Phhhoto Inc. v. Meta Platforms, Inc.
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Opinion
23-763 Phhhoto Inc. v. Meta Platforms, Inc.
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August Term 2023
(Argued: November 16, 2023 Decided: December 10, 2024)
No. 23-763
––––––––––––––––––––––––––––––––––––
PHHHOTO INC.,
Plaintiff-Appellant,
-v.-
META PLATFORMS, INC., FKA FACEBOOK, INC.,
Defendant-Appellee,
DOES NOs. 1-7,
Defendants. * ––––––––––––––––––––––––––––––––––––
Before: LIVINGSTON, Chief Judge, WESLEY, and CHIN, Circuit Judges.
This appeal requires us to decide whether a plaintiff claiming unlawful monopolization under the Sherman Act sufficiently alleged the fraudulent concealment theory of equitable tolling. Plaintiff-Appellant Phhhoto Inc.
* The Clerk of the Court is directed to amend the official caption as set forth above.
1 (“Phhhoto”) alleges that one of the world’s largest technology companies, Defendant-Appellee Meta Platforms, Inc. (“Meta”), engaged in a scheme to injure Phhhoto’s business through anticompetitive means, including the adoption of an algorithmic feed for Instagram that purportedly suppressed Phhhoto’s content on that platform. More than four years after the new algorithm was introduced, Phhhoto filed the instant action, alleging in relevant part that Meta’s shift to an algorithmic feed, in combination with certain of its earlier acts, constituted an anticompetitive course of conduct in violation of Section 2 of the Sherman Act. The United States District Court for the Eastern District of New York (Matsumoto, J.) dismissed this claim under Federal Rule of Civil Procedure 12(b)(6) after determining that it had accrued outside of the Sherman Act’s four-year statute of limitations and that equitable tolling could not save it from untimeliness. On appeal, Phhhoto argues that the amended complaint sufficiently alleges Meta’s fraudulent concealment of an anticompetitive scheme and that the district court therefore erred in dismissing the antitrust claim as time-barred. Reviewing the record de novo, we agree with Phhhoto that it adequately alleged that the Sherman Act’s four-year statute of limitations should be equitably tolled until October 25, 2017. Accordingly, we VACATE the district court’s judgment and REMAND for further proceedings.
Judge Chin dissents in a separate opinion.
FOR PLAINTIFF-APPELLANT: SCOTT MARTIN (Irving Scher, on the brief), Hausfeld LLP, New York, NY; Sarah LaFreniere, Hausfeld LLP, Washington, D.C.
(Phillip F. Cramer, Sperling & Slater, LLC, Nashville, TN; Eamon P. Kelly & Nathan A. Shev, Sperling & Slater, LLC, Chicago, IL, for Josh Davis, Christopher R. Leslie, Robert H. Lande, Peter C. Carstensen, John B. Kirkwood, Edward D. Cavanaugh, Darren Bush & Harry First, as amici curiae)
2 (Nada Djordjevic, DiCello Levitt LLP, Chicago IL; Gregory S. Asciolla, DiCello Levitt LLC, New York, NY; Robin A. van der Meulen, Scott & Scott Attorneys at Law LLP, New York, NY; Kristen Marttila, Lockridge Grindal Nauen P.L.L.P., Minneapolis, MN, for The Committee to Support the Antitrust Laws, as amicus curiae)
FOR DEFENDANT-APPELLEE: AARON M. PANNER (Alex Treiger, on the brief), Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C., Washington, D.C.
DEBRA ANN LIVINGSTON, Chief Judge:
Plaintiff-Appellant Phhhoto Inc. (“Phhhoto”) appeals from a March 31, 2023
judgment of the United States District Court for the Eastern District of New York
(Matsumoto, J.) dismissing its amended complaint against Defendant-Appellee
Meta Platforms, Inc. (“Meta”) as time-barred. In relevant part, Phhhoto’s
amended complaint alleges that Meta engaged in a course of unlawful
monopolization in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. The
district court dismissed this claim as untimely, holding that it accrued outside of
the Sherman Act’s four-year statute of limitations and that it could not be saved
by equitable tolling.
The essence of Phhhoto’s antitrust claim is that Meta used anticompetitive
means, starting in or around 2015, to exclude Phhhoto from the personal social
3 networking services market. This alleged anticompetitive conduct included,
inter alia, withdrawing Phhhoto’s access to certain features of the Instagram
platform on which Phhhoto relied, terminating a joint project to incorporate
Phhhoto into the Facebook newsfeed, and releasing an app that replicated
Phhhoto’s technology. Even as they called into question the viability of
Phhhoto’s business strategy, which heavily relied on Meta’s Instagram platform,
these acts were not as significant as Meta’s decision to adopt an algorithmic feed
for Instagram in March 2016. The new algorithm represented a shift from the
chronological feed that Instagram had used from its inception.
In the wake of the new algorithm, Phhhoto’s popularity faded as quickly as
it had previously surged. Meta justified its shift to an algorithmic feed in neutral
terms—claiming that the new feed was based on factors such as user interest in
the post, user relationship with the posting account, and recency of the post.
However, despite the popularity of its platform and the high engagement of its
users, Phhhoto experienced a sharp decline in new user registrations and user
engagement following Meta’s adoption of the algorithmic feed.
With its user metrics and prospects for funding plummeting, Phhhoto
“worked tirelessly” to identify the reason for its sudden decline in popularity. A-
4 116–17, ¶ 92. Owing in part to Meta’s neutral description of the algorithm,
Phhhoto did not suspect algorithmic suppression as a potential explanation until
October 25, 2017, when one of its co-founders, Champ Bennett, stumbled upon
information suggesting a probability that Meta had engaged in anticompetitive
behavior. At this point, Phhhoto had gone out of business and its co-founders
had rejoined their prior company, Hypno, which had a negligible presence on
social media. In an effort to “connect Phhhoto’s remaining Instagram followers
to Hypno,” A-119, ¶ 104, Bennett posted an identical video promoting Hypno to
Phhhoto’s old Instagram account and Hypno’s new one. This led to two
surprising observations. First, Phhhoto’s post “appeared to vanish” from
Bennett’s personal Instagram feed. A-120, ¶ 105. Second, while Phhhoto had
“approximately 500 times” more followers than Hypno, Hypno’s post received
more views and “likes” compared to Phhhoto’s. Id. ¶ 106. Based on these
observations, Bennett and his co-founders began to investigate whether Meta was
using its algorithmic feed to suppress competitive third-party content on
Instagram.
The district court never reached the merits of Phhhoto’s antitrust claim,
holding instead that it was time-barred under the Sherman Act’s four-year statute
5 of limitations. Conceding that its antitrust claim is untimely absent equitable
tolling, Phhhoto argues on appeal that the district court erred in declining to toll
the statute of limitations based on fraudulent concealment. We agree. After
conducting our own independent review of the allegations in Phhhoto’s amended
complaint, we conclude that Phhhoto is presently entitled to equitable tolling of
the Sherman Act’s limitations period until October 25, 2017, such that Phhhoto’s
antitrust claim is timely for purposes of Meta’s motion to dismiss. 1
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23-763 Phhhoto Inc. v. Meta Platforms, Inc.
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August Term 2023
(Argued: November 16, 2023 Decided: December 10, 2024)
No. 23-763
––––––––––––––––––––––––––––––––––––
PHHHOTO INC.,
Plaintiff-Appellant,
-v.-
META PLATFORMS, INC., FKA FACEBOOK, INC.,
Defendant-Appellee,
DOES NOs. 1-7,
Defendants. * ––––––––––––––––––––––––––––––––––––
Before: LIVINGSTON, Chief Judge, WESLEY, and CHIN, Circuit Judges.
This appeal requires us to decide whether a plaintiff claiming unlawful monopolization under the Sherman Act sufficiently alleged the fraudulent concealment theory of equitable tolling. Plaintiff-Appellant Phhhoto Inc.
* The Clerk of the Court is directed to amend the official caption as set forth above.
1 (“Phhhoto”) alleges that one of the world’s largest technology companies, Defendant-Appellee Meta Platforms, Inc. (“Meta”), engaged in a scheme to injure Phhhoto’s business through anticompetitive means, including the adoption of an algorithmic feed for Instagram that purportedly suppressed Phhhoto’s content on that platform. More than four years after the new algorithm was introduced, Phhhoto filed the instant action, alleging in relevant part that Meta’s shift to an algorithmic feed, in combination with certain of its earlier acts, constituted an anticompetitive course of conduct in violation of Section 2 of the Sherman Act. The United States District Court for the Eastern District of New York (Matsumoto, J.) dismissed this claim under Federal Rule of Civil Procedure 12(b)(6) after determining that it had accrued outside of the Sherman Act’s four-year statute of limitations and that equitable tolling could not save it from untimeliness. On appeal, Phhhoto argues that the amended complaint sufficiently alleges Meta’s fraudulent concealment of an anticompetitive scheme and that the district court therefore erred in dismissing the antitrust claim as time-barred. Reviewing the record de novo, we agree with Phhhoto that it adequately alleged that the Sherman Act’s four-year statute of limitations should be equitably tolled until October 25, 2017. Accordingly, we VACATE the district court’s judgment and REMAND for further proceedings.
Judge Chin dissents in a separate opinion.
FOR PLAINTIFF-APPELLANT: SCOTT MARTIN (Irving Scher, on the brief), Hausfeld LLP, New York, NY; Sarah LaFreniere, Hausfeld LLP, Washington, D.C.
(Phillip F. Cramer, Sperling & Slater, LLC, Nashville, TN; Eamon P. Kelly & Nathan A. Shev, Sperling & Slater, LLC, Chicago, IL, for Josh Davis, Christopher R. Leslie, Robert H. Lande, Peter C. Carstensen, John B. Kirkwood, Edward D. Cavanaugh, Darren Bush & Harry First, as amici curiae)
2 (Nada Djordjevic, DiCello Levitt LLP, Chicago IL; Gregory S. Asciolla, DiCello Levitt LLC, New York, NY; Robin A. van der Meulen, Scott & Scott Attorneys at Law LLP, New York, NY; Kristen Marttila, Lockridge Grindal Nauen P.L.L.P., Minneapolis, MN, for The Committee to Support the Antitrust Laws, as amicus curiae)
FOR DEFENDANT-APPELLEE: AARON M. PANNER (Alex Treiger, on the brief), Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C., Washington, D.C.
DEBRA ANN LIVINGSTON, Chief Judge:
Plaintiff-Appellant Phhhoto Inc. (“Phhhoto”) appeals from a March 31, 2023
judgment of the United States District Court for the Eastern District of New York
(Matsumoto, J.) dismissing its amended complaint against Defendant-Appellee
Meta Platforms, Inc. (“Meta”) as time-barred. In relevant part, Phhhoto’s
amended complaint alleges that Meta engaged in a course of unlawful
monopolization in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. The
district court dismissed this claim as untimely, holding that it accrued outside of
the Sherman Act’s four-year statute of limitations and that it could not be saved
by equitable tolling.
