DC Circuit

The Court of Appeals for the District of Columbia Circuit did not issue any notable decisions on substantive antitrust issues during the past year. However, the DC Circuit did allow an interlocutory appeal of a grant of class certification in the consolidated ATM access fee antitrust cases, finding that the district court’s decision to certify three different classes of ATM users and operations merited appellate review.^[1] The DC Circuit also refused to consider objectors’ protests to a settlement agreement in In re Domestic Airline Travel Antitrust Litigation because the order approving the settlement with two of the four defendant airlines was not an appealable final judgment or interlocutory order.^[2] In addition, the US District Court for the District of Columbia decided motions to dismiss in related cases against Facebook by various states and the Federal Trade Commission (FTC) challenging its acquisitions of Instagram and WhatsApp, as well as other conduct.

Visa’s and Mastercard’s interlocutory appeal of class certification granted

In October 2021, the Court of Appeals for the DC Circuit allowed co-defendants Visa, Inc and Mastercard, Inc to file an interlocutory appeal of an order by the US District Court for the District of Columbia granting class certification.^[3] The challenged order, authored by Judge Richard J Leon, certified three classes of ATM operators and users who claim that provisions in defendants’ contracts with ATM operators, which prevent the operators from charging a discounted ATM fee if a customer’s transaction can be processed over a less expensive network, unreasonably restrain trade under Section 1 of the Sherman Act.^[4]

In their petition for permission to appeal, the defendants first argued that the district court failed to scrutinize evidence that some prospective class members were uninjured.^[5] For support, defendants looked to a recent decision by the DC Circuit – In re Rail Freight Fuel Surcharge Antitrust Litigation^[6] – that affirmed the denial of class certification if plaintiffs failed to reliably show injury for a portion of the putative class.^[7] The defendants also argued that the district court’s opinion generated unjustified and substantial settlement pressure on the defendants by significantly increasing the financial risk associated with the litigation.^[8] Finally, the defendants contended that interlocutory review was warranted because a confluence of rationales, including the heightened financial risk and alleged failure to scrutinize uninjured class members, ‘tip[ped] the scales in favor of immediate review’.^[9]

In a one-page per curiam order, the DC Circuit granted the defendants’ petition, holding that they had shown ‘that the district court’s class certification decision was, at least, “questionable” and is accompanied by a potential “death knell”’.^[10]

Class settlement objectors’ interlocutory appeals denied

In July 2021, the US Court of Appeals for the DC Circuit held that it lacked jurisdiction to hear an appeal of an order approving class action settlements in a large multidistrict litigation involving millions of settlement class members and four major airlines.^[11] Two members of the proposed settlement class (the objectors) objected to the terms of the settlements resolving claims against American Airlines and Southwest Airlines, and sought leave to appeal.^[12]

The court denied the objectors’ appeal for lack of jurisdiction. First, the court found that the settlement approval order was not a ‘final order’ under 42 USC Section 1291, because it did not ‘dispose[] of all the claims and all the parties’.^[13] Rather, the order only resolved claims between two of the defendants – American and Southwest – while allowing the case to proceed against Delta Air Lines and United Airlines.^[14] Second, the court acknowledged that Rule 54(b) of the Federal Rules of Civil Procedure (FRCP) allowed a court to ‘direct entry of a final judgment as to one or more, but fewer than all, claims or parties’ but found that the lower court expressly declined to do so in this case, finding that there was ‘just reason for delay’.^[15]

Finally, the court rejected the objectors’ argument under Gelboim that their individual cases were dismissed ‘in [their] entirety’ by the settlement orders.^[16] The court explained that, unlike in Gelboim, in which the class action plaintiffs were allowed to appeal when their sole claim was dismissed, here, ‘later orders by the . . . court . . . will relate to the [objectors’] claims . . . because the order dismissed only two of the four defendant airlines’.^[17] Accordingly, the court dismissed the objectors’ appeal for lack of jurisdiction.

District court decisions

As discussed below, during the past year, the US District Court for the District of Columbia heard two related cases against Facebook seeking injunctive relief – one filed by dozens of US jurisdictions suing as parens patriae on behalf of their citizens and the other by the FTC. Both cases were assigned to Judge James E Boasberg, who dismissed both suits on the same day in June 2021. Although Judge Boasberg dismissed the states’ case in its entirety, he granted leave for the FTC to amend and refile its complaint, which it did. In January 2022, Judge Boasberg denied Facebook’s motion to dismiss the amended complaint and allowed the FTC’s case to proceed.

