Hogan v. Amazon.com Inc

• Court: District Court, W.D. Washington
• Decided: March 13, 2024
• Docket: 2:21-cv-00996
• Status: Unknown

Opinion

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4 5 UNITED STATES DISTRICT COURT 6 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 7 ANGELA HOGAN and ANDREA CASE NO. 2:21-cv-00996-JHC 8 SEBERSON, on behalf of themselves and others similarly situated, ORDER 9

Plaintiffs, 10 v. 11 AMAZON.COM, Inc., 12

Defendant. 13

14 I 15 INTRODUCTION 16 This antitrust matter comes before the Court on Defendant Amazon.com, Inc.’s Motion to 17 Dismiss the Second Amended Complaint. Dkt. # 49. Plaintiffs allege that Defendant violated 18 Sections 1 and 2 of the Sherman Act. Dkt. # 44 ¶ 26. They say that Defendant forced third-party 19 sellers to purchase Amazon’s shipping and fulfillment services—known as Fulfillment by 20 Amazon (FBA)—by leveraging its power over product placement on Amazon’s online retail 21 marketplace, and on the internet more broadly. Id. Plaintiffs are consumers—not third-party 22 sellers—who say that this alleged anticompetitive conduct led to higher prices. But the Second 23 Amended Complaint (SAC) does not allege harm in the market where competition was allegedly 24 1 restrained, and thus does not sufficiently allege antitrust injury. See Fed. Trade Comm’n v. 2 Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020). Nor does the SAC define any relevant 3 market for Amazon’s Buy Box. See Hicks v. PGA Tour, Inc., 897 F.3d 1109, 1120 (9th Cir.

4 2018). Thus, the Court GRANTS the motion and DISMISSES the SAC with prejudice. 5 II 6 BACKGROUND Plaintiffs Angela Hogan and Andrea Seberson are Amazon Prime members. Dkt. # 44 7 ¶¶ 47, 48. They allege that they paid supra-competitive prices for products they bought on 8 Amazon’s online marketplace because of the company’s anticompetitive behavior in the 9 shipping and fulfillment market. Id. ¶¶ 46, 47, 48. 10 11 Plaintiffs argue that Amazon violated Sections 1 and 2 of the Sherman Act by 12 “leveraging of its market power in e-commerce to attain dominance in the logistics market.” Id. 13 ¶ 43. They say that Defendant unlawfully tied its shipping service, FBA, to preferential 14 placement of products in the Buy Box on Amazon’s online marketplace. Id. Plaintiffs allege 15 that they were “injured by Amazon because, as a direct result of Amazon’s anticompetitive 16 actions [they were] overcharged for numerous items [they] purchased through the Buy Box.” Id. 17 ¶¶ 47, 48. 18 Plaintiffs allege that: 19 • Amazon operates an online marketplace where “65% to 70% of all online retail 20 transactions in the United States occur.” Id. ¶ 6. The Amazon marketplace lists 21 items sold by Amazon and items sold by third-party sellers. Id. ¶ 37. 22 • The Buy Box, or Featured Offer, “is a section on the right side of an Amazon 23 product detail page [on Amazon’s online marketplace] where customers can add 24 1 a product to their cart or ‘buy now.’” Id. ¶ 9. When multiple sellers offer the 2 same product, Buy Box features one of the offers. Id. ¶ 65. While Amazon’s 3 marketplace allows customers to view the non-featured offers, 90% of sales on

4 Amazon are through the Buy Box. Id. ¶ 67. Thus, placement in the Buy Box is 5 very important to third-party seller success on Amazon’s marketplace. Id. ¶ 67. 6 • FBA is “a logistics service that provides warehousing, packing, and shipping to 7 third-party sellers” on Amazon’s online marketplace. Id. ¶ 15. 8 • Amazon Prime is a membership subscription offered by Amazon, through which 9 members pay a monthly fee and one benefit is “free” shipping for products that 10 are shipped with FBA. Id. ¶ 2. Amazon forces third-party sellers to buy FBA 11 even though it is more expensive than comparable services from competitors. Id. 12 ¶¶ 27, 36. “To force Sellers to switch to its Fulfillment services, Amazon