The essence of Phhhoto’s antitrust claim is that Meta used anticompetitive
means, starting in or around 2015, to exclude Phhhoto from the personal social
3 networking services market. This alleged anticompetitive conduct included,
inter alia, withdrawing Phhhoto’s access to certain features of the Instagram
platform on which Phhhoto relied, terminating a joint project to incorporate
Phhhoto into the Facebook newsfeed, and releasing an app that replicated
Phhhoto’s technology. Even as they called into question the viability of
Phhhoto’s business strategy, which heavily relied on Meta’s Instagram platform,
these acts were not as significant as Meta’s decision to adopt an algorithmic feed
for Instagram in March 2016. The new algorithm represented a shift from the
chronological feed that Instagram had used from its inception.
In the wake of the new algorithm, Phhhoto’s popularity faded as quickly as
it had previously surged. Meta justified its shift to an algorithmic feed in neutral
terms—claiming that the new feed was based on factors such as user interest in
the post, user relationship with the posting account, and recency of the post.
However, despite the popularity of its platform and the high engagement of its
users, Phhhoto experienced a sharp decline in new user registrations and user
engagement following Meta’s adoption of the algorithmic feed.
With its user metrics and prospects for funding plummeting, Phhhoto
“worked tirelessly” to identify the reason for its sudden decline in popularity. A-
4 116–17, ¶ 92. Owing in part to Meta’s neutral description of the algorithm,
Phhhoto did not suspect algorithmic suppression as a potential explanation until
October 25, 2017, when one of its co-founders, Champ Bennett, stumbled upon
information suggesting a probability that Meta had engaged in anticompetitive
behavior. At this point, Phhhoto had gone out of business and its co-founders
had rejoined their prior company, Hypno, which had a negligible presence on
social media. In an effort to “connect Phhhoto’s remaining Instagram followers
to Hypno,” A-119, ¶ 104, Bennett posted an identical video promoting Hypno to
Phhhoto’s old Instagram account and Hypno’s new one. This led to two
surprising observations. First, Phhhoto’s post “appeared to vanish” from
Bennett’s personal Instagram feed. A-120, ¶ 105. Second, while Phhhoto had
“approximately 500 times” more followers than Hypno, Hypno’s post received
more views and “likes” compared to Phhhoto’s. Id. ¶ 106. Based on these
observations, Bennett and his co-founders began to investigate whether Meta was
using its algorithmic feed to suppress competitive third-party content on
Instagram.
The district court never reached the merits of Phhhoto’s antitrust claim,
holding instead that it was time-barred under the Sherman Act’s four-year statute
5 of limitations. Conceding that its antitrust claim is untimely absent equitable
tolling, Phhhoto argues on appeal that the district court erred in declining to toll
the statute of limitations based on fraudulent concealment. We agree. After
conducting our own independent review of the allegations in Phhhoto’s amended
complaint, we conclude that Phhhoto is presently entitled to equitable tolling of
the Sherman Act’s limitations period until October 25, 2017, such that Phhhoto’s
antitrust claim is timely for purposes of Meta’s motion to dismiss. 1
Accordingly, we VACATE the district court’s judgment and REMAND for
further proceedings.
BACKGROUND
I. Factual Background 2
1 Before Phhhoto’s complaint was filed, the parties agreed to toll “any applicable statutes of limitations” for fourteen days. Thus, equitably tolling the Sherman Act’s four-year statute of limitations to October 25, 2017 renders Phhhoto’s antitrust claim timely at this stage. 2 The factual background presented here is derived from the allegations in Phhhoto’s amended complaint, which we “accept as true” and construe “in the light most favorable to the plaintiff[]” for purposes of reviewing the district court’s dismissal under Rule 12(b)(6). Nat’l Credit Union Admin. Bd. v. U.S. Bank Nat’l Ass’n, 898 F.3d 243, 252 (2d Cir. 2018) (alteration adopted and citation omitted).
6 A. Phhhoto’s Early Success
Phhhoto was founded in 2012 by Champ Bennett, Omar Elsayed, and
Russell Armand. Two years later, Phhhoto launched to the public as a
photography and social networking app. Through the app, users could
“capture[] five frames in a single point-and-shoot burst and link[] them together
into a looping video,” creating an animated photo known as a “phhhoto.” A-87,
¶ 1.
Phhhoto quickly gained popularity. Meta’s CEO, Mark Zuckerberg,
created an account on Phhhoto’s platform soon after it launched. Other Meta
executives quickly followed suit. But Phhhoto’s popularity was not confined to
tech circles, as celebrities also joined the platform. At one point, Phhhoto had a
rate of new user growth exceeding even that of Instagram.
B. Phhhoto and Meta’s Initial Collaboration
In its early days, Phhhoto seemed to have a symbiotic relationship with
Meta. After acquiring the popular photo- and video-sharing app, Instagram, in
April 2012, Meta continued to facilitate interoperability between Instagram and
third-party apps such as Phhhoto. This interoperability was achieved largely
through a feature known as iPhone Hooks, which allowed users to post content
7 created on third-party apps directly to Instagram and permitted captions to be
“pre-populate[d]” with “a hashtag identifying the developer of the content.” A-
99–100, ¶ 34. These hashtags were a promotional tool for third-party apps,
allowing users to identify the app from the caption of an Instagram post and then
to “download it [from Apple’s App Store] for their own use.” A-100, ¶ 35.
iPhone Hooks “positioned Instagram as a hub for other apps” and thus “as a key
platform in the market for personal social networking services.” Id.
Phhhoto relied on this interoperability feature to reach new users and
increase user engagement. The ability to share “phhhotos” on Instagram drove
much of Phhhoto’s business growth, with “more people seeing . . . phhhotos [on
Instagram] and [subsequently] downloading [the Phhhoto] app than through
other platforms.” A-104, ¶ 48.
In turn, Phhhoto’s success created an opportunity for Meta to “expand[] its
user engagement . . . among younger audiences.” A-107, ¶ 58. Indeed, Meta
twice attempted to collaborate with Phhhoto. First, in February 2015, the
Strategic Partnerships Manager for Meta’s Facebook business, Bryan Hurren,
offered “to incorporate Phhhoto’s technology into the Messenger service on Meta’s
Facebook platform.” A-90, ¶ 8. Phhhoto declined, concluding that it would not
8 benefit Phhhoto’s business. A few weeks later, Hurren shared with Bennett a
second proposal—this time, “to integrate Phhhoto into the Facebook newsfeed.”
A-106–07, ¶ 57. This integration would allow users to “post phhhotos to the
Facebook newsfeed directly through the Phhhoto app,” id., and permit phhhotos
to appear in their native animated format on Facebook, as they did on Instagram.
Excited about the prospect of reaching more Facebook users, Phhhoto offered to
lead the technical integration.
C. Meta’s Anticompetitive Scheme
Based on this early history, Phhhoto and Meta appeared well positioned to
continue developing a seemingly symbiotic business relationship. From Meta,
Phhhoto could gain exposure and develop a user base; from Phhhoto, Meta could
attract users from new generations and revitalize its brand. At some point in
2015, however, there was a shift in the companies’ relationship, based—as claimed
by Phhhoto—on Meta’s concern that Phhhoto presented a competitive threat to
Meta’s dominance. This shift might have occurred very early in that year, in
which case Meta’s purported interest in collaborating with Phhhoto was merely
obscuring Meta’s “scheme to crush Phhhoto and drive it out of business.” A-90,
¶ 9. Or the scheme might have developed more gradually, ultimately
9 superseding—but not rendering disingenuous—Meta’s early efforts to team up
with Phhhoto. Either way, the scheme culminated in March 2016, when Meta
adopted an algorithmic feed for Instagram that resulted in Phhhoto’s demise as an
operational company.
a. Find Friends API
On March 31, 2015, Meta “suddenly withdrew Phhhoto’s access” to an
application programming interface (“API”) on Instagram known as the “Find
Friends API.” A-109, ¶ 65. The Find Friends API allowed third-party apps, such
as Phhhoto, “to access the Instagram friends list” and to create a “social graph” for
their users. Id. As a digital representation of a user’s personal network, the
social graph “provides the foundation for users” to interact with one another. A-
130–31, ¶ 137. Without the ability to recreate Instagram’s social graph, Phhhoto’s
relationship with potential investors would suffer, prompting Bennett to contact
Hurren about the withdrawal. Hurren informed Bennett that the change was
made because “Meta was . . . upset that Phhhoto was growing in users through its
relationship with Instagram.” A-109–10, ¶ 67.
10 b. Facebook Newsfeed Integration Project
In another about-face, Meta “surreptitiously terminated the project . . . for
integrating Phhhoto’s content into the Newsfeed of Meta’s Facebook platform.”
A-90, ¶ 9. Meta strung “Phhhoto along for months without making meaningful
progress on the [proposed] integration.” A-107, ¶ 59. Meta repeatedly delayed
the proposed launch, citing purported legal and technical concerns, even as
“Phhhoto worked diligently to meet all of Facebook’s specifications.” A-108,
¶ 62. At some point between February and June 2015, Meta quietly “decided to
abandon the project.” A-108, ¶ 63.
c. Pre-Populated Hashtags
Meta abandoned another interoperability feature on August 9, 2015,
withdrawing the component of iPhone Hooks that allowed third-party developers
to pre-populate captions with hashtags. Meta explained publicly that this change
was due to “feedback that the pre-filled captions . . . often feel spammy,” A-111,
¶ 71, and encouraged third-party developers to use watermarks to identify their
content instead. This suggestion was fruitless, however, as it ignored a critical
distinction between hashtags and watermarks: whereas the former are located
11 entirely in captions, the latter are overlaid on posts and thus “disfigure or cover
up content that would not otherwise be impacted by a hashtag.” Id. ¶ 73.
d. Boomerang
Next, in October 2015, Meta introduced a new app called “Boomerang” that
mirrored—was a “clone” of—Phhhoto’s technology. A-90, ¶ 9. Meta unveiled
Boomerang on the official launch date of Phhhoto’s app for Android devices. To
promote the new app, Meta also adopted self-preferencing policies that boosted
Boomerang’s performance while lowering that of third-party apps. For example,
after eliminating the pre-populated hashtag capability two months earlier, Meta
added an automatic “Made with Boomerang” caption to all posts originating from
the app. A-113, ¶¶ 81–82 (citation omitted). So, while third-party developers
could no longer identify content made on their apps, Meta required users to
attribute their posts to Boomerang, even including a link in each caption that led
users to download the app.
e. Algorithmic Feed
Finally, in March 2016, Meta adopted an algorithmic feed for Instagram.
From its inception, Instagram had a non-algorithmic feed that displayed posts in
reverse chronological order, such that “the newest posts would appear first in a
12 user’s feed” and the oldest would appear last. A-114, ¶ 85. Without disclosing
the mechanics of the new algorithm, Meta explained that it was “based on the
likelihood [the user will] be interested in the content, [the user’s] relationship with
the person posting [the content] and the timeliness of the post.” A-114–15, ¶ 86.
Meta attempted to downplay the significance of this change, with Kevin Systrom,
the co-founder and former CEO of Instagram, assuring the public that “it’s not like
people will wake up tomorrow and have a different Instagram.” A-115, ¶ 88
(alteration adopted).
