Case 2:22-cv-01599-JCC Document 61 Filed 06/08/23 Page 1 of 10
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`
`
`THE HONORABLE JOHN C. COUGHENOUR
`
`UNITED STATES DISTRICT COURT
`WESTERN DISTRICT OF WASHINGTON
`AT SEATTLE
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`CASE NO. C22-1599-JCC
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`ORDER
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`STEVEN FLOYD, individually and on behalf
`of all others similarly situated,
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`v.
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`Plaintiff,
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`AMAZON.COM, INC. and APPLE INC.,
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`
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`Defendants.
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`This matter comes before the Court on Defendants’ respective motions to dismiss (Dkt.
`Nos. 42, 43). Having thoroughly considered the parties’ briefing and the relevant record, the
`Court finds oral argument unnecessary and hereby DENIED in part and GRANTS in part the
`motions for the reasons explained herein.
`I.
`BACKGROUND1
`Defendant Amazon, Inc. operates the world’s largest online retail marketplace. (Dkt. No.
`37 at 4, 12.) Defendant Apple Inc. is the world’s largest technology company responsible for
`designing, manufacturing, and selling iPhones and iPads, among other products. (Id. at 4, 12.) In
`addition to selling products directly to consumers, it also sells products through third-party
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`1 Unless otherwise indicated, the facts below are based on allegations contained in the
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`First Amended Complaint (“FAC”) (Dkt. No. 37).
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`ORDER
`C22-1599-JCC
`PAGE - 1
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`Case 2:22-cv-01599-JCC Document 61 Filed 06/08/23 Page 2 of 10
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`distributors, like Amazon. (Id.) In 2018, Apple and Amazon (hereinafter, “Defendants”) signed
`an agreement, effective January 1, 2019, known as the “Global Tenets Agreement” (“GTA”). (Id.
`at 6.) The GTA required Amazon to allow only Apple-authorized sellers to sell Apple products
`on Amazon’s marketplace. (Id.) In exchange, Apple would provide a steady supply of Apple
`products to Amazon at a discounted rate. (Id.) On February 26, 2021, Plaintiff Steven Floyd
`purchased an Apple iPad from the Amazon Marketplace for $319.99. (Id. at 12.) The price of this
`iPad was inflated due to the GTA, which “eliminate[d] or at least substantially reduce[d] the
`competitive threat posed by third-party merchants.” (Id. at 5.) Prior to the GTA, there were
`hundreds of third-party Apple resellers active on Amazon. (Id. at 4.) Following the GTA, the
`number of sellers narrowed to just seven. (Id. at 6.) Plaintiff filed this putative class action on
`November 9, 2022. (Dkt. No. 1.) After Defendants moved to dismiss, (Dkt. No. 30, 32), Plaintiff
`amended his complaint. (Dkt. No. 37.)
`Plaintiff brings a single claim for relief, an alleged violation of Section 1 of the Sherman
`Act which prohibits “[e]very contract, combination in the form of trust or otherwise, or
`conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.”
`15 U.S.C. § 1. (Id. at 56.) Plaintiff contends the GTA is “a naked restraint and per se unlawful
`under the Sherman Act.” (Id. at 5, 58.) In the alternate, Plaintiff argues it violates the “rule of
`reason.” (Id. at 59.) On March 27, 2023, Defendants filed motions to dismiss. (Dkt. Nos. 42, 43.)
`II.
`DISCUSSION
`Legal Standard
`A.
`A defendant may move for dismissal when a plaintiff “fails to state a claim upon which
`relief can be granted.” Fed. R. Civ. P. 12(b)(6). To survive, the complaint must contain sufficient
`factual matter, accepted as true, to state a claim for relief that is plausible on its face. Ashcroft v.
