2d 637 (1978)). “Price-fixing 1 2 agreements between two or more competitors, otherwise known as horizontal price-fixing 3 agreements, fall into the category of arrangements that are per se unlawful.” Id. 4 Plaintiffs argue that “[a]ll the Supreme Court requires for per se liability is an 5 agreement among ‘competing retailers’ to ‘reduce[] competition in order to increase price.’” 6 Dkt. #39 at 20 (citing Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877, 893 (2007)). 7 8 Plaintiffs do not allege there is an agreement among competing retailers to reduce 9 competition in order to increase price. The facts are significantly more complicated than that. 10 The Amended Complaint essentially includes the “elaborate study of the industry” 11 contemplated by the Court in Texaco, supra. As the Court understands it, Plaintiffs allege an 12 13 unfavorable agreement between Amazon and third-party retailers who use its marketplace, not 14 between Amazon and competing marketplaces. That Amazon and the third-party retailers 15 sometimes compete within the Amazon marketplace adds a layer of complexity, it does not 16 clarify liability. Per se liability is not available on these facts. Accordingly, this cause of 17 action is properly dismissed under Rule 12(b)(6). 18 19 Fourth, Amazon argues Plaintiffs “fail to allege facially plausible product markets.” 20 Dkt. #35 at 25. More specifically, Amazon alleges that Plaintiffs have “unnaturally 21 gerrymandered” the relevant market by “excluding physical retailers,” id., and that Plaintiffs’ 22 relevant market “includes products that are not reasonably interchangeable,” id. at 27. 23 “Under the rule of reason, plaintiffs must plead a relevant market to state an antitrust 24 25 claim under Sections 1 or 2 of the Sherman Act.” PBTM LLC v. Football Nw., LLC, 511 F. 26 Supp. 3d 1158, 1179 (W.D. Wash. 2021). A “complaint may be dismissed under Rule 12(b)(6) 27 28 if the complaint’s ‘relevant market’ definition is facially unsustainable.” Hicks v. PGA Tour, 1 2 Inc., 897 F.3d 1109, 1120 (9th Cir. 2018) (internal quotation marks omitted). 3 Plaintiffs counter Amazon’s intense and thorough legal arguments on this point with the 4 following: 5 … the CAC plausibly alleges two alternative markets: an Online 6 Retail Marketplace Market and an Online Retail Sales Market. CAC ¶¶ 64- 139. The Online Retail Marketplace Market is made 7 up of online platforms, like eBay and Walmart, that provide the 8 services “that enable consumers to buy retail goods listed by multiple independent sellers.” Id. ¶ 64. The Online Retail Sales 9 Market includes all online retail sales. Id. ¶ 69. The contours of these two markets are well supported by Plaintiffs’ allegations and 10 by economic consensus. 11 Dkt. #39 at 23. Plaintiffs say Amazon is prematurely attacking the facts, and that the proper 12 13 test at this stage is whether Plaintiffs’ markets are “facially unsustainable.” Id. (citing Newcal 14 Indus. v. Ikon Office Solution, 513 F.3d 1038, 1045 (9th Cir. 2008)). 15 The Court finds the relevant market definitions in the Amended Complaint sustainable 16 on their face. Amazon’s arguments are fact-based and premature, essentially asking the Court 17 to hear expert testimony at the motion-to-dismiss stage of litigation. That is not how civil 18 19 litigation is supposed to proceed and will not serve as a basis for dismissal under Rule 12(b)(6). 20 Fifth, Amazon assert that “Plaintiffs allege a multi-step causal chain of injury that is too 21 attenuated to plausibly allege antitrust injury.” Dkt. #35 at 30. Amazon characterizes Plaintiffs 22 claims thusly: 23 Plaintiffs contend that Amazon’s alleged MFN policies first, 24 “nullified competition by other online retail marketplaces on the 25 basis of fees,” which, second, allegedly caused “Amazon to continue to charge supracompetitive fees for the use of its 26 marketplace.” CAC ¶ 102. Plaintiffs then allege that, third, “third- party merchants would rationally have set lower prices for their 27 goods on their own websites and on competing online retail 28 marketplaces with lower fees.” Id. Fourth, “in turn, competing online retail marketplaces would have lowered their fees to 1 compete with Amazon on price, or—if their fees were already 2 lower—better succeeded at driving marketplace-level competition by attracting more third-party merchants and more consumers.” Id. 3 Fifth, Plaintiffs allege “these market forces would have resulted in competitive pressure that would have forced Amazon to lower its 4 fees,” and sixth, “to lower the prices for its own goods.” Id. Based 5 on this six-step chain of causation, Plaintiffs allege Amazon has “kept overall prices high on its marketplace and, therefore, across 6 all online retail marketplaces.” Id.