But this is exactly what happened to Phhhoto. While Phhhoto expected
that its popularity and high user engagement would prove beneficial under the
new algorithm, the performance of its content suggested otherwise. Following
the adoption of the algorithmic feed, Phhhoto’s business began to crumble, with
new user registrations and existing user engagement “plummet[ing].” A-126–27,
¶ 125. New user registrations “declined precipitously,” and existing users
disengaged, “post[ing] less content, comment[ing] less frequently, and shar[ing]
or favorit[ing] content shared by others less frequently.” A-116, ¶ 91. Phhhoto
was “rapidly failing,” A-126–27, ¶ 125, and its performance in Apple’s App Store
13 showed it: from April 1, 2016 to May 1, 2016, Phhhoto’s ranking among photo and
video apps dropped from 11th to 41st place.
With its metrics continuing to decline, Phhhoto could not rally investors to
fund the company. Phhhoto could not resuscitate its business and decided to
shut down its app on June 20, 2017.
D. Phhhoto’s Discovery
In the early days of the algorithmic feed, “Phhhoto’s team worked
tirelessly” to pinpoint the cause of the app’s “sudden[] unpopular[ity].” A-116–
17, ¶ 92. Assuming the decline was related to an internal coding issue, the team
“spent months . . . running analytics to determine if Phhhoto had bugs that were
causing the app to crash on users.” Id. Phhhoto’s co-founders also considered
alternative explanations “such as competition from Boomerang and cyclical
usage.” A-117, ¶ 93. These potential causes were “ruled . . . out,” id., leaving
Phhhoto’s co-founders no discernible way to save the app from slipping into
obscurity.
After Phhhoto shut down in June 2017, its co-founders “returned to work at
their prior company, Hypno,” which “provide[s] camera platforms and interactive
experiences for live events, retail, and attractions.” A-119, ¶ 104. To boost the
14 “little social media presence” Hypno had, Bennett sought to advertise the
company to “Phhhoto’s remaining Instagram followers.” Id. At the time,
Phhhoto had approximately 500 times more followers than Hypno. So, on
October 25, 2017, Bennett posted the same promotional video to two Instagram
accounts—Phhhoto’s old account and Hypno’s new one—with the goal of
drawing Phhhoto’s followers to Hypno.
But this strategy did not play out as Bennett anticipated. To start, Bennett
observed that “the post from the old Phhhoto account appeared to vanish from
[his] own Instagram feed.” A-120, ¶ 105. Additionally, Hypno’s post
outperformed Phhhoto’s—with the former receiving 100 views and the latter
receiving 36—even though the posts were identical and Phhhoto had significantly
more followers on Instagram. Phhhoto’s post was also “liked” 50% less
frequently than Hypno’s. Like Bennett, “other Phhhoto followers . . . were not
seeing posts from Phhhoto’s old Instagram account.” Id. ¶ 106.
Phhhoto’s team now had reason to doubt the accuracy of Meta’s public
description of the algorithmic feed and to investigate whether Meta was engaged
in “purposeful suppression of Phhhoto’s content.” A-120–21, ¶ 107 (emphasis
omitted). Bennett asked a tech journalist that day whether he had “ever heard
15 anything about Instagram using [its] algorithmic feed to suppress competitive
apps in [the] photo/video space.” A-121–22, ¶ 110.
Eventually, public information emerged suggesting that Meta had engaged
in algorithmic suppression and other forms of anticompetitive conduct. In
December 2018, a committee of the U.K. Parliament “publicly released
documents” that were previously “produced confidentially” in federal litigation
in California, revealing that some of Meta’s early exclusionary acts toward
Phhhoto were part of an anticompetitive scheme that included algorithmic
suppression. A-129, ¶ 133. The New York Times later identified the name of
this scheme—“Project Amplify”—and was the first to report that “Meta did, in
fact, manipulate and reorder posts and content in users’ newsfeeds to benefit
Meta.” A-123, ¶ 114.
II. Procedural Background
Phhhoto filed the instant action on November 4, 2021, asserting an antitrust
claim under the Sherman Act and state-law causes of action for fraud, unfair
competition, and deceptive acts or practices. After Meta indicated its intent to
move to dismiss Phhhoto’s complaint under Federal Rule of Civil Procedure
12(b)(6), the district court held a pre-motion conference in which it requested that
16 Phhhoto file an amended complaint to address “some . . . deficiencies” in the
original one. A-69–70. Phhhoto filed an amended complaint on March 21, 2022. 3
Meta moved to dismiss on June 6, 2022. In opposing Meta’s motion to dismiss,
Phhhoto argued in relevant part that the statute of limitations for its antitrust claim
was subject to equitable tolling based on fraudulent concealment and that the
claim was therefore timely.
The district court disagreed, dismissing as time-barred the Sherman Act
claim in Phhhoto’s amended complaint without further leave to amend. 4 Having
dismissed the only claim over which it had original jurisdiction, the district court
declined to exercise supplemental jurisdiction over the remaining state-law claims.
A final judgment to that effect issued on March 31, 2023. Phhhoto appealed.
3 Phhhoto’s amended complaint omits the cause of action for deceptive acts or practices in violation of New York General Business Law § 349, but otherwise replicates the claims that were brought in the original complaint. 4 Although the district court declined to exercise supplemental jurisdiction over Phhhoto’s state-law claims, the district court dismissed those claims “with prejudice.” A-218. This was error. A dismissal after declining to exercise supplemental jurisdiction must be without prejudice. See Kolari v. N.Y. Presbyterian Hosp., 455 F.3d 118, 119 (2d Cir. 2006); see also Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988). In any event, because we vacate the portion of the district court’s judgment dismissing Phhhoto’s federal-law claim as time-barred—the basis for the district court’s decision to decline to exercise supplemental jurisdiction over the state-law claims—we also vacate the portion of the district court’s judgment dismissing the state-law claims.
17 DISCUSSION
On appeal, Phhhoto argues that the district court erred at each step of the
fraudulent concealment analysis and thus in its conclusion that Phhhoto’s antitrust
claim is untimely. We agree. Reviewing the district court’s tolling
determination de novo, we hold that, for purposes of Meta’s motion to dismiss, the
allegations in the amended complaint entitle Phhhoto to equitable tolling of the
statute of limitations for its Sherman Act claim until October 25, 2017. These
allegations present multiple factual disputes—corresponding to the elements of
the fraudulent concealment test—that are not resolvable on a motion to dismiss
and instead should be developed through appropriate discovery.
I. Standard of Review
In its briefing, Phhhoto argues that the district court erroneously declined
to equitably toll the Sherman Act’s four-year statute of limitations, “whether
reviewed as an abuse of discretion or de novo.” Appellant’s Reply Br. at 1.
The operative standard of review for equitable tolling determinations
depends on “what aspect of the lower court’s decision is challenged: a legal
conclusion, a factual finding, or an exercise of discretion.” Doe v. United States, 76
F.4th 64, 70 (2d Cir. 2023) (internal quotation marks and citation omitted). “[W]e
18 review the legal premises for [the district court’s] conclusion de novo, the factual
bases for clear error, and the ultimate decision [to deny equitable tolling] for abuse
of discretion.” DeSuze v. Ammon, 990 F.3d 264, 268 (2d Cir. 2021). 5 Accordingly,
we apply de novo review where the district court denied equitable tolling based
“on the belief that the decision was compelled by law,” Phillips v. Generations Fam.
Health Ctr., 723 F.3d 144, 149 (2d Cir. 2013) (citation omitted), or where the
“asserted error is legal in nature,” Clark v. Hanley, 89 F.4th 78, 104 (2d Cir. 2023).
Here, we conclude that a de novo standard governs our review. To begin,
the district court declined to equitably toll the statute of limitations based on its
“belief” that this result “was compelled by law.” Phillips, 723 F.3d at 149 (citation
omitted). The district court concluded that Phhhoto failed to meet the legal
prerequisites for equitable tolling, reaching that conclusion “as a matter of law.”
A-214 (determining that Phhhoto could not satisfy the reasonable diligence prong
of the fraudulent concealment test “as a matter of law”); see also A-189 (“[T]his
Court finds that Phhhoto’s factual allegations are insufficient to satisfy the three
5 It is undisputed that the district court did not make factual findings at this motion to dismiss stage. See Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007) (“[A] ruling on a motion for dismissal pursuant to Rule 12(b)(6) is not an occasion for the court to make findings of fact.”). As such, neither party contends that our review of the district court’s equitable tolling determination is for clear error.
19 elements for fraudulent concealment . . . .”). Next, Phhhoto ultimately
challenges the district court’s “legal conclusion[s]” on appeal, Doe, 76 F.4th at 70,
identifying multiple “error[s]” in the decision below that are “legal in nature,”
Clark, 89 F.4th at 104. These asserted legal errors pertain to the elements of
fraudulent concealment, which Phhhoto argues “are more than . . . support[ed]”
by the allegations in the amended complaint—contrary to the district court’s
holding below. Appellant’s Br. at 29. 6
After determining that Phhhoto failed to plead fraudulent concealment, the
district court was not faced with a discretionary call. “Before a court may
exercise discretion to grant equitable tolling, a litigant must demonstrate as a
factual matter the existence of [various] elements.” Doe, 76 F.4th at 71. “The law
prohibits a judge from exercising her discretion where these . . . elements are
missing.” Id. In other words, for the equitable tolling decision to become
6 See also Appellant’s Br. at 23 (“[T]he district court wrongly held that Phhhoto failed to plead that Meta engaged in concealment at all.”); Appellant’s Br. at 36 (“Nor do any of the three events identified by the district court as purported ‘additional storm warnings’ . . . suggest the probability of . . . an anticompetitive scheme.”) (citation omitted); Appellant’s Br. at 45 (“In the context of all of Phhhoto’s efforts, the district court’s cited authority concerning appropriate due diligence is plainly inapposite here.”).
20 discretionary, the district court needed to conclude that the doctrine could apply
in the first place.
The district court reached the opposite conclusion here, holding that none
of the three elements of the fraudulent concealment test was adequately pled.
This determination resolved a binary question of law—whether Phhhoto
sufficiently pled the elements of fraudulent concealment. The district court was
not faced with a “range of possible permissible decisions.” Phillips, 723 F.3d at
149 (citation omitted). Because the district court determined that Phhhoto had
not pled the elements of fraudulent concealment—all of which are “necessary
predicate[s] for equitable tolling” based on fraudulent concealment, Belot v. Burge,
490 F.3d 201, 207 (2d Cir. 2007)—the district court had no choice but to decline to
equitably toll Phhhoto’s antitrust claim. Thus, in dismissing Phhhoto’s antitrust
claim as untimely, the district court reached legal conclusions that we review de
novo.
II. Fraudulent Concealment
Private antitrust claims are “forever barred” if not brought “within four
years after the cause of action accrued.” 15 U.S.C. § 15b. A cause of action for
an alleged antitrust violation accrues “when a defendant commits an act that
21 injures a plaintiff’s business.” Higgins v. N.Y. Stock Exch., Inc., 942 F.2d 829, 832
(2d Cir. 1991) (quoting Zenith Radio Corp. v. Hazeltine Rsch., Inc., 401 U.S. 321, 338
(1971)). For purposes of this appeal, Phhhoto does not dispute that its cause of
action under the Sherman Act accrued no later than April 2016, when Phhhoto felt
“the adverse impact of” Meta’s anticompetitive scheme. Id. (citation omitted).