New York and dozens of other states’ action against Facebook dismissed

In New York v Facebook, Inc, Judge Boasberg considered whether Facebook had – as alleged by dozens of states, including the District of Columbia and New York (the plaintiffs) – violated Section 2 of the Sherman Act and Section 7 of the Clayton Act. The plaintiffs alleged that Facebook has had a long-standing monopoly in the market for personal social networking (PSN) services and has unlawfully maintained that monopoly in violation of Section 2 of the Sherman Act by (1) acquiring competitors – primarily Instagram in 2012 and WhatsApp in 2014 – and (2) adopting policies that prevented interoperability between Facebook’s application programming interface (API) and competitors, thereby stifling competition and growth from would-be competitors.^[18] Specifically, the plaintiffs alleged that Facebook engaged in anticompetitive behavior when it adopted a policy of refusing to allow third-party apps to access Facebook’s API if those apps ‘replicated Facebook’s core functionality’.^[19] The plaintiffs further alleged that Facebook’s acquisitions of Instagram and WhatsApp violated Section 7 of the Clayton Act because those acquisitions substantially lessened competition, resulting in harm to consumers.^[20] The plaintiffs sought equitable relief, including an injunction prohibiting similar future conduct, and mandating the divestiture of unlawfully held assets, under Section 16 of the Clayton Act.^[21]

Facebook moved to dismiss the plaintiffs’ complaint for failure to state a claim upon which relief can be granted on multiple grounds. First, it argued, on jurisdictional grounds, that the plaintiffs lacked Article III standing to sue under Section 16 of the Clayton Act in their capacity as parens patriae because the ‘size of the harms’ in view was significantly smaller than the harms alleged in comparable cases invoking the doctrine.^[22] Second, Facebook argued that its general policy of refusing to provide API access to its competitors was not an antitrust violation on its face.^[23] The company further argued that the plaintiffs’ allegations of ‘conditional dealing’ with third-party competitors failed to state an actionable refusal to deal because Facebook never prohibited a third-party app developer from building a separate version of its app that could also be accessed on another PSN service, without the use of Facebook’s own API.^[24] Finally, Facebook argued that the plaintiffs’ challenges to its acquisitions of Instagram and WhatsApp must be dismissed under the doctrine of laches.^[25] In particular, Facebook argued that the plaintiffs’ request that Facebook divest one or both of the companies was untimely given the span of years since Facebook had acquired Instagram and WhatsApp (in 2012 and 2014, respectively) and the filing of this lawsuit in December 2020.^[26]

Judge Boasberg rejected Facebook’s jurisdictional argument that the plaintiffs lacked Article III standing to sue based on the parens patriae doctrine, holding that the plaintiffs had ‘properly pleaded sufficient injury to their quasi-sovereign interests in the economic well-being of their states’ to confer standing at the motion to dismiss stage.^[27] The court agreed with Facebook, however, on its merits-based grounds for dismissal. First, the court rejected the plaintiffs’ challenge to Facebook’s policy of preventing interoperability with competing apps because it ‘fail[ed] to state a claim under current antitrust law, as there is nothing unlawful about having such a policy’.^[28] The court reasoned that ‘a monopolist has no duty to deal with its competitors, and a refusal to do so is lawful even if it is motivated . . . by a desire “to limit entry” by new firms or impede the growth of existing ones’.^[29] Moreover, ‘the policy of withholding API access from competitors was plainly lawful to the extent it covered rivals with which [Facebook] had no previous, voluntary course of dealing’ because a ‘prior history of dealing, after all, is a necessary element of an Aspen Skiing claim’.^[30] The court noted that, although a course of conduct consisting of ‘refusals that were themselves independent violations of the Aspen Skiing test’ could be actionable, the plaintiffs alleged no such conduct.^[31]

The court further rejected the plaintiffs’ novel theory that Facebook violated Section 2 by engaging in ‘conditional dealing’, which the plaintiffs defined as ‘requir[ing] third parties seeking to obtain its product or services to refrain from taking some action that would tend to foster competition on the merits’.^[32] First, the court noted that the sole case that the plaintiffs cited for the conditional dealing doctrine ‘says nothing of the sort’.^[33] Rather, ‘[f]or the Lorain Journal principle (or exclusive-dealing doctrine generally) to apply to this case, as Plaintiffs argue it does, they would thus have to allege that Facebook conditioned access to its Platform APIs on app developers agreeing not to deal with other social-networking services’.^[34] Here, however, while alleging that Facebook unilaterally announced a policy ‘aimed at’ forbidding API access to apps that linked to competing platforms, the plaintiffs pleaded ‘no facts as to how or whether that aim was achieved’ or how the policy ‘was implemented to have the effect of discouraging third-party apps from dealing with rivals’.^[35] The court found that the plaintiffs’ allegations that Facebook ‘simply regulated the acceptable features of apps specifically built to be used on Facebook itself’ failed to state a violation of Section 2 of the Sherman Act because Facebook ‘[did] not appear to have prevented an app developer from building a separate version of its app that could be accessed and used within the website of another PSN service’.^[36]