13 conditioned a Seller’s access to the Prime Badge—and with it, placement in the 14 Buy Box—on a Seller’s using Fulfillment by Amazon.” Id. ¶ 22. 15 • While use of FBA does not guarantee placement in the Buy Box, Amazon 16 designed the Buy Box algorithm so that a seller’s use of FBA is “the variable that 17 has the greatest impact on” a seller’s placement in the Buy Box. Id. ¶ 24. 18 “[A]pproximately 85% of the top 10,000 Amazon Sellers—and 73% of Sellers 19 worldwide—use FBA.” Id. ¶ 89. Some sellers would prefer to use other 20 shipping and fulfillment services but choose FBA to obtain access to the Buy 21 Box and Amazon Prime customers. Id. ¶ 86. “Amazon’s power in the e- 22 commerce market has allowed it to sharply raise the fees for its Fulfillment

23 services over time. The company’s revenues from its logistics business grew 24 from approximately $3 billion in 2014 to $29 billion in 2019.” Id. ¶ 98. This 1 growth was driven by increased fees instead of an increase in the number of 2 customers. Id. ¶ 99. 3 • Because of these rising costs, sellers raise prices of the products that they sell on

4 Amazon’s online marketplace. Id. ¶ 134. 5 Another judge of this court dismissed the First Amended Complaint (FAC) without 6 prejudice, concluding that Plaintiffs did not allege antitrust standing. Dkt. # 41 at 1. The order 7 reasons that the FAC does not sufficiently allege that Plaintiffs “directly paid for FBA shipping 8 charges.” Dkt. # 41 at 10. It concludes that the FAC shows that Plaintiffs are indirect 9 purchasers, precluded from bringing suit under Illinois Brick Co. v. Illinois, 431 U.S. 720, 746 10 (1977). Dkt. # 41 at 10. The matter was later reassigned to the undersigned judge. 11 In their SAC, Plaintiffs allege that: (1) shipping is a “two-sided market;” and (2) 12 Plaintiffs, who are consumers, pay for shipping, either directly by subscribing to Amazon Prime 13 or paying shipping fees, or indirectly by paying increased prices for goods. Dkt. # 44 ¶ 3, 4, 29, 14 156. Defendant now moves to dismiss the SAC. Dkt. # 49. 15 III 16 RULE 12(b)(6) STANDARDS 17 Under Federal Rule of Civil Procedure 12(b)(6), a court may dismiss a complaint for 18 “failure to state a claim upon which relief can be granted.” A motion to dismiss under this rule 19 “tests the legal sufficiency of a claim.” Conservation Force v. Salazar, 646 F.3d 1240, 1241–42 20 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)). In considering 21 such a motion, a court “accept[s] factual allegations in the complaint as true and construe[s] the 22 pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & 23 Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008) (internal citation and quotation omitted). 24 1 But the complaint must contain more than “[t]hreadbare recitals of the elements of a cause of 2 action” and “mere conclusory statements.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). It “must 3 contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its

4 face.’” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). 5 IV 6 DISCUSSION 7 Defendant moves to dismiss the SAC for failure to state a claim as to Plaintiff’s Sherman 8 Act Section 1 and 2 claims. Dkt. # 49 at 10; see Fed. R. Civ. P 12(b)(6). Defendant argues that 9 Plaintiffs did not suffer an antitrust injury because their alleged harm occurred in the online retail 10 market, not the shipping market where they allege that Defendant’s actions illegally restrained 11 competition. Dkt. # 49 at 11. In the alternative, Defendant argues that the SAC does not contain 12 sufficient allegations to define the market for the Buy Box. Dkt. # 49 at 21.1 The Court agrees

