Demartini v. Microsoft Corporation

CourtDistrict Court, N.D. California
DecidedMarch 20, 2023
Docket3:22-cv-08991
StatusUnknown

This text of Demartini v. Microsoft Corporation (Demartini v. Microsoft Corporation) is published on Counsel Stack Legal Research, covering District Court, N.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Demartini v. Microsoft Corporation, (N.D. Cal. 2023).

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 DANTE DEMARTINI, et al., Case No. 22-cv-08991-JSC

8 Plaintiffs, ORDER GRANTING MOTION TO 9 v. DISMISS

10 MICROSOFT CORPORATION, Defendant. 11

12 13 Plaintiff video gamers sue under the Clayton Act, Sections 7 and 16, to enjoin the merger 14 of Microsoft Corporation and video game developer and publisher Activision Blizzard. Pending 15 before the Court is Microsoft’s motion to dismiss. (Dkt. No. 42.1) After carefully considering the 16 complaint, the parties’ submissions, and having had the benefit of oral argument on March 16, 17 2023, the Court GRANTS the motion with leave to amend. The Complaint does not plausibly 18 allege the merger creates a reasonable probability of anticompetitive effects in any relevant 19 market. 20 BACKGROUND 21 On January 18, 2022, Microsoft announced plans to acquire Activision Blizzard for 22 approximately $70 billion. (Dkt. No. 1 ¶ 2.) The acquisition “would be the largest merger of 23 technologies companies ever.” (Id. ¶ 3.) Microsoft and Activision are “each significant rivals in 24 the video game development, publishing, and distribution markets.” (Id. ¶ 4.) If the merger 25 proceeds, “Microsoft may have far-outsized market power, with the ability to foreclose rivals, 26 limit output, reduce consumer choice, raise prices, and further inhibit competition.” (Id. ¶ 12.) 27 1 On December 20, 2022, Plaintiff consumers of video games sued under Sections 7 and 16 2 of the Clayton Act to stop the merger. (Dkt. No. 1.) At the same time, they filed a motion for 3 preliminary injunction. Microsoft initially moved to stay this case pending resolution of a Federal 4 Trade Commission (FTC) administrative action initiated on December 8, 2022 seeking similar 5 remedies. (Dkt. No. 26.) The Court denied the motion, but Microsoft stipulated the merger would 6 not occur before May 1, 2023. (Dkt. Nos. 33, 48.) The Court accordingly scheduled the motion 7 for preliminary injunction to be heard on April 13, 2023, and directed Microsoft to produce certain 8 discovery. (Dkt. No. 48.) In the meantime, Microsoft moved to dismiss the complaint on ripeness 9 and standing grounds, and for failure to state a claim. (Dkt. No. 42.) The Court heard oral 10 argument on March 16, 2023. 11 DISCUSSION 12 “Section 7 of the Clayton Act generally prohibits business acquisitions whose effect ‘may 13 be substantially to lessen competition, or tend to create a monopoly’ in a relevant market.” 14 Dehoog v. Anheuser-Busch Inbev SA/NV, 899 F.3d 758, 762 (9th Cir. 2018) (quoting 15 U.S.C. § 15 18.) Section 16 of the Clayton Act permits a private plaintiff to obtain injunctive relief for a 16 Section 7 violation upon showing “threatened loss or damage.” 15 U.S.C. § 26. The threatened 17 loss or damage must be personal to the private plaintiff. See Cal. v. Am. Stores Co., 495 U.S. 271, 18 296 (1990); United States v. Borden Co., 347 U.S. 514, 518 (1954). 19 I. Article III Jurisdiction 20 The Court first addresses Microsoft’s Rule 12(b)(1) motion arguing lack of ripeness and 21 lack of standing. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998). 22 A. Ripeness 23 Microsoft argues the Section 7 claim is not ripe because the merger is under regulatory 24 review and may look different or not happen at all. For the Article III case or controversy 25 requirement to be satisfied, “the case must be ‘ripe’—not dependent on ‘contingent future events 26 that may not occur as anticipated, or indeed may not occur at all.’” Trump v. New York, 141 S. Ct. 27 530, 535 (2020). In Trump, for example, the plaintiffs challenged as unlawful the President’s 1 and federal funding. The Supreme Court held the case was not ripe because there was so much 2 uncertainty about whether such a policy would ever be enacted. Id. at 535-36. But here, in 3 contrast, the merger agreement has been executed and Microsoft does not dispute the merger could 4 occur any time on or after May 22, 2023 (and only not until then because Microsoft stipulated not 5 to merge before then). That the contours of the contracted-for merger may later change does not 6 mean Plaintiffs’ challenge is not currently ripe. 7 Microsoft’s reliance on S. Austin Coal. Cmty. Council v. SBC Commc’ns Inc., 191 F.3d 8 842 (7th Cir. 1999), fails to persuade the Court otherwise. First, the court did not hold a Section 7 9 challenge is not ripe for jurisdictional purposes until all of the regulatory approvals have been 10 completed. To the contrary, the court observed that “[w]hether the district judge should have 11 equated lack of ripeness to lack of subject-matter jurisdiction is debatable; sometimes prematurely 12 filed suits are retained on the docket until it is time to proceed.” Id. at 844. It ultimately upheld 13 the district court’s dismissal because the plaintiff’s lone claim of prejudice—a potential laches 14 defense—was ameliorated by a stipulation from the defendants that they would not raise a laches 15 defense. Id. at 845. Thus, S. Austin Cmty. Council it is best read as affirming the district court’s 16 case management decision rather than holding the district court lacked subject matter jurisdiction. 17 Further, while Microsoft repeats its mantra that it cannot consummate the merger until the 18 European authorities approve the merger, it does not offer any evidence to support that assertion. 19 In sum, to accept Microsoft’s ripeness argument would mean in practice a Section 7 20 merger challenge is not ripe until the merger has happened. But that argument contradicts Section 21 16’s language which permits a private plaintiff to sue against “threatened conduct.” 15 U.S.C. § 22 26 (emphasis added); see also Malaney v. UAL Corp., No. 3:10-CV-02858-RS, 2010 WL 23 3790296, at *5 (N.D. Cal. Sept. 27, 2010), aff’d, 434 F. App'x 620 (9th Cir. 2011). Further, as the 24 Supreme Court has observed, “the Senate declared the objective of the Clayton Act to be as 25 follows:

26 *** Broadly stated, the bill, in its treatment of unlawful restraints and monopolies, seeks to prohibit and make unlawful certain trade 27 practices which, as a rule, singly and in themselves, are not covered conspiracies, and monopolies in their incipiency and before 1 consummation.

2 United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 597 (1957) (emphasis added). 3 Incipiency in this context means “any time when the acquisition threatens to ripen into a 4 prohibited effect.” Id.; see also John Lenore & Co. v. Olympia Brewing Co., 550 F.2d 495, 498 5 (9th Cir. 1977) (Section 7 of the Clayton Act “is primarily a prophylactic measure intended to stop 6 anti-competitive corporate mergers and acquisitions before those events could cause harm”). 7 B. Standing 8 Next, Microsoft argues Plaintiffs do not have standing to pursue their Section 7 claim. 9 1.

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Demartini v. Microsoft Corporation, Counsel Stack Legal Research, https://law.counselstack.com/opinion/demartini-v-microsoft-corporation-cand-2023.