Finally, the court agreed with Facebook that the plaintiffs’ challenges to Facebook’s 2012 and 2014 acquisitions were barred by laches.^[37] The court reasoned that the plaintiffs’ delays were unreasonable and unjustified as a matter of law, given that both acquisitions were publicly announced and, therefore, the plaintiffs were, or should have been, aware of the acquisitions and any effects of competition at that time.^[38] Moreover, the court noted that the prejudice to Facebook was apparent should the court grant the equitable relief requested by the plaintiffs, including economic prejudice and prejudice to Facebook’s shareholders.^[39] As the court explained, ‘if laches is to mean anything, it must apply on these facts, even in a suit brought by states’.^[40] Thus, the court dismissed the plaintiffs’ case in its entirety without leave to amend.^[41]

Facebook’s motion to dismiss denied after FTC refiles dismissed case

In the related case of Federal Trade Commission v Facebook, Inc, Judge Boasberg twice considered whether to dismiss the FTC’s antitrust suit against Facebook based on allegations similar to those of the plaintiffs in New York v Facebook, Inc.^[42] The FTC, proceeding under Section 13(b) of the FTC Act, alleged that Facebook has maintained a monopoly in the PSN services market in violation of Section 2 of the Sherman Act by acquiring current and potential competitors and preventing interoperability between its services and competitors’ services.^[43] The District Court dismissed the FTC’s initial complaint for failure to state a claim in June 2021, but allowed the FTC’s amended complaint to proceed over Facebook’s motion to dismiss in January 2022.

June 2021: FTC’s initial challenge fails

In its initial complaint, the FTC alleged that Facebook illegally ‘leverag[ed] its power to foreclose and forestall the rise of new competitors’, namely through purchasing Instagram and WhatsApp.^[44] Second, the FTC alleged that Facebook maintained a PSN services monopoly first by creating an API for other apps to integrate with Facebook, and then by conditioning (or withdrawing) access to its APIs for apps that competed with Facebook for PSN services.^[45] The FTC sought an injunction preventing similar actions in the future, an order mandating ‘the divestiture of assets . . . including . . . Instagram and/or WhatsApp’, and other relief.^[46]

Facebook moved to dismiss under Rule 12(b)(6) of the FRCP. Facebook argued that the FTC’s market definition was internally contradictory because it excluded certain apps from that definition while claiming that Facebook had engaged in anticompetitive behavior by preventing API access for those same apps. Facebook also argued that the FTC failed to allege ‘cross-elasticity of demand between PSN services and potential substitutes’.^[47] Further, Facebook contended that the FTC’s ‘bare, conclusory allegation that Facebook has a market share “in excess of 60%,” . . . must be disregarded because it [wa]s not supported by any facts’.^[48]

The court found that the FTC had alleged a plausible relevant product market of PSN services. The court rejected Facebook’s contention that the FTC’s market definition was internally contradictory, finding that Facebook could have engaged in anticompetitive behavior against actors who were a ‘nascent’ threat even though not yet competitors in the properly drawn relevant market.^[49] Regarding cross-elasticity, the court found that the FTC need only plead ‘some detail about lack of interchangeability’, not ‘specific facts’.^[50] The court also rejected Facebook’s remaining market definition arguments, concluding that the FTC’s definition had no ‘glaring deficiency’ and that Facebook’s cross-elasticity argument was legally incorrect.^[51]

Despite finding that the FTC had adequately alleged a plausible relevant market, the court dismissed the complaint, holding that the FTC’s ‘bare assertions’ were ‘too conclusory to plausibly establish market power in any context’.^[52] The court found that the FTC failed to allege a metric or method by which the court could reasonably calculate market share, noting the absence of any specific data regarding user numbers or time spent on the site.^[53] Citing this deficiency, the court declined to consider whether the FTC had adequately alleged barriers to entry.^[54] However, the court granted the FTC leave to amend its complaint because it ‘may be able to cure these deficiencies by repleading’.^[55]