`Iqbal, 556 U.S. 662, 677–78 (2009). A claim has facial plausibility when the plaintiff pleads
`factual content that allows the court to draw the reasonable inference that the defendant is liable
`for the misconduct alleged. Id. at 678. The plaintiff is obligated to provide grounds for
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`ORDER
`C22-1599-JCC
`PAGE - 2
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`Case 2:22-cv-01599-JCC Document 61 Filed 06/08/23 Page 3 of 10
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`entitlement to relief that amount to more than labels and conclusions of the elements of a cause
`of action. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007). Although the Court must accept
`as true a complaint’s well-pleaded facts, conclusory allegations of law and unwarranted
`inferences will not be accepted. Vasquez v. L.A. Cnty., 487 F.3d 1246, 1249 (9th Cir. 2007).
`Along with the complaint, the Court may consider documents mentioned in the complaint that
`are central to the claims and of undisputed authenticity, Marder v. Lopez, 450 F.3d 445, 448 (9th
`Cir. 2006), and matters of judicial notice, such as public records and court documents, see Lee v.
`City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001).
`Discussion
`B.
`To plead an antitrust violation under Section 1 of the Sherman Act, a plaintiff must allege
`facts supporting the notion that (1) an agreement exists, (2) the agreement imposed an
`unreasonable restraint of trade through either a per se or rule of reason analysis, and (3) the
`restraint affected interstate commerce. Am. Ad Mgmt., Inc. v. GTE Corp., 92 F.3d 781, 784 (9th
`Cir. 1996). That plaintiff must also plead a relevant market. See Hicks v. PGA Tour, Inc., 897
`F.3d 1109, 1120 (9th Cir. 2018). Here, the parties do not dispute the existence of a contract2 or
`the effect on interstate commerce. (Dkt. No. 51 at 16.) The only issue is whether the GTA
`imposes an unreasonable restraint of trade through either a per se or rule of reason analysis.
`The rule of reason is the default standard for Section 1 claims, and it requires the antitrust
`plaintiff to “demonstrate that a particular contract or combination is in fact unreasonable and
`anticompetitive.” Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006). The rule “weighs legitimate
`justifications for a restraint against any anticompetitive effects.” Paladin Assocs., Inc. v. Mont.
`Power Co., 328 F.3d 1145, 1156 (9th Cir. 2003). In applying the rule of reason, the Court
`“reviews all the facts, including the precise harms alleged to the competitive markets, and the
`legitimate justifications provided for the challenged practice, and [] determine[s] whether the
`
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`2 The Court incorporates by reference the GTA which was attached as an exhibit to
`Defendant Apple’s sealed motion to dismiss. (Dkt. No. 45.)
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`ORDER
`C22-1599-JCC
`PAGE - 3
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`Case 2:22-cv-01599-JCC Document 61 Filed 06/08/23 Page 4 of 10
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`anticompetitive aspects of the challenged practice outweigh its procompetitive effects.” Id.
`Some types of restraints, however, have such “predictable and pernicious anticompetitive
`effect, and such limited potential for procompetitive benefit, that they are deemed unlawful per
`se.” State Oil Co. v. Khan, 522 U.S. 3, 10 (1997). Per se treatment is proper only once
`“experience with a particular kind of restraint enables the Court to predict with confidence that
`the rule of reason will condemn it.” Arizona v. Maricopa Cnty. Med. Soc’y, 457 U.S. 332, 344
`(1982). To justify per se condemnation, a challenged practice must have “manifestly
`anticompetitive” effects and lack “any redeeming virtue.” Leegin Creative Leather Prod., Inc. v.
`PSKS, Inc., 551 U.S. 877, 886 (2007). The Supreme Court has “expressed reluctance to adopt per
`se rules where the economic impact of certain practices is not immediately obvious.” Dagher,
`547 U.S. at 5 (internal citations omitted). Plaintiff contends the GTA amounts to a “per se
`violation” of antitrust laws, or in the alternative, a violation under the less demanding “rule of
`reason” standard. (Dkt. No. 37 at 58–59.) The Defendants move to dismiss under either standard.