13 with both arguments. 14 A. Antitrust Injury 15 To bring an antitrust claim under Section 1 or Section 2 of the Sherman Act, Plaintiff 16 must allege antitrust injury. In re Nat’l Football League’s Sunday Ticket Antitrust Litig., 933 17 F.3d 1136, 1159 (9th Cir. 2019) (“To plausibly plead a monopolization claim [Section 2 of the 18 Sherman Act], plaintiffs must allege: “(a) the possession of monopoly power in the relevant 19 market; (b) the willful acquisition or maintenance of that power; and (c) causal antitrust 20 injury.”); Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1197 (9th Cir. 2012) (requiring 21 plaintiffs to allege that they “were harmed by the defendant’s anti-competitive contract, 22 23

1 Given the Court’s conclusions, it need not reach Defendant’s other arguments about the 24 sufficiency of the SAC. 1 combination, or conspiracy, and that this harm flowed from an ‘anti-competitive aspect of the 2 practice under scrutiny,’” which “is generally referred to as ‘antitrust injury’”); see also City of 3 Oakland v. Oakland Raiders, 20 F.4th 441, 456 (9th Cir. 2021) (noting that antitrust injury is

4 “mandatory” to show antitrust standing, which is required for all Sherman Act claims by 5 individuals). 6 To satisfy the antitrust injury requirement, a plaintiff must show “‘injury of the type the 7 antitrust laws were intended to prevent and that flows from that which makes defendants’ acts 8 unlawful.” O’Bannon v. Nat’l Collegiate Athletic Ass’n, 802 F.3d 1049, 1066–67 (9th Cir. 2015) 9 (quoting Glen Holly Entm’t, Inc. v. Tektronix Inc., 343 F.3d 1000, 1007–08 (9th Cir. 2003) 10 (quoting Brunswick Corp. v. Pueblo Bowl–O–Mat, Inc., 429 U.S. 477, 489 (1977))). 11 “[I]n assessing alleged antitrust injuries, courts must focus on anticompetitive effects ‘in 12 the market where competition is [allegedly] being restrained.’” Qualcomm Inc., 969 F.3d at 992 13 (quoting Am. Ad Mgmt., Inc. v. Gen. Tel. Co. of Cal., 190 F.3d 1051, 1057 (9th Cir. 1999) 14 (emphasis added)). “Parties whose injuries, though flowing from that which makes the 15 defendant’s conduct unlawful, are experienced in another market do not suffer antitrust injury.” 16 Id. 17 Plaintiffs allege that Defendant’s anticompetitive behaviors are restraining competition in 18 the shipping market. Dkt. # 44 ¶¶ 43–45. Plaintiffs, who are consumers, allege that the shipping 19 market is two-sided and that they purchase shipping on one side of the market from Amazon 20 either (1) by paying for an Amazon Prime membership; (2) by paying shipping fees directly; or 21 (3) by paying higher prices for “free” shipping. Id. ¶ 160, 161. They allege that third-party 22 sellers on the other side of the market purchase FBA from Amazon. Id.; see Ohio v. American 23 Express, 585 U.S. 529, 534, 544, 546 (2018) (holding that for some two-sided markets “courts 24 1 must include both sides of the platform . . . when defining the [] market” and “only one market 2 should be defined”); see also Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 985 (9th Cir. 2023) 3 (holding that Apple’s App Store is a two-sided transaction market in which the court needs to