Because Phhhoto did not bring suit until November 4, 2021—more than four years
later—its antitrust claim is time-barred unless subject to equitable tolling.
As with other statutes of limitations, the Sherman Act’s four-year time bar
can be equitably tolled only in “rare and exceptional circumstance[s].” Smith v.
McGinnis, 208 F.3d 13, 17 (2d Cir. 2000) (per curiam) (citation omitted). One such
circumstance is where the plaintiff can demonstrate fraudulent concealment. See
New York v. Hendrickson Bros., Inc., 840 F.2d 1065, 1083 (2d Cir. 1988). To prove
fraudulent concealment, an antitrust plaintiff must establish: “(1) that the
defendant concealed from him the existence of his cause of action, (2) that he
remained in ignorance of that cause of action until some point within four years of
the commencement of his action, and (3) that his continuing ignorance was not
attributable to lack of diligence on his part.” Id. The plaintiff must plead the
22 fraudulent concealment with particularity, in accordance with Federal Rule of
Civil Procedure 9(b). See Armstrong v. McAlpin, 699 F.2d 79, 88–89 (2d Cir. 1983).
The second element has been framed in two different—and potentially
conflicting—ways, leading to confusion in the lower courts. See, e.g., Nat’l Grp.
for Commc’ns & Computs. Ltd. v. Lucent Techs. Inc., 420 F. Supp. 2d 253, 265 n.15
(S.D.N.Y. 2006) (noting that “[t]here has been some variation in the way that the
three elements [of the fraudulent concealment test] have been articulated” by this
Court). First, in New York v. Hendrickson Brothers, Inc., we included as a
requirement of pleading fraudulent concealment that the plaintiff “remained in
ignorance of [its] cause of action until some point within four years of the
commencement of [its] action” (hereinafter, the “Hendrickson formulation”). 840
F.2d at 1083 (emphasis added). A decade later, in In re Merrill Lynch Limited
Partnerships Litigation, we modified the Hendrickson formulation—inadvertently,
in our view—asking whether the concealment “prevented [the plaintiff’s]
discovery of the nature of the claim within the limitations period.” 154 F.3d 56, 60
(2d Cir. 1998) (per curiam) (emphasis added). This language has been repeated
in subsequent cases, see Corcoran v. N.Y. Power Auth., 202 F.3d 530, 543 (2d Cir.
1999), including a recent one that the district court cited as the governing standard
23 for fraudulent concealment, Koch v. Christie’s Int’l PLC, 699 F.3d 141, 157 (2d Cir.
2012) (hereinafter, the “Koch formulation”).
This difference in phrasing could be outcome determinative in a case where,
as here, the plaintiff discovered its cause of action within a limitations period that
began at the moment of injury. Applied literally, the Koch formulation would
deny relief to this plaintiff, solely because its discovery happened to occur “within
the limitations period.” Id. In contrast, the Hendrickson formulation would not
treat as determinative this aspect of the timing inquiry; so long as the plaintiff
brought suit “within four years” of when its claim was discovered, the second
element of the fraudulent concealment test would be satisfied. 840 F.2d at 1083.
Notwithstanding the Koch formulation, we have been clear that “when a
‘defendant fraudulently conceals the wrong, the time limit of the statute of
limitations does not begin running until the plaintiff discovers, or by the exercise
of reasonable diligence should have discovered, the cause of action.’” Pinaud v.
Cnty. of Suffolk, 52 F.3d 1139, 1157 (2d Cir. 1995) (alteration adopted) (citing Keating
v. Carey, 706 F.2d 377, 382 (2d Cir. 1983)). Under this principle, we afford
significance to the date of the plaintiff’s discovery, without regard to whether it
occurred within the usual limitations period. The Hendrickson formulation does
24 the same, rendering it consistent with our case law and the purpose of the
fraudulent concealment doctrine. For that reason, Hendrickson should be applied
as the governing articulation of the second element of the fraudulent concealment
test. 7
III. Fraudulent Concealment In This Case
Turning to the crux of the parties’ dispute on appeal, we conclude that
Phhhoto has sufficiently alleged fraudulent concealment with respect to its
antitrust claim to survive a motion to dismiss. The district court erred in
concluding otherwise.
A. Phhhoto Has Adequately Pled Concealment.
To prevail on the first element of the fraudulent concealment test, the
plaintiff must establish that “the defendant concealed from [the plaintiff] the
existence of [its] cause of action.” Hendrickson, 840 F.2d at 1083. To plead
concealment, the plaintiff can either: (1) identify “affirmative steps” taken by the
7 Hendrickson involved, as here, a Sherman Act claim with a four-year statute of limitations. 840 F.2d at 1069. In Hendrickson, we therefore stated that the plaintiff must have remained in ignorance “until some point within four years” of commencing the action. Id. at 1083. Of course, in a case in which the claim did not arise under the Sherman Act, the “four years” in Hendrickson’s second element would need to be substituted with the appropriate limitations period for the claim.
25 defendant to conceal the plaintiff’s claim; or (2) show that the defendant’s
misconduct was inherently “self-concealing.” Id. In this case, Phhhoto argues
that it has done both, pointing to certain of Meta’s statements as affirmative acts
of concealment and the algorithmic feed as inherently self-concealing.
We conclude that Phhhoto has sufficiently pled that Meta “took affirmative
steps,” through its public statements about the algorithm, “to prevent [Phhhoto]’s
discovery of [its] claim.” Id. The statements on which Phhhoto relies, and to
which the district court alluded in its concealment analysis, include: (1) that
portion of Meta’s press release, issued in March 2016, indicating that the new
“order of photos and videos in [the user’s] feed will be based on the likelihood [the
user will] be interested in the content, [the user’s] relationship with the person
posting and the timeliness of the post,” A-114–15, ¶ 86; and (2) a statement by a
Meta representative at a 2018 press conference “disclaim[ing] that [Meta] either
hid posts in its newsfeed, engaged in shadowbanning . . . or favored a format
(photo or video), except to the extent an individual was more likely to engage with
a particular format,” A-122, ¶ 112 (emphasis omitted). We focus on the first of
these statements—the only one preceding Phhhoto’s discovery of its antitrust
26 claim—in evaluating whether Phhhoto sufficiently alleged that Meta affirmatively
concealed from Phhhoto its Sherman Act claim.
The district court answered this question in the negative for two primary
reasons. First, the district court faulted Phhhoto for failing to explain in its
amended complaint “why Meta’s algorithm,” if implemented as Meta described in
the 2016 press release, “would have optimized” rather than penalized Phhhoto’s
content on Instagram. A-199. Second, the district court found it unreasonable
for Phhhoto to have relied on Meta’s public statements, which it viewed as mere
puffery. Each of these rationales is unpersuasive.
As to its first rationale, the district court posited that because Meta never
guaranteed success to any particular content creator, Meta did not conceal the
possibility that Phhhoto’s metrics could decline under the new algorithm. But
Phhhoto’s allegations of concealment relate to the design, not the ultimate effects, of
the algorithmic feed. In its amended complaint, Phhhoto alleges that Meta’s 2016
press release was “misleading” because it failed to list suppression of competitive
third-party content as a factor driving the new algorithm. A-90–91, ¶ 10.
Meta argues that, even if its 2016 press release failed to explain “how . . . the
algorithm would treat content posted from other apps,” this omission is
27 tantamount to silence and thus cannot constitute concealment. Appellee’s Br. at
26. We disagree. Meta is correct that the 2016 press release did not explicitly
disclaim the possibility that aspects of the algorithmic feed were disfavoring
content from competitors. But the absence of an express denial does not
necessarily equate to silence. Rather, in listing three specific criteria on which the
algorithm was based, Meta implied that other factors, such as the posting
account’s status as a competitor, were not in play. See In re Polyurethane Foam
Antitrust Litig., 152 F. Supp. 3d 968, 1006 (N.D. Ohio 2015) (defendants’ proffered
reasons for a price increase were “affirmative acts of concealment,” despite their
accuracy, because “a portion of the announced price increase” was due to
undisclosed “collusion with competitors”). This is Phhhoto’s argument: by
announcing the algorithm’s criteria, but only its neutral criteria, Meta downplayed
the significance of—and allayed any possible anticompetitive suspicion about—
Instagram’s shift to an algorithmic feed. Far from constituting silence, the 2016
press release was an “affirmative step[],” Hendrickson, 840 F.2d at 1083—“intended
to exclude suspicion and prevent inquiry,” Wood v. Carpenter, 101 U.S. 135, 143
(1879)—in Meta’s alleged anticompetitive scheme to suppress third-party content
and eliminate Phhhoto as a competitor.
28 Nor was Meta’s 2016 press release “inactionable ‘puffery.’” 8 City of Pontiac
Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 183 (2d Cir. 2014). Our
precedent is clear that “general statements about reputation, integrity, and
compliance with ethical norms are inactionable ‘puffery.’” Id. Some courts in
this Circuit have gone further, as the district court did below, concluding that
“communications to the community at large will not generally support a finding
of fraudulent concealment.” A-200 (citing In re Merrill, Bofa, & Morgan Stanley
Spoofing Litig., No. 19-cv-6002, 2021 WL 827190, at *11 (S.D.N.Y. Mar. 4, 2021) (“In
re Merrill”), aff’d sub nom. Gamma Traders - I LLC v. Merrill Lynch Commodities, Inc.,
41 F.4th 71 (2d Cir. 2022)); see also Litovich v. Bank of Am. Corp., 568 F. Supp. 3d 398,
440 (S.D.N.Y. 2021).
Even accepting that it was a “communication[] to the community at large,”
In re Merrill, 2021 WL 827190, at *11, Meta’s 2016 press release does not constitute
puffery. The contrasting facts of City of Pontiac and In re Merrill—cases to which
the district court cited in its puffery analysis and in which the relevant statements
8 To be sure, the district court’s puffery analysis only expressly pertained to Meta’s 2018 statement about shadowbanning. The district court reasoned that the 2018’s statement public and “general” nature made it puffery. A-200 (citation omitted). Because this broad reasoning would be equally applicable to the 2016 press release, we discuss it here.
29 were considered puffery—make this conclusion clear. There, the statements in
question only vaguely referenced the company’s ethical and legal obligations. In
City of Pontiac, the statements were about “compliance, reputation, and integrity,”
752 F.3d at 183; in In re Merrill, they assured investors that the defendants
“maintain[ed] established procedures that ensure[d] compliance with all
applicable laws and regulations,” 2021 WL 827190, at *9 (citation omitted). The
specificity of Meta’s 2016 press release distinguishes it from these statements.
Instead of merely signaling the company’s compliance with general legal
obligations, Meta included in the 2016 press release a factual representation about
the criteria on which the algorithmic feed operated. As such, the 2016 press
release was neither “general,” nor broadly “about reputation, integrity, and
compliance with ethical norms.” City of Pontiac, 752 F.3d at 183. In these
circumstances, it was reasonable for Phhhoto to “rely on the statement[] to allay
[any] concern” about Meta’s shift to an algorithmic feed. LC Cap. Partners, LP v.