`(Dkt. Nos. 42, 43). The Court addresses each standard in turn.
`1. Application of Per Se Rule is Inapt as Pleaded
`The Supreme Court has distinguished between “agreements made between competitors
`(horizontal agreements) and agreements made up and down a supply chain, such as between a
`retailer and a manufacturer (vertical agreements).” Frame-Wilson v. Amazon.com, Inc., 591 F.
`Supp. 3d 975, 986 (W.D. Wash. 2022). Nearly every “vertical restraint” is “assessed under the
`rule of reason.” Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018). Whereas “[t]ypically
`only ‘horizontal’ restraints . . . qualify as unreasonable per se.” Id. at 2283–84; see also Arizona,
`457 U.S. at 348 n.18 (“horizontal restraints are generally less defensible than vertical restraints.”)
`Here, the parties dispute whether Defendants entered a “horizontal” agreement, as
`Plaintiff argues, or a “vertical” agreement, as Defendants argue. This issue turns on whether
`Defendants entered the agreement as “competitors” or “firms at different levels of
`distribution.” Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 730 (1988). Plaintiff
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`ORDER
`C22-1599-JCC
`PAGE - 4
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`Case 2:22-cv-01599-JCC Document 61 Filed 06/08/23 Page 5 of 10
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`contends this case is “not about Apple independently selecting its trading partners or Amazon
`independently enforcing its own platform rules. It is about two horizontal competitors agreeing
`to eliminate the competitive threat posed by hundreds of other horizontal competitors.” (Dkt. No.
`37 at 9.) The Court cannot agree with this characterization. See Vasquez, 487 F.3d at 1249.
`According to the facts as pled, “Apple designs, manufactures, and sells iPhones and iPads,” (Dkt.
`No. 37 at 12), and Apple “distributes its products through two channels” otherwise known as a
`“dual distribution” strategy. (Id.) In the first level, “Apple maintains its own retails stores,
`including an online store and physical outlets. This is Apple’s direct distribution channel.” (Id. at
`12.) At this level, Apple competes horizontally with other retailers of its products. (Dkt. No. 51
`at 21.) In the second level, “Apple distributes its products through a network of third-party
`distributors[.]” (Dkt. No. 37 at 12.) In addition to supplying Amazon with products, “Apple
`reportedly has Authorized Reseller Agreements with Best Buy, Target, Staples, AT&T, and
`others.” (Id. at 13.) At this level, Apple “stands in a vertical relationship with the retailers it
`supplies.” (Dkt. No. 51 at 21.)
`Given these allegations, the Court finds that, although the Defendants may compete for
`the sale of products at a horizontal level, they are vertically situated as manufacturer and reseller
`under the agreement at issue here. (Dkt. No. 45 at 30.) The GTA provides the conditions for
`the sale of Apple products on Amazon’s Marketplace by imposing restrictions on who may sell
`Apple products on Amazon’s platform and under what specific circumstances. (Id. at 31.) The
`plain text of this agreement strongly suggests that Apple stands as a manufacturer and Amazon
`as a distributer in this particular relationship. While the Defendants may be horizontally situated
`in other circumstances, this does not automatically place all their dealings—particularly, their
`vertical ones—into a per se context.
`This conclusion is consistent with Ninth Circuit precedent, which holds that the rule of
`reason—not the per se standard—typically applies in the context of “dual distribution”
`arrangements. See Dimidowich v. Bell & Howell, 803 F.2d 1473, 1481 (9th Cir. 1986) (The
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`ORDER
`C22-1599-JCC
`PAGE - 5
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`Case 2:22-cv-01599-JCC Document 61 Filed 06/08/23 Page 6 of 10
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`Ninth Circuit has “categorized restrictions imposed in the context of dual distributorships as
`vertical and analyzed them under the rule of reason.”); Frame-Wilson, 591 F. Supp. 3d at 986
`(rejecting application of per se standard because relationship at issue was “a vertical arrangement
`because it involves different levels of the supply chain.”) To rule otherwise would cut against
`well-established precedent protecting the rights and autonomies of manufactures. See, e.g., Krehl
`v. Baskin-Robbins Ice Cream Co., 664 F.2d 1348, 1356-57 (9th Cir. 1982) (“Competition is
`promoted when manufacturers are given wide latitude in establishing their method of distribution
`and in choosing particular distributors.”)