4 consider the “anticompetitive impact on the ‘market as a whole,’” including the impact of the 5 alleged anticompetitive conduct on both app developers and app buyers). 6 Plaintiffs appear to purchase shipping directly from Amazon. See Apple, Inc. v. Pepper, 7 139 S. Ct. 1514, 1521 (2019) (holding that iPhone users purchase apps directly from Apple, who 8 manages an app marketplace where third-party developers sell apps to iPhone users). But even if 9 the market for shipping and the market for FBA are two sides of the same transaction market, 10 Plaintiffs do not allege that they suffered an antitrust injury in this market. 11 Plaintiffs allege that Defendant engaged in anticompetitive conduct by “tying” access to 12 the Buy Box to the purchase of FBA, thereby gaining an anticompetitive advantage in the 13 shipping market by leveraging its power in the Buy Box market. Id. ¶ 26. But Plaintiffs are not 14 subject to the tying arrangement. They have not alleged that they have any interest in purchasing 15 the tying product—placement in the Buy Box. Their choice to purchase shipping through 16 Amazon is not influenced by any tying arrangement that may exist between FBA and Buy Box. 17 Plaintiffs allege that they were injured by Defendant’s anticompetitive behavior because 18 they paid higher prices for products bought through Amazon’s marketplace. Id. ¶ 102. This 19 injury occurred in the online retail market, not in the shipping market. Plaintiffs do not allege 20 that they paid more for their Amazon Prime membership or that they paid more for shipping in 21 general. See id. Thus, although Plaintiffs allege that their injuries flow from the tying 22 arrangement in the shipping market, they do not allege that they experienced antitrust injury in 23 24 1 the shipping market. Because Plaintiffs do not allege that they suffered an antitrust injury, they 2 fail to state a claim under Sections 1 and 2 of the Sherman Act. 3 B. Market Definition

4 “A threshold step in any antitrust case is to accurately define the relevant market, which 5 refers to ‘the area of effective competition.’” Qualcomm Inc., 969 F.3d at 992 (quoting Am. 6 Express Co., 585 U.S. at 543). At the motion to dismiss phase for Sections 1 and 2 of the 7 Sherman Act, “Plaintiffs must plead a relevant market to state an antitrust claim under the 8 Sherman Act, unless they assert a per se claim.” Hicks v. PGA Tour, Inc., 897 F.3d 1109, 1120 9 (9th Cir. 2018). The requirements for defining a relevant market “apply identically under the 10 two different sections of the Act.” Newcal Indus., Inc. v. Ikon Off. Sol., 513 F.3d 1038, 1044 n.3 11 (9th Cir. 2008); see also Epic Games, Inc. v. Apple, Inc., 67 F.4th at 998 (“Where . . . the 12 plaintiff challenges the same conduct pursuant to Sections 1 and 2, we can ‘review claims under 13 each section simultaneously.’” (quoting Qualcomm, 969 F.3d at 991)). 14 Defendant argues that the SAC fails to “describe a plausible tying product market” for the 15 Buy Box. Dkt. # 49 at 21. Plaintiffs say that Amazon’s tying arrangement is a per se violation 16 of Section 1 and, in the alternative, argue that Amazon’s anticompetitive conduct violated 17 Sections 1 and 2 of the Sherman under the rule of reason. Dkt. # 44 ¶ 187, Dkt. # 54 at 27–28. 18 Thus, first, the Court must consider whether the per se rule applies to the Section 1 claim. 19 Plaintiffs do not allege that the Section 2 monopoly claim is a per se violation, so the Court 20 applies the default rule of reason to that claim. See California ex rel. Harris v. Safeway, Inc., 21 651 F.3d 1118, 1133 (9th Cir. 2011) (“The rule of reason is the presumptive or default 22 standard.”). 23 24 1 1. Per se rule for technologically integrated tying claims 2 The per se rule “recognizes that ‘[a] small group of restraints are unreasonable per se 3 because they always or almost always tend to restrict competition and decrease output.’ ‘Such