Frontier Ins. Grp., Inc., 318 F.3d 148, 155 (2d Cir. 2003). 9
9 Having concluded that Meta’s 2016 press release constitutes an affirmative act of concealment sufficient to support equitable tolling at the motion to dismiss stage, we need not now address Phhhoto’s alternative argument that the algorithmic feed is self- concealing.
30 B. Phhhoto Has Adequately Pled Lack of Notice.
As the preceding discussion makes clear, the second element of the
fraudulent concealment test requires the antitrust plaintiff to establish that it
“remained in ignorance of [its] cause of action until some point within four years
of the commencement of [its] action.” Hendrickson, 840 F.2d at 1083. This
element is not met, and the plaintiff’s claim of fraudulent concealment is defeated,
if the plaintiff—more than four years prior to the commencement of its action—
had either: (1) “actual notice,” or (2) “inquiry notice” of the facts giving rise to its
claim, and thereafter failed to inquire. Dodds v. Cigna Secs., Inc., 12 F.3d 346, 350
(2d Cir. 1993). The standard for inquiry notice is objective, imputing knowledge
to the plaintiff where “storm warnings” would cause “a person of ordinary
intelligence [to] consider it ‘probable’” that the defendant had engaged in
wrongdoing. Koch, 699 F.3d at 151 (citations omitted). To find inquiry notice “as
a matter of law” on a motion to dismiss, there must be “uncontroverted evidence
clearly demonstrat[ing] when the plaintiff should have discovered the
[challenged] conduct.” Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 427
(2d Cir. 2008).
31 The district court identified four “storm warnings” that, in its view, should
have made Phhhoto aware of Meta’s allegedly exclusionary behavior as early as
April 2016. These purported “storm warnings” parallel the components of
Meta’s alleged anticompetitive scheme: (1) the withdrawal of access to Instagram’s
Find Friends API; (2) the abandonment of its proposal to integrate Phhhoto into
the Facebook newsfeed; (3) the removal of the pre-populated hashtag capability;
and (4) the introduction of Boomerang. The district court determined that these
acts, each of which occurred prior to the algorithm’s launch, would have “aroused
the suspicions of a reasonable business in Phhhoto’s situation,” triggering a duty
to investigate whether Meta’s conduct was anticompetitive. A-205.
But none of Meta’s prior acts—whether viewed individually or
collectively—made it “probable” that Meta was engaged in an anticompetitive
scheme to destroy Phhhoto’s business. Koch, 699 F.3d at 151 (citations omitted).
Until at least June 2015, during the period of the purported “storm warnings,”
Meta appeared to continue to collaborate with Phhhoto, dispelling any suspicion
that Meta had an ulterior motive to exclude Phhhoto from the market. After
withdrawing Phhhoto’s access to the Find Friends API in March 2015, for example,
Hurren exchanged emails with Bennett until early June 2015 about the Facebook
32 newsfeed integration project. Based on these communications, Phhhoto
reasonably could have believed that Meta had a sincere interest in the companies’
continued collaboration, making it unlikely—and certainly not “probable”—that
Meta’s true intent was anticompetitive. Id. (citations omitted).
Meta also offered plausible, non-exclusionary justifications for some of its
adverse acts, making it seem improbable that they were anticompetitive. To start,
Meta explained its decision to withdraw the pre-populated hashtag capability as
based on “feedback that the pre-filled captions . . . often feel spammy.” A-111,
¶ 71. As for the Facebook newsfeed integration project, Meta repeatedly justified
its delays by citing a need for further technical specifications and potential legal
concerns. From a reasonable business’s perspective, these explanations lowered
the probability that Meta’s acts were anticompetitive, suggesting instead that Meta
was encountering legitimate roadblocks in its attempts to collaborate with
Phhhoto.
Our prior cases finding a duty to inquire based on “storm warnings”
highlight the improbability that Meta’s pre-algorithm conduct would be seen as
anticompetitive. For example, in Koch v. Christie’s International PLC, we held that
certain “storm warnings” should have alerted the plaintiff, by at least October
33 2000, to the “probability” that the defendant had fraudulently attributed certain
bottles of wine to Thomas Jefferson’s collection. Koch, 699 F.3d at 153. These
“storm warnings” included that: (1) the plaintiff was aware of numerous articles
in the early 1990s casting doubt on the authenticity of the wine he had purchased;
(2) during the same period, he discovered a lawsuit against the seller alleging that
the wine was counterfeit; and (3) in October 2000, after he submitted samples of
the wine for radiocarbon testing, the testing lab reported a greater than 90%
probability that the wine was from a period other than that engraved on the bottle.
Id. at 146–47, 153. Given these “storm warnings,” we concluded that the plaintiff
was on inquiry notice “[a]t least by October 16, 2000,” when the lab’s authenticity
report was issued. Id. at 153.
None of the Koch “storm warnings” has an analogue in the present record.
Most significantly, Phhhoto did not receive—and presumably had no way to
obtain, as Meta’s elusive algorithm is not discoverable through laboratory
testing—a quantitative assessment of the likelihood that Instagram’s new
algorithmic feed was anticompetitive. Nor did information suggesting that Meta
was engaged in an exclusionary scheme emerge publicly until 2018. Phhhoto
alleges that it “did not become aware of Meta’s overall campaign against
34 competitors . . . until the release of internal Meta documents by the UK Parliament
in December of 2018.” A-91, ¶ 11. Phhhoto’s access to news articles on the
subject came even later. Phhhoto alleges that the first news report documenting
“Meta’s manipulative and deceptive conduct with respect to users’ newsfeeds”
was published in September 2021—nearly four years after Phhhoto had already
discovered this information for itself. A-123, ¶ 114. Thus, unlike the plaintiff in
Koch, Phhhoto’s co-founders did not have at their fingertips public reports
implicating Meta in an anticompetitive scheme until the algorithmic feed had been
in place for nearly two years and its exclusionary nature had ultimately been
discerned. See A-90–91, ¶ 10 (“[O]nly []after [October 2017] did further
information emerge to reveal that Meta . . . had in fact been purposely suppressing
Instagram users’ posts that contained Phhhoto content.”); cf. Staehr, 547 F.3d at 408,
417–18, 421 (concluding that multiple storm warnings, including four prior
lawsuits alleging the same contingent commission scheme, widespread reporting
of those allegations in mainstream media, and publication of an article in an
industry journal highlighting the defendant’s potential involvement in this
scheme, were insufficient to give rise to inquiry notice).
35 Our holding as to the alleged “storm warnings”—that they fall short of
establishing inquiry notice—does not end the analysis. In the district court’s
view, Phhhoto should have been on notice of Meta’s exclusionary scheme for an
additional reason: the strong correlation between Meta’s adoption of the
algorithmic feed and Phhhoto’s decline in user metrics. This conclusion
overstates the inferences Phhhoto could have drawn from even a “precipitous
downturn” in its user metrics. A-119, ¶ 104.
To be sure, as soon as this decline occurred in April 2016, Phhhoto knew it
had been injured. Phhhoto may even have had reason to believe that Meta’s new
algorithm was to blame. But knowledge of an injury—and the person or entity
responsible for it—is distinct from knowledge that the injury was part of an
anticompetitive or otherwise illegal scheme.
The district court did not recognize this distinction in determining that
Phhhoto was on inquiry notice in April 2016. Instead, the district court faulted
Phhhoto for failing to investigate “whether Meta’s new algorithm[] was injuring
rather than benefitting Phhhoto” at that time. A-207. But even if Phhhoto had
done so, and concluded that its business was indeed suffering due to the
algorithmic feed, it could not have attributed this causal relationship to a probable
36 anticompetitive scheme on Meta’s part. Rather, Phhhoto could have identified
only the likely cause of its metrics decline—or, in other words, discovered the fact
of its injury and the entity responsible for it. From this information, Phhhoto
neither could have “consider[ed] it ‘probable’” that the nexus between its failing
business and the algorithmic feed was anticompetitive in nature, Koch, 699 F.3d at
151 (citations omitted), nor pled an antitrust claim “with sufficient detail and
particularity to survive a 12(b)(6) motion to dismiss,” Charles Schwab Corp. v. Bank
of Am. Corp., 883 F.3d 68, 95 (2d Cir. 2018) (internal quotation marks and citation
omitted). To the contrary, Meta’s press release would have suggested more
strongly to Phhhoto that the algorithmic feed—apparently tailored to users’
interests and in line with industry trends—was implemented for reasons of
“efficiency and consumer satisfaction.” Trans Sport, Inc. v. Starter Sportswear, Inc.,
964 F.2d 186, 188–89 (2d Cir. 1992) (citations omitted).
In concluding otherwise, the district court failed to follow our precedent
requiring a “probability” of wrongdoing to trigger inquiry notice, see, e.g., Koch,
699 F.3d at 151 (citation omitted); Dodds, 12 F.3d at 350 (“[W]hen the circumstances
would suggest to an investor of ordinary intelligence the probability that she has
been defrauded, a duty of inquiry arises . . . .”), instead applying a standard more
37 akin to “reasonable suspicion,” see, e.g., A-208 (“Phhhoto’s reasonable suspicion
regarding Meta’s algorithm should have been heightened . . . .”) (emphasis
added); id. (“[T]he Court cannot reasonably infer from the Amended Complaint
that until October 25, 2017 . . . Phhhoto had no reason to suspect that
the . . . implementation of Meta’s new algorithm had likely affected its user
engagement . . . .”) (emphasis added); A-205 (“[T]he Amended
Complaint . . . includes alleged acts by Meta that should have aroused the suspicions
of a reasonable business in Phhhoto’s situation . . . .”) (emphasis added). This was
error. In the circumstances of this case, the distinction between finding Meta’s
conduct suspicious—and considering it probable that Meta had engaged in
wrongdoing—decides the matter.
We agree with the district court that the rapidity of Phhhoto’s business
decline gave it reason to be suspicious of the new algorithm as the cause for the
decline. But in April 2016, that suspicion did not amount to a probability that
Meta’s algorithmic feed caused the decline through anticompetitive means. After
all, anticompetitive and procompetitive conduct often produce similar effects.
Take Meta’s creation of Boomerang as an example. In the rapidly evolving
technology industry, the release of Boomerang could have signified Meta’s effort
38 to develop a “superior product” that would boost competition in the market.
Verizon Commc’ns Inc. v. Law Offs. of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004)
(citation omitted). Or, as Phhhoto now alleges, Meta’s creation of Boomerang
could have been an exclusionary effort aimed at undermining Phhhoto’s business
and monopolizing Meta’s power. Meta’s intent differs in each scenario, but the
ultimate effect on Phhhoto—losing at least some users to a competing app—is the
same. This example illustrates the difficulty of discerning whether a rival’s
“development . . . of a superior product,” id. (citation omitted), is intended to
boost competition in the market or to “caus[e] unreasonable exclusionary or
anticompetitive effects,” Trans Sport, Inc., 964 F.2d at 188 (internal quotation marks
and citation omitted).
Meta’s arguments ignore this feature of antitrust injuries. Instead of
grappling with the ways in which Phhhoto could have distinguished between
anticompetitive and procompetitive conduct, Meta urges us to conclude that
Phhhoto’s business decline was sufficient to trigger inquiry notice in April 2016.