The court went on to provide ‘further legal analysis’ regarding the complaint’s deficiencies^[56] to ‘promote clarity and efficiency going forward in the event Plaintiff amends its Complaint’.^[57] First, the court explained why the FTC’s ‘refusal to deal’ claims could not support injunctive relief.^[58] Facebook’s general policy of restricting competitors’ access to its API did not violate Section 2, the court reasoned, because a monopolist has ‘the right “to refus[e] to cooperate with rivals”’.^[59] Second, the court found that Facebook’s general policy of not dealing with rivals was not an ongoing monopolist scheme, and any specific refusals to deal that the FTC alleged were too distant to support injunctive relief. And, as in the case the states filed against Facebook, the court also rejected the FTC’s attempt to allege Section 2 violations based on the novel theory of ‘conditional dealing’.^[60] Finally, the court described how, if pleaded differently, Facebook’s API conditions could violate antitrust law if those actions prevented app developers from dealing with Facebook’s rivals.^[61] The court noted that the FTC’s allegations as pleaded failed to cover freestanding apps (which consumers could access without using Facebook) or app developers’ ability to create alternative apps capable of integrating with other PSN services.^[62]

January 2022: FTC’s amended complaint survives a motion to dismiss

After its first complaint against Facebook was dismissed, the FTC filed an amended complaint. ^[63] This time, the district court denied Facebook’s motion to dismiss, allowing the FTC’s claims to proceed, but disallowed discovery as to Facebook’s conditioning of API access.^[64]

In its amended complaint, the FTC bolstered its core allegations regarding Facebook’s anticompetitive acquisitions and behavior with detailed user data that the FTC claimed demonstrated Facebook’s market power.^[65] In response, Facebook argued that the FTC’s user data was inaccurate, insignificant or unrepresentative.^[66] Facebook also contended that the FTC had failed to identify an anticompetitive effect on consumers and that any alleged harms were speculative.^[67] Finally, Facebook argued that the FTC’s original approval of the mergers rendered the lawsuit ‘hypocritical’.^[68]

The court rejected Facebook’s arguments, holding that the FTC had sufficiently alleged that Facebook had market power.^[69] The court also found that the FTC had sufficiently alleged that Facebook acquired Instagram and WhatsApp to neutralize future competitors, and that the alleged anticompetitive harms to consumers were sufficient.^[70] Specifically, the court held that although PSN services are provided free of charge, and thus the FTC ‘ha[d] not, and could not allege harm in the archetypal form of increased consumer prices’, the FTC alleged other harms to the competitive process and to consumers.^[71] And the FTC’s earlier clearing of Facebook’s mergers, the court reasoned, did not finally determine the legality of Facebook’s acquisitions.^[72] The court stated it ‘w[ould] not speculate further as to how, if at all, the Section 2 analysis of a claim involving a long-ago merger might differ from that regarding a more recent (or even forthcoming) purchase, including on the issue of remedy’, noting some authority for weighing the delay when considering equitable relief or burdens of proof.^[73] Finally, the court rejected Facebook’s attempt to dismiss the lawsuit as improper in view of alleged conflicts of interest on the part of FTC Chair Lina Khan.^[74] Despite Chair Khan’s past activities and writings alleging anticompetitive behavior on Facebook’s part, the court held that her limited role in the case (voting to file suit) did not require impartiality and no conflicts of interest were present. Ultimately, the court allowed Count I based on Facebook’s acquisition of Instagram and WhatsApp to proceed.

Count II – based on Facebook’s alleged ‘course of conduct that includes both the anticompetitive acquisitions [of Instagram and WhatsApp] and its anticompetitive conditional dealing practices, and maintaining and enforcing anticompetitive agreements relating to Facebook Platform to deter competitive threats to its personal social networking monopoly’^[75] – also survived. In reaching this conclusion, however, the court held that the amended complaint failed to cure the deficiencies that had led the court to conclude that the platform policies allegations in the initial complaint failed to state a claim for violation of Section 2 of the Sherman Act.^[76] Moreover, the court held, even if the FTC had cured those deficiencies, it had not shown that the platform policies (which Facebook had suspended in 2018) were ‘ongoing or about to occur’ as required to assert a claim for injunctive relief under Section 13(b) of the FTC Act.^[77] Nonetheless, because Count II was also based on the acquisition conduct, and, ‘although the DC Circuit does not appear to have weighed in on the issue, a chorus of other courts has held that a motion to dismiss under Rule 12(b)(6) doesn’t permit piecemeal dismissal of parts of claims’,^[78] the court permitted Count II to proceed.^[79] However, citing its ‘inherent discretion over discovery matters’, the court stated that it would ‘not award FTC a discovery windfall for using Count II as a Trojan horse to smuggle in the Platform policies’ and disallowed ‘what would certainly be time-consuming and costly discovery on such policies’.^[80]

The views expressed in this chapter are the authors’ own and do not necessarily reflect the views of the law firm with which they are associated.

Notes