4 agreements or practices are conclusively presumed to be unreasonable because of their 5 pernicious effect on competition and lack of any redeeming virtue.’” Aya Healthcare Servs., Inc. 6 v. AMN Healthcare, Inc., 9 F.4th 1102, 1108–09 (9th Cir. 2021) (first quoting Am. Express, 585 7 U.S. at 540, then quoting United States v. Joyce, 895 F.3d 673, 676 (9th Cir. 2018)). 8 While tying arrangements are often per se violations, in Epic Games, Inc. v. Apple, Inc., 9 the Ninth Circuit held that “per se condemnation is inappropriate for ties ‘involv[ing] software 10 that serves as a platform for third-party applications.’” 67 F.4th at 997 (quoting United States v. 11 Microsoft Corp., 253 F.3d 34, 84 (D.C. Cir. 2001)). 12 Here, the Buy Box is “technologically integrated” with FBA. Id. Plaintiffs allege that 13 the connection between the two exists because the Buy Box algorithm favors products that are 14 shipped using FBA, among other metrics. Dkt. # 44 ¶¶ 65, 111. Thus, the per se rule does not 15 apply to this tying claim. 16 17 2. Defining the market 18 Restraints of trade that are not per se unreasonable are assessed under the rule of reason. 19 Qualcomm Inc., 969 F.3d at 989. “The rule of reason requires courts to conduct a fact-specific 20 assessment of ‘market power and market structure . . . to assess the [restraint]’s actual effect’ on 21 competition.” Id. (quoting Am. Express, 585 U.S. at 541). 22 Because the rule of reason applies to both Sherman Act claims, Plaintiffs must plausibly 23 allege that a relevant market exists for the Buy Box. See Hicks v. PGA Tour, Inc., 897 F.3d at 24 1 1120. “An antitrust complaint [] survives a Rule 12(b)(6) motion unless it is apparent from the 2 face of the complaint that the alleged market suffers a fatal legal defect.” Newcal Indus., Inc., 3 513 F.3d at 1045.

4 In Newcal, the Ninth Circuit identified some “legal principles that govern the definition 5 of an antitrust ‘relevant market’ and a complaint may be dismissed under Rule 12(b)(6) if the 6 complaint’s ‘relevant market’ definition is facially unsustainable.” Id. First, “the relevant 7 market must be a product market.” Id. “Second, the market must encompass the product at issue 8 as well as all economic substitutes for the product,” unless the complaint alleges a cognizable 9 single product market. Id. “Including economic substitutes ensures that the relevant product 10 market encompasses ‘he group or groups of sellers or producers who have actual or potential 11 ability to deprive each other of significant levels of business.’” Hicks v. PGA Tour, Inc., 897 12 F.3d at 1120 (quoting Newcal Indus., Inc., 513 F.3d at 1045).

13 The SAC alleges that there are two relevant markets for the Buy Box. First, it alleges 14 that the Buy Box is “a product or service in the market for favorable product placement on 15 Amazon’s website.” Dkt. # 44 ¶¶ 188, 199. Plaintiffs argue that “the market for favorable 16 placement on Amazon’s website” is a “single-brand market.” Dkt. 54 at 25 (quoting Dkt. 44 17 ¶ 190). Second, Plaintiffs allege that the Buy Box is “a product or service in the market for 18 favorable product placement . . . on the internet more broadly.” Dkt. # 44 ¶ 188. 19 Defendant argues that the SAC fails to “describe a plausible tying product market” for the 20 Buy Box. Dkt. # 49 at 21. It argues that the alleged single brand market is “implausible” 21 because “single brand markets are only viable ‘in the context of aftermarkets.’” Dkt. # 49 at 22 22 n.8 (quoting Reilly v. Apple Inc., 578 F. Supp. 3d 1098, 1107 (N.D. Cal 2022)). 23 24 1 In Eastman Kodak Co. v. Image Tech. Servs., Inc., the Supreme Court held that “in some 2 instances one brand of a product can constitute a separate market.” 504 U.S. 451, 482 (1992). 3 Neither the Supreme Court nor the Ninth Circuit has explicitly addressed whether single brand

4 markets are limited to “aftermarkets.” See Eastman Kodak Co., 504 U.S. at 482 (directing to 5 look at the “commercial realities’ faced by consumers,” in defining the market, instead of 6 automatically limiting single brand markets to aftermarkets). In Epic Games, Inc. v. Apple, Inc., 7 the Ninth Circuit broadly recognized that “in some instances one brand of a product can 8 constitute a separate market,” without explicitly narrowing the single brand market to an 9 “aftermarket.” 67 F.4th at 976. See also In re Am. Express Anti-Steering Rules Antitrust Litig., 10 361 F. Supp. 3d 324, 344 (E.D.N.Y. 2019) (“It is important to make clear that single-brand 11 market definitions are not formally limited to the aftermarket context.”); Apple, Inc. v. Psystar 12 Corp., 586 F. Supp. 2d 1190, 1198 (N.D. Cal. 2008) (“Single-brand markets are, at a minimum,