7 Id. at 30–31. 8 The Court finds that Plaintiffs’ allegations, although complicated, are not as 9 complicated as Amazon would have it and are not too attenuated to plausibly allege antitrust 10 11 injury. In the light most favorable to the nonmoving party, this causal chain could be 12 summarized as Plaintiffs put forth in their Response brief: “Amazon’s MFN policies restrain 13 competition in ways that cause consumers to pay supra-competitive prices directly to Amazon.” 14 Dkt. #39 at 30. Plaintiffs point to Apple v. Pepper, 139 S. Ct. 1514, 1519 (2019) as factually 15 16 analogous. Plaintiffs argue that “Amazon’s argument that third-party merchants make 17 ‘independent pricing decisions’ also defies the CAC, which alleges that Amazon uses its MFN 18 policies to block third-party merchants from making truly independent pricing decisions. Id. at 19 31 (citing CAC ¶¶ 100-121). Plaintiffs’ point is plausible. 20 Finally, Amazon contends that Plaintiffs’ injuries arise from “conduct in a different 21 22 market,” i.e. Plaintiffs paid supra-competitive prices for retail goods based on Amazon’s 23 actions in a different market toward different actors—policies applied and fees charged to 24 third-party sellers. Dkt. #35 at 32. “Where plaintiffs allege injury in a market other than the 25 market in which anticompetitive conduct is alleged to occur, courts dismiss antitrust claims for 26 lack of antitrust standing.” Id. (citing Feitelson v. Google Inc., 80 F. Supp. 3d 1019, 1027-28 27 28 (S.D. Cal. 2015) (“Plaintiffs allege that they suffered antitrust injury in the form of supracompetitive pricing in Android phones, which is not the market in which the alleged 1 2 anticompetitive conduct occurred.”) 3 The Court finds that Plaintiffs allege a valid injury here, even if third-party merchants 4 also have their own cause of action for lost profits. See In re DDAVP Direct Purchaser 5 Antitrust Litig., 585 F.3d 677, 688 (2d Cir. 2009). 6 IV. CONCLUSION 7 8 Having reviewed the relevant pleadings and the remainder of the record, the Court 9 hereby finds and ORDERS: 10 1) Defendant Amazon’s Motion to Dismiss, Dkt. #35 is GRANTED with respect to 11 Plaintiffs’ First Cause of Action. Plaintiffs’ First Cause of Action, for Violation of 12 13 the Sherman Act 15 U.S.C. § 1 Per Se, is DISMISSED. Although leave to amend 14 would typically be granted, it is not granted here as Plaintiffs would have to 15 significantly re-work the pleadings in order to bring this claim. Plaintiffs may move 16 for leave to amend if they so choose. The Motion is DENIED as to all other claims. 17 2) The parties are to promptly propose a class certification briefing schedule. See Dkt. 18 19 #41. 20 21 DATED this 24th day of January, 2022. 22 23 A 24 RICARDO S. MARTINEZ 25 UNITED STATES DISTRICT JUDGE

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