In advancing this argument, Meta relies on our decision in SL-x IP S.à.r.l. v. Merrill
Lynch, Pierce, Fenner & Smith, Inc. and the Fourth Circuit’s opinion in GO Computer,
Inc. v. Microsoft Corporation; neither supports the conclusion Meta draws from it.
39 To start, Meta describes only part of our reasoning in SL-x IP S.à.r.l. v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., Nos. 21-2697, 21-2699, 2023 WL 2620041 (2d Cir.
Mar. 24, 2023) (summary order). In that case, we affirmed the district court’s
holding that the plaintiffs—whose claim was that the defendants “had colluded to
engage in a group boycott of [the plaintiffs’ product], in violation of federal and
state antitrust laws”—were on inquiry notice more than four years before their suit
was filed. Id. at *2, *4.
This determination was predicated on: (1) statements that the defendants’
executives made directly to the plaintiffs’ representatives; and (2) “unusual”
aspects of the defendants’ business dealings with the plaintiffs over the course of
approximately one year. Id. at *4. Meta discusses only the latter on appeal,
arguing that the defendants’ “dramatic[]” and “sudden[]” loss of interest in the
plaintiffs’ product, id. at *4 n.3 (citation omitted), is akin to the “precipitous[]”
decline in Phhhoto’s user metrics that occurred in April 2016, A-116, ¶ 91.
But this “strange reversal” in the defendants’ business relationship with the
plaintiffs, SL-x, 2023 WL 2620041, at *4 n.3 (citation omitted), was not the only basis
on which we affirmed the district court’s timeliness determination. Rather,
included among the “markers that something was amiss,” id. at *4, were various
40 statements clearly referencing “a conspiracy to freeze [the plaintiffs’ product] out
of the market by boycotting it,” SL-x IP S.à.r.l. v. Bank of Am. Corp., Nos. 18-cv-
10179, 19-cv-4885, 2021 WL 4523711, at *9 (S.D.N.Y. Sept. 30, 2021). For example,
an executive of one broker defendant, Credit Suisse, told the plaintiffs at a
February 2013 meeting that another defendant “was like ‘the mafia run by five
crime families.’” Id. (citation omitted). The same executive also warned the
plaintiffs, in July 2013, that Credit Suisse would maintain its interest in their
product only “if ‘the Big Boys’ were committed to” it. Id. (citation omitted). We
agreed with the district court that “[t]he warnings [contained] in these statements”
would have prompted further inquiry “into the reasons why [d]efendants were
rejecting” the plaintiffs’ product. Id. Thus, it was the parties’ deteriorating
business relationship “together with” the defendants’ statements, implicating
themselves in an anticompetitive scheme, that triggered inquiry notice. Id.
(emphasis added).
Meta does not—and cannot—point to analogous statements in the present
record. Far from alerting Phhhoto to the allegedly anticompetitive nature of the
new algorithm, Meta cloaked it in innocuous terms, describing the algorithmic
feed as based on neutral criteria such as user interest, user relationship with the
41 posting account, and timeliness of the post. Rather than communicating a
“warning[]” that the new algorithm was anticompetitive, Meta’s 2016 press release
allayed any possible “suspicio[n]” about its shift to an algorithmic feed. Id. In
our independent review of the amended complaint, we have discerned no
contrary statements, “made [by Meta] directly to [Phhhoto],” that “should have
raised red flags” about the allegedly exclusionary nature of the new algorithm.
Id.
Meta’s reliance on GO Computer, Inc. v. Microsoft Corp., 508 F.3d 170 (4th Cir.
2007), is also misplaced. There, the Fourth Circuit held that the plaintiffs’
antitrust claims were time-barred and not subject to equitable tolling, as the
plaintiffs “were on inquiry notice of their claims [more than ten years before filing
suit], when enough red flags had flown that a reasonably diligent person would
have investigated and acted.” Id. at 172. Those “red flags” were threefold.
First, when the Federal Trade Commission (“FTC”) was investigating Microsoft in
1991, an investigator told GO Computer’s co-founder, Jerry Kaplan, that “[t]his
looks like a textbook case of abuse of monopoly power.” Id. at 178 (citation
omitted). During his next meeting with an FTC investigator in 1992, Kaplan
submitted a declaration describing “the array of obstacles Microsoft was allegedly
42 putting in GO’s way.” Id. Second, in a book he wrote in 1994, Kaplan “reported
specific occasions, prior to his meeting with the FTC, where hardware
manufacturers had told him about Microsoft’s restrictive licensing practices.” Id.
Finally, Kaplan “became so suspicious” of Microsoft’s conduct that “he went to a
law firm [in 1991] to discuss an intellectual property suit” against the company,
which the law firm “thought was strong.” Id. In the Fourth Circuit’s view, there
was “no question that this profusion of information was sufficient, as a matter of
law, to spur a reasonably diligent person to investigate an antitrust claim.” Id.
Here, by contrast, there was no “multiplicity and specificity
of . . . information,” id. at 179, that could have alerted Phhhoto to a probable
anticompetitive scheme in April 2016. Despite its introduction of the algorithmic
feed in March 2016, Meta was not publicly implicated in an “exclusionary scheme”
until December 2018, when the U.K. Parliament released incriminating litigation
documents. A-129, ¶ 133. It was not until December 9, 2020 that the FTC and
various state attorneys general sued Meta for antitrust violations. See New York
v. Meta Platforms, Inc., 66 F.4th 288, 295 (D.C. Cir. 2023) (“The States filed their
Complaint on December 9, 2020, and the [FTC] filed a complaint on the same
day.”).
43 In sum, while Phhhoto could suspect that Meta’s conduct was harming its
business in April 2016, Phhhoto had no basis to suspect probable anticompetitive
wrongdoing until October 25, 2017.
C. Phhhoto Has Adequately Pled Reasonable Diligence.
To satisfy the final element of the fraudulent concealment test, the plaintiff
must establish that its “continuing ignorance” of the asserted claim “was not
attributable to lack of diligence on [its] part.” Hendrickson, 840 F.2d at 1083. In
this case, the district court held that “the Amended Complaint . . . directly
undermine[s] Phhhoto’s argument that it acted with” reasonable diligence from
April 2016 to October 2017, as Phhhoto failed to “investigat[e] its suspicion that
Meta’s algorithm may have been suppressing third-party applications including
Phhhoto.” A-211. We disagree.
As previously described, Phhhoto plausibly alleged that it did not have
notice, during this period, that Meta’s algorithm was probably suppressing third-
party applications. Moreover, even if Phhhoto suspected or should have
suspected that Meta’s algorithm was at least in some way related to its decline,
Phhhoto alleged that its founders “relied on Meta’s statement about the operation
of the algorithm—that ‘the order of photos and videos in your feed will be based
44 on the likelihood you’ll be interested in the content, your relationship with the
person posting and the timeliness of the post.’” A-116, ¶ 92. And while Phhhoto
was certainly aware that its business was suffering, Phhhoto alleged that “[f]or
months after the metrics dropped in April 2016, Phhhoto’s team worked tirelessly
to figure out why Phhhoto was suddenly unpopular.” A-116, ¶ 92. Phhhoto’s
founders “hypothesized various reasons the app may have suddenly dropped in
popularity,” ruling out potential causes such as “competition from Boomerang
and cyclical usage,” and “running analytics to determine if Phhhoto had bugs.”
A-116–117, ¶¶ 92–93. Phhhoto’s reasonable diligence, in the circumstances
alleged here, was adequately pled.
Meta’s argument to the contrary presumes that Phhhoto “would have
discovered the alleged issue” with the algorithm as early as April 2016 if it had
simply “looked at its own Instagram feed.” Appellee’s Br. at 30–31 (emphasis
added). But Meta frames this hypothetical discovery in the singular, ignoring
that the amended complaint alleges two “issue[s]” that were uncovered on October
25, 2017. Id. First, Phhhoto’s post “appeared to vanish from Bennett’s own
Instagram feed.” A-120, ¶ 105 (emphasis omitted). Second, the video
originating from Hypno, which had significantly fewer followers than Phhhoto,
45 received more views and “likes” relative to Phhhoto’s post. Even though the
amended complaint pleads each of these discoveries—and Phhhoto emphasized
both in its briefing before the district court—Meta’s argument that Phhhoto should
have “simply . . . observ[ed] how its posts appeared in the Instagram app” is
relevant only to the first one. Appellee’s Br. at 29.
We agree with Meta that Phhhoto presumably could have made the first
discovery—in which Phhhoto’s post vanished from the Instagram feed—in the
period between April 2016 and October 2017. To observe this phenomenon,
Phhhoto only needed to access its own Instagram account, and the account of any
individual, like Bennett, who followed Phhhoto. Phhhoto could have posted a
photo or video to its page and then checked the placement of that post in the
individual’s Instagram feed. But, even if Phhhoto had done so, the amended
complaint provides no basis to conclude that Phhhoto should have discerned,
from this observation alone, Meta’s probable involvement in an exclusionary
scheme.
As alleged in the amended complaint, it was the second observation—
involving the metrics discrepancy between Phhhoto’s and Hypno’s posts—
coupled with the first, that made exclusionary conduct the probable explanation
46 for Phhhoto’s decline after the adoption of the algorithmic feed. The metrics
discrepancy directly undercut Meta’s prior description of the algorithm as “based
on the likelihood [the user will] be interested in the content, [the user’s]
relationship with the person posting and the timeliness of the post,” A-114–15,
¶ 86, suggesting instead that the algorithmic feed penalized posts from
competitors’ accounts. That is, if the algorithm operated as Meta previously had
represented, Phhhoto’s post likely would have outperformed Hypno’s. When
the opposite occurred, one critical distinction between Phhhoto and Hypno
became salient: the former competed with Meta, while the latter did not. Only at
this point could Phhhoto attribute the algorithmic feed, and certain of Meta’s prior
actions, to “anticompetitive behavior,” Affinity LLC v. GfK Mediamark Rsch. & Intel.,
LLC, 547 F. App’x 54, 57 (2d Cir. 2013) (summary order), rather than “efficiency
and consumer satisfaction,” Trans Sport, Inc., 964 F.2d at 188–89 (citations omitted).
To be clear, Phhhoto alleges that its discovery of the metrics discrepancy
was accidental. We express no view that the exercise of reasonable diligence
invariably would require an antitrust plaintiff in Phhhoto’s position to undertake
a comparison of the sort that occurred here by chance. But it is important to note
that any comparative metrics analysis required a comparator Instagram account
47 to which Phhhoto could post content and against which it could measure the
performance of its own posts. And, for the metrics comparison to be indicative
of exclusionary conduct, the second account needed to belong to a company that
did not compete with Meta, among other relevant criteria. The amended
complaint suggests that access to such an account was not available during the
“months” when Phhhoto’s team was “work[ing] tirelessly to figure out why
Phhhoto was suddenly unpopular.” A-116, ¶ 92. It became available only after
Phhhoto ceased operations and its co-founders rejoined Hypno. 10
Of course, Phhhoto’s allegations are not conclusive of its diligence during
this period. As with the others in the amended complaint, the allegations
concerning Phhhoto’s diligence can be disputed and potentially disproven in the
discovery process. But, at the motion to dismiss stage, the district court reached
10 Contrary to the dissent’s suggestion, Phhhoto could not have “simply created a second account under a different username to compare metrics.” Dissent at 17. Rather, the second account had to share certain similarities with Phhhoto’s for it to provide an effective comparator. Meta had explained that its algorithm was “based on the likelihood [the user will] be interested in the content, [the user’s] relationship with the person posting [the content] and the timeliness of the post.” A-114–15, ¶ 86. To isolate and test for the impact of an additional, anticompetitive variable, Phhhoto thus would have needed a comparator account that could control for as many of these neutral factors as possible. It needed an account like Hypno’s—that of another business, operating in a similar industry, whose followers would likely be interested in similar content. Phhhoto’s co-founders could not simply have created such an account.