13 extremely rare. . . . Antitrust markets consisting of just a single brand, however, are not per se 14 prohibited; as stated, markets are defined by the ‘reasonable interchangeability’ of use or the 15 cross-elasticity of demand among products. In theory, it may be possible that, in rare and 16 unforeseen circumstances, a relevant market may consist of only one brand of a product.”); but 17 see Reilly v. Apple Inc., 578 F. Supp. 3d 1098, 1108 (N.D. Cal. 2022) (rejecting Plaintiff’s 18 alleged single brand market: “Plaintiff does not cite a single antitrust case that has ever 19 recognized a single-brand primary market”). 20 While single brand markets are not favored, Plaintiffs could overcome the presumption 21 against such markets if they alleged that the product is “so unique or so dominant in the market 22 in which they compete” that there are no economic substitutes available to consumers. Phillip E.

23 Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their 24 1 Application ¶ 563. (Fourth and Fifth Editions 2018–2023) (quoting Bushie v. Stenocord Corp., 2 460 F.2d 116,121 (9th Cir. 1972)); Eastman Kodak Co., 504 U.S. at 482. 3 Here, the SAC does not meet the high burden to allege a plausible single product market

4 because it lacks a sufficiently detailed description of the market. While the SAC alleges that 5 Amazon has power over the Buy Box algorithm, it does not allege that the Buy Box as a product 6 is “so unique” that there is no other product that competes with it. See Bushie v. Stenocord 7 Corp., 460 F.2d at 121. Thus, Plaintiffs fail to allege the existence of a plausible single brand 8 market for the Buy Box. 9 As for a standard, multi-brand market, while the relevant market need not be defined with 10 specificity in the complaint, a plaintiff must at least include economic substitutes to allege that a 11 market exists. In Hicks v. PGA Tour, Inc., the court noted that “[i]ncluding economic substitutes 12 ensures that the relevant product market encompasses ‘the group or groups of sellers or 13 producers who have actual or potential ability to deprive each other of significant levels of 14 business.’” 897 F.3d at 1120 (quoting Newcal Indus., 513 F.3d at 1045). 15 Here, the SAC does not plead sufficient facts to establish a multi-brand market for the 16 Buy Box—allegedly “favorable product placement in e-commerce”—because it does not allege 17 any economic substitutes for the Buy Box in the alleged market. Dkt. # 44 ¶ 190. The lack of 18 economic substitutes means that the Court cannot even assess whether the “relevant market 19 definition is facially unsustainable” because the contours of the alleged market are undefined. 20 Hicks v. PGA Tour, Inc., 897 F.3d at 1120. 21 22 Plaintiffs have thus failed to state a claim under Section 1 and 2 of the Sherman Act. 23

24 l C. Dismissal with Prejudice 2 Federal district courts, in their discretion, generally grant leave to amend “freely . . . 3 when justice so requires.” Fed. R. Civ. P. 15(a). When a party seeks leave to amend, a court 4 considers the Supreme Court’s Foman factors: “undue delay, bad faith or dilatory motive on the 5 part of the movant, repeated failure to cure deficiencies by amendments previously allowed, 6 undue prejudice to the opposing party by virtue of allowance of the amendment, futility of 7 amendment.” Eminence Cap., LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) 8 (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). 9 Plaintiffs do not seek leave to amend the SAC. See Dkt. # 54 at 34. But even if they did, 10 dismissal with prejudice would still be appropriate here because the “complaint could not be 1] saved by amendment” as the Court does not see how Plaintiffs can show antitrust injury in the 12 shipping market. Eminence Cap., LLC, 316 F.3d at 1052. 13 14 Vv CONCLUSION 15 For these reasons, the Court GRANTS Defendant’s motion to dismiss, Dkt. # 49, and 16 DISMISSES the SAC with prejudice. 17 Dated this 13th day of March, 2024. 18 < □ / oh. A) Chur 19 John H. Chun 50 United States District Judge

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