48 the wrong conclusion as to the diligence prong. Rather than reflecting “lack of
diligence on [its] part,” Phhhoto’s “continuing ignorance” of its antitrust claim
between April 2016 and October 2017 was at least plausibly attributable to the
difficulty in discerning procompetitive from anticompetitive conduct when each
results in business decline, as well as the subtle—and sometimes, practically
undetectable—nature of algorithmic manipulation, Hendrickson Bros., 840 F.2d at
1083.
CONCLUSION
Having determined that Phhhoto adequately alleged equitable tolling based
on fraudulent concealment, we hold that the district court erred by dismissing
Phhhoto’s claim for unlawful monopolization under the Sherman Act as untimely
at this stage. Accordingly, we VACATE the district court’s judgment and
REMAND for further proceedings.
49 CHIN, Circuit Judge, dissenting:
Defendant-appellee Meta Platforms, Inc. ("Meta"), the social media
company, operates Instagram, among other popular social networking
applications ("apps"). According to plaintiff-appellant Phhhoto Inc. ("Phhhoto"),
"[n]o other platforms rival Meta in the market for personal social networking
services." J. App'x at 137 (Amended Complaint ("AC") ¶ 156).
Launched in 2014, Phhhoto was a social media app that allowed
users to capture a burst of still photos and then loop them together into a video
to create a moving image, known as a "phhhoto." At its peak, Phhhoto enjoyed
"approximately 3.7 million [monthly average users]." Id. at 89 (AC ¶ 6). After
just over three operative years, however, Phhhoto shut down operations on June
20, 2017, citing Meta's "fraudulent and anticompetitive conduct" as the reason.
Id. at 127 (AC ¶ 128).
In this case, Phhhoto accuses Meta of violating section 2 of the
Sherman Antitrust Act ("Section 2"), 15 U.S.C. § 2, based on Meta's allegedly
anticompetitive behavior toward it. Its claims accrued no later than April of
2016. Yet, it did not file suit until November 4, 2021, well more than four years
later. Phhhoto argues, however, that the district court erred when it granted Meta's motion to dismiss on timeliness grounds, declining to equitably toll the
statute of limitations under a theory of fraudulent concealment.
Applying a de novo standard of review, the majority concludes "that
the district court erred at each step of the fraudulent concealment analysis." Maj.
Op. at 17. While I agree that de novo review applies, I disagree that the district
court erred. Phhhoto's allegations in the Amended Complaint demonstrate as a
matter of law that it was on inquiry notice of Meta's anticompetitive conduct --
and thus had the requisite information to file suit -- well before October 25, 2017,
the date on which Phhhoto claims it first began "to discover [Meta's] fraudulent
and anticompetitive conduct." J. App'x at 50. Phhhoto's allegations further
undermine its claims as to the other elements of its fraudulent concealment
claim. I would affirm and, accordingly, I respectfully dissent.
I.
As Phhhoto alleges, "[n]ew entrants in the market for personal social
networking services" face a challenge because they "must convince users that
enough of their friends and family members will also engage with the social
networking platform to make use of the platform worthwhile." Id. at 139 (AC
¶ 164). Throughout its lifespan as a social media app, Phhhoto relied on various
2 aspects of Meta's ubiquity in the social media universe to build and maintain its
own user base. There was something in it for Meta, too, in this relationship: by
offering Phhhoto access to key bits of its own infrastructure, Meta ensured that
its users did not need to "exit the Meta ecosystem" even when those users
explored other non-Meta platforms like Phhhoto. Id. at 140-41 (AC ¶ 169).
At the beginning of Phhhoto's relationship with Meta, the companies
shared a "symbiotic relationship." Maj. Op. at 7. But over time, and through a
distinct set of adverse acts alleged by Phhhoto, Meta dealt several blows to
Phhhoto's stability as a platform, as it rescinded Phhhoto's privileges and access
to critical components of Meta's social networking ecosystem.
The first integration feature that benefited Phhhoto was Meta's "Find
Friends" Application Programming Interface ("API"). APIs are digital tools that
facilitate data-sharing, functionality, and overall integration between two
platforms. The Find Friends API allowed third-party apps like Phhhoto to access
a user's Instagram friends list. When a user linked her Phhhoto account to her
Instagram credentials, she could instantly access a list of Instagram friends who
also had Phhhoto accounts. The Find Friends API thus allowed Phhhoto users to
3 "recreate their social graph" from Instagram, thereby alleviating what Phhhoto
described as a barrier to entry for new platforms. J. App'x at 109 (AC ¶ 65).
The second feature was the "iPhone Hooks," which allowed users to
post their phhhotos, created in the Phhhoto app, directly to Instagram. J. App'x
at 163-64. Before a user publishes a post to Instagram, she has the option of
adding a written caption that appears under the post. The caption can contain
hashtags, which, when clicked, directs users to all other public posts whose
caption features that hashtag. The iPhone Hooks pre-populated captions of
phhhotos posted to Instagram with hashtags that attributed the posted content to
Phhhoto. The benefit to Phhhoto was that, when a user posted her phhhotos
directly to Instagram, the caption would contain a #phhhoto hashtag, which
directed traffic to the app and attributed the content to Phhhoto.
On March 31, 2015, Meta abruptly revoked Phhhoto's access to the
Find Friends API. Phhhoto alleges that Meta withdrew access "because [it]
viewed Phhhoto as a potential competitive threat." Id. at 109 (AC ¶ 66). Phhhoto
further alleged that the loss of the Find Friends API had a "negative[] impact [on]
how potential investors perceived Phhhoto." Id. (AC ¶ 65). A few months later,
on August 9, 2015, Meta also suspended the use of the iPhone Hooks for all third-
4 party apps, explaining that the pre-populated captions featuring the hashtags
looked "spammy" on the Instagram feed. Id. at 111 (AC ¶ 71). Phhhoto alleges,
however, that the "spammy" rationale "was pretextual." Id. (AC ¶ 72).
In addition to these integration features, Phhhoto and Meta nearly
entered into a partnership. Earlier, on February 26, 2015, Meta's Strategic
Partnerships Manager contacted one of Phhhoto's founders, Champ Bennett, to
discuss integrating Phhhoto's moving photo technology into Facebook's
newsfeed. The project was never memorialized in a contract, however, and after
some delays related to "legal conversations," Meta apparently abandoned the
integration project in June of 2015. J. App'x at 166-67.
On October 22, 2015, Phhhoto was set to launch for Android devices.
That morning, however, Meta issued its own announcement: it was launching
Boomerang -- what Phhhoto describes as "a slavish clone of Phhhoto." Id. at 112
(AC ¶ 77).
On March 15, 2016, Meta issued a press release announcing a change
to the order in which it sorted user's posts on Instagram. Until then, Instagram
delivered content to users chronologically -- the most recent posts appeared at
the top of the feed, and users scrolled down to see older content. Meta's switch
5 to the so-called "algorithmic newsfeed" discarded the chronological sorting in
favor of an algorithm-driven shuffling that presented posts to users "based on the
likelihood you'll be interested in the content, your relationship with the person
posting and the timeliness of the post." Id. at 114-15 (AC ¶¶ 86-87).
Shortly thereafter, in April 2016, Phhhoto noticed that its "new user
registrations declined precipitously." Id. at 116 (AC ¶ 91). Its ranking among
photo and video platforms in "the Apple App Store dropped from 11th place to
41st place." Id. The change was abrupt and unprecedented; "Phhhoto had never
before experienced such a significant decline in its ranking." Id. Prompted by
this sudden decline in popularity, Phhhoto "worked tirelessly" to determine the
reason behind the sharp decline. Id. (AC ¶ 92). Phhhoto claims it focused its
efforts on problems with its own code, in reliance on Meta's press release
statement: that "[t]he order of photos and videos in your feed will be based on
the likelihood you'll be interested in the content, your relationship with the
person posting and the timeliness of the post." Id. at 116-17 (AC ¶ 92).
On October 25, 2017, after Phhhoto shut down operations, Bennett
"sought to connect Phhhoto's remaining Instagram followers to Hypno, a
company that "had little social media presence." Id. at 119 (AC ¶ 104). Bennett
6 posted the same promotional video to Hypno's Instagram account and Phhhoto's
Instagram account. Phhhoto claims that, after posting the same video from both
accounts, "the post from the old Phhhoto account appeared to vanish from
Bennett's own Instagram feed." Id. at 120 (AC ¶ 105) (emphasis in original). This,
Phhhoto alleges, was the moment at which it discovered that Meta was engaging
in anticompetitive conduct -- namely, through suppressing Phhhoto's content on
the algorithmic feed.
II.
The district court did not err in concluding as a matter of law that
the statute of limitations should not be subject to the extroardinary remedy of
equitable tolling, as Phhhoto failed to sufficiently plead that it met the requisite
elements of fraudulent concealment.
A. Elements of Fraudulent Concealment
To succeed on a fraudulent concealment claim, a plaintiff must
establish: "(1) that the defendant concealed from him the existence of his cause of
action, (2) that he remained in ignorance of that cause of action until some point
within four years of the commencement of his action, and (3) that his continuing
7 ignorance was not attributable to lack of diligence on his part." New York v.
Hendrickson Bros., 840 F.2d 1065, 1083 (2d Cir. 1988).
B. Application
Phhhoto is not entitled to the judicial remedy of equitable tolling
under a theory of fraudulent concealment because (1) it fails to plausibly allege
that Meta's March 2016 press release was concealing; (2) Phhhoto's own
allegations undermine its claim that it had no notice of a potential antitrust claim
until October 25, 2017; and (3) Phhhoto fails to allege that it acted with
reasonable diligence.
1. Concealment
To plead the first element of fraudulent concealment, Phhhoto must
plausibly allege that Meta "concealed . . . the existence of [its] cause of action." Id.
Phhhoto can meet this burden by showing either that Meta took affirmative steps
to conceal its wrongdoing or that the wrongdoing was self-concealing. Id. But it
must plead elements of fraudulent concealment with particularity, in accordance
with the heightened pleading standards set forth in Rule 9(b) of the Federal
Rules of Civil Procedure. See Armstrong v. McAlpin, 699 F.2d 79, 88 (2d Cir. 1983).
Phhhoto contends that Meta engaged in fraudulent concealment when it issued a
8 press release in 2016 that announced a new algorithm for displaying posts. As
the district court concluded, however, Phhhoto failed to plausibly allege that
Meta's public announcement about the algorithm was fraudulent in any respect.
Nor does it make sense, as Phhhoto asserts, that the change in algorithm was
"self-concealing." Appellant's Br. at 33.
Fraudulent concealment requires proof of a "trick or contrivance
intended to exclude suspicion and prevent inquiry." Wood v. Carpenter, 101 U.S.
135, 143 (1879). Phhhoto has not plausibly explained how the statements in
Meta's 2016 press release constituted fraudulent concealment. This was a press
release publicly announcing a new feed that would display posts based on
metrics that measured user interest, relationship, and timeliness. Even
considering the press release in the light most favorable to Phhhoto, Phhhoto
fails to plausibly allege that there was anything in the press release that was false,
fraudulent, or misleading. Phhhoto fails to explain how the announcement
affirmatively concealed wrongdoing.
Apparently, Phhhoto contends that Meta concealed the
"anticompetitive element in the algorithm's operation . . . by making false public
statements representing how the algorithm worked." Appellant's Br. at 30.
9 Phhhoto contends, essentially, that Meta intended to harm Phhhoto and that the
press release should have disclosed these facts. But this was a press release and
Phhhoto -- and the public -- was being given notice of the change in the display
procedures. There is nothing fraudulent about that notice. And Meta made no
representation that Phhhoto would do better under the new algorithm.
Instead, Phhhoto itself acknowledges that "its own content might be
promoted or demoted by Meta's algorithm." Phhhoto Inc. v. Meta Platforms, Inc.,
No. 21-cv-06159 (KAM) (LB), 2023 WL 2710177, at *16 (E.D.N.Y. Mar. 30, 2023).
But the suggestion that Meta should have disclosed to Phhhoto and others that
its new procedures might give it a competitive advantage makes no sense.
Moreover, Phhhoto fails to explain "why Meta's algorithm, 'if
actually implemented as Meta had described,' would have optimized 'Phhhoto
users' posts, rather than disfavored those posts." Phhhoto, 2023 WL 2710177, at
*16 (citing J. App'x at 115-16 (AC ¶ 89)). As Meta points out, "Phhhoto does not
allege that Meta said that Phhhoto's content was not being disfavored by the new
algorithm." Appellee's Br. at 26. In my view, it is not enough that Phhhoto
alleges that it was enjoying millions of users on a monthly basis -- it does not
follow that, just because an app has many users, its posts would perform just as
10 well or better with Instagram's new algorithm. On this record, I disagree that
Phhhoto has adequately pled fraudulent concealment.
2. Notice
Phhhoto fails to allege sufficient facts supporting the second prong --
that Phhhoto remained in ignorance of its cause of action until October 2017.
Indeed, Phhhoto's own allegations demonstrate that it had notice of its claim by
no later than April 2016. Once the "plaintiff ha[s] notice of th[e] possibility" of its
claim, the "plaintiff is charged with whatever knowledge an inquiry would have
revealed." Stone v. Williams, 970 F.2d 1043, 1049 (2d Cir. 1992). I agree with the
majority that, to find inquiry notice as a matter of law on a motion to dismiss,
there must be "uncontroverted evidence clearly demonstrat[ing] when the
plaintiff should have discovered the [challenged] conduct." Staehr v. Hartford Fin.
Servs. Grp., 547 F.3d 406, 427 (2d Cir. 2008). Unlike the majority, however, I think
there are such facts alleged in Phhhoto's Amended Complaint itself.
For instance, Phhhoto alleged a "precipitous" "decline" in users, a
"never before experienced" reduction in its App Store rankings, and "sudden[]
unpopular[ity]" shortly after the algorithmic feed was rolled out. J. App'x at 116-
11 17 (AC ¶¶ 90-92). This steep decline in business occurred in the context of a
litany of Meta's other adverse actions, including:
• March 31, 2015: Meta abruptly revokes Phhhoto's access to Instagram's Find Friends API; • June 8, 2015: Meta stops responding to Phhhoto about the integration project; • August 9, 2015: Meta withdraws access to the iPhone Hooks for third- party applications; • October 22, 2015: Meta announces its new app Boomerang, a clone of Phhhoto; • March 15, 2016: Meta announces change to the Instagram algorithm; and • April 2016: Phhhoto notices steep drop in new user registrations. These facts surely put Phhhoto on inquiry notice that Meta might be taking
action against it.
Phhhoto states in a conclusory fashion that it relied on the
representations in the March 2016 press release to rule out anticompetitive
behavior stemming from the algorithmic feed. I agree with the district court that
Phhhoto presents "[n]o plausible facts . . . [to] explain why the Phhhoto founders
would rule out [the aforementioned] external possibilities and ignore its duty to
inquire." Phhhoto, 2023 WL 2710177, at *18.
The majority suggests that Meta's creation of Boomerang, in the
context of the parties' relationship, did not contribute to placing Phhhoto on
12 notice of anticompetitive behavior. See Maj. Opp. at 39. As the majority
recognizes, however, the law requires only a "'probability' of wrongdoing to
trigger inquiry notice." Id. at 38. Phhhoto's business decline occurred only a few
months after Meta rolled out a product nearly identical to Phhhoto's, and just
one month after Meta changed its algorithm. Particularly because Phhhoto's
business success was reliant on the underlying platform created by Meta, Meta's
creation of Boomerang was another incident among many that reasonably placed
Phhhoto on notice that Meta was engaging in anticompetitive behavior.
Phhhoto's other allegations about Meta's pattern of anticompetitive
behavior further undermine its claim that it had no reason to believe Meta was
engaged in anticompetitive conduct until Bennett's happenstance discovery in
October 2017. Its Amended Complaint, which spans almost 70 pages, explains in
detail the sudden and inexplicable actions Meta took -- rescinding access to social
networking infrastructure that Phhhoto relied on, introducing a competitor on
the day that Phhhoto planned on rolling out its Android capabilities, and letting
a business relationship go cold over seemingly nothing. And Phhhoto alleges
that, from its inception, it was reliant on critical support from Meta through APIs
and other tools. Based on these factual allegations, I agree with the district court
13 that it is implausible that Phhhoto had no reason to suspect wrongdoing until
October 2017.
The Fourth Circuit's reasoning is persuasive on this point: "[w]here a
plaintiff knows of a pattern of particular actions that a defendant has taken
against him," that plaintiff "is on inquiry notice of his claim" even if "the pattern's
precise scope might be unclear and its exact legal ramifications uncertain." GO
Computer, Inc. v. Microsoft Corp., 508 F.3d 170, 179 (4th Cir. 2007); see also Klein v.
Bower, 421 F.2d 338, 343 (2d Cir. 1970) ("[T]he statutory period . . . [must] not
await [plaintiff's] leisurely discovery of the full details of the alleged scheme.").
The majority reasons that Meta "offered plausible, non-exclusionary
justifications" for some of its changes, and therefore Phhhoto cannot be charged
with notice. Maj. Op. at 32. For example, the majority notes that Meta explained
its decision to withdraw the iPhone Hooks capability by stating that the pre-
populated hashtags felt "spammy." Id. (quoting J. App'x at 111 (AC ¶ 71)). But
Phhhoto specifically alleged that Meta's "professed . . . rationale" for
withdrawing the iPhone Hooks access was "pretextual." J. App'x at 111 (AC
¶ 72).
14 And perhaps most crucially, Phhhoto's own allegations show that
the algorithm was not self-concealing. Phhhoto fails to support its contention
that it could not discover or was not on notice of the algorithmic suppression
despite noticing such a dramatic drop in user engagement shortly after the
algorithm changed.
3. Reasonable Diligence
Phhhoto argues that it plausibly alleged that it acted with reasonable
diligence, which "is a prerequisite to the applicability of equitable tolling." Koch
v. Christie's Int'l PLC, 699 F.3d 141, 157 (2d Cir. 2012). Again, Phhhoto's own
allegations belie this point. As noted above, Meta abruptly revoked Phhhoto’s
access to the API; Meta stopped responding to Phhhoto about a possible joint
project; Meta withdrew access to the iPhone Hooks; Meta launched Boomerang --
a purported clone of Phhhoto's product; Meta announced the change to its
algorithm; and Phhhoto's new registrations dropped precipitously. All of these
adverse actions occurred within a span of thirteen months; Phhhoto surely
should have investigated.
Phhhoto "hypothesize[s] various reasons the app may have
suddenly dropped in popularity," but fails to allege why it did not investigate the
15 algorithm. J. App'x at 117 (AC ¶ 93). Given Phhhoto's heavy reliance on Meta's
infrastructure to conduct its own platform, Phhhoto has failed to plausibly allege
that it acted with the requisite diligence.
The majority agrees that "Phhhoto presumably could have made the
first discovery -- in which Phhhoto's post vanished from the Instagram feed -- in
the period between April 2016 and October 2017." Maj. Opp. at 46. The majority
then reasons that had Phhhoto performed the experiment earlier, it would still
not have been put on notice of Meta's anticompetitive behavior. I disagree. This
discovery, along with the many prior anticompetitive incidents by Meta, in my
view, should have led Phhhoto to discern Meta's probable involvement in an
exclusionary scheme. By not performing the simple experiment of observing a
Phhhoto post from a user account earlier, Phhhoto failed to exercise reasonable
diligence.
As to Phhhoto's second "accidental" observation involving the
metrics discrepancy, I disagree that this observation was the necessary catalyst
for Phhhoto to be placed on notice of Meta's anticompetitive behavior, and that
Phhhoto did not need to perform this experiment purposefully. First, as
mentioned above, Meta's earlier conduct was sufficient to place Phhhoto on
16 notice of its claim. Second, although the majority "express[es] no view that the
exercise of reasonable diligence invariably would require an antitrust plaintiff in
Phhhoto's position to undertake a comparison of the sort that occurred here by
chance," this reasoning undercuts the high standard equitable tolling requires
and disregards the effortlessness of performing such a simple experiment. Id. at
47. Phhhoto did not need to create another company, or wait to create another
company, to accomplish what it purportedly found by accident; Phhhoto could
have simply created a second account under a different username to compare
metrics. Bennett could have -- and should have -- posted a video to Phhhoto's
Instagram account and a different Instagram account long before October 25,
2017. Performing this experiment strikes me as the bare minimum exercise of
reasonable diligence, especially in consideration of the context of the parties'
relationship.
Finally, I respectfully disagree with the majority's statement that
"the allegations concerning Phhhoto's diligence can be disputed and potentially
disproven in the discovery process." Id. at 48. There is no factual dispute here.
Whether Phhhoto's alleged facts met the diligence prong is a legal inquiry, and I
fail to see how further discovery could suddenly demonstrate that Phhhoto acted
17 with diligence. And certainly not under the high standard that requires Phhhoto
to have pled particular facts demonstrating how it sufficiently met the diligence
prong to warrant the district court's tolling of the statute of limitations.
Accordingly, Phhhoto has not plausibly alleged that it acted with due diligence,
or that discovery could lead to a different conclusion.
III.
The district court's judgment should be affirmed because it correctly
dismissed Phhhoto's Amended Complaint as time-barred after concluding that
the extraordinary measure of equitable tolling was unwarranted as a matter of
law. This was the right result. I therefore dissent from the majority's decision to
vacate and remand.
Related
Cite This Page — Counsel Stack
123 F.4th 592, Counsel Stack Legal Research, https://law.counselstack.com/opinion/phhhoto-inc-v-meta-platforms-inc-ca2-2024.