`However, the analysis does not end here. Application of the per se rule “must be based
`upon demonstrable economic effect rather than . . . upon formalistic line drawing” between the
`different types of restraints. Leegin, 551 U.S. at 887. Plaintiff characterizes the GTA as a “naked
`restraint” and urges that prior judicial experience with these categories of restraints requires per
`se condemnation of the GTA. (Dkt. No. 37 at 5, 58.) Beyond this conclusory statement, though,
`Plaintiff has not made a showing that the restraint at issue is one that “courts have had
`considerable experience with,” permitting this Court to “predict with confidence that [the
`restraint] would be invalidated in all or almost all instances.” Leegin, 551 U.S. at 886.
`In fact, Plaintiff acknowledges that third-party sellers have not been altogether expelled
`from Amazon’s Marketplace—akin to a traditional boycott. (Dkt. No. 51 at 23.) And the fact that
`“Apple and Amazon also compete at the retail level is a defining feature of the dual distribution
`system, not a fact supporting a pure horizontal agreement requiring the per se rule.” (Dkt. No. 55
`at 7.) See Laurence J. Gordon, Inc. v. Brandt, Inc., 554 F. Supp. 1144, 1152 (W.D. Wash. 1983).
`(explaining that a “finding of [horizontal] competition would not be significant” in light of dual
`distribution precedent and rejecting argument that restraint was a “group boycott.”)
`Therefore, given the complex nature of the business relationships between the parties and
`the challenged restraint at issue—a classic dual-distribution arrangement where a manufacturer
`provides its products to a reseller and also competes with that reseller for sales to customers —
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`ORDER
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`the Court finds the per se rules to be inapplicable in this case, at least as pleaded. See Leegin, 551
`U.S. at 887 (“It should come as no surprise ... that [courts] have ‘expressed reluctance to
`adopt per se rules with regard to restraints imposed in the context of business relationships where
`the economic impact of certain practices is not immediately obvious.’”)
`2. Rule of Reason
`Defendants argue the Claim fails to satisfy the rule of reason because the FAC failed (1)
`to identify a relevant market; and (2) failed to show anticompetitive effect (injury) in that market.
`(Dkt. Nos. 42 at 18–33, 43 at 15–30.) The Court disagrees for the reasons explained below.
`a. Alleged Marketplace
`Under the rule of reason Plaintiff must “allege that the defendant has market power
`within a ‘relevant market.’” Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1044
`(9th Cir. 2008). This, by definition, requires sufficient market control that the anticompetitive
`conduct actually injures a competitor or consumer. Id. But, at least in an antitrust case, this need
`not be pled with specificity. Id. An antitrust complaint survives a Rule 12(b)(6) motion unless it
`is apparent from the face of the complaint that the alleged market suffers a fatal legal defect. Id.
`at 1045. And since the validity of the “relevant market” is typically a factual element rather than
`a legal element, alleged markets may survive scrutiny under Rule 12(b)(6), subject to factual
`testing by summary judgment or trial. Id.; see also High Tech. Careers v. San Jose Mercury
`News, 996 F.2d 987, 990 (9th Cir. 1993) (holding that “[t]he process of defining the relevant
`market is a factual inquiry for the jury.”)
`However, a complaint may be dismissed under Rule 12(b)(6) if the complaint's “relevant
`market” definition is facially unsustainable. Newcal, 513 F.3d at 1045. To avoid dismissal, the
`relevant market must be a product market and include the products at issue as well as all
`economic substitutes for the products. Id. It must include “the group or groups of sellers or
`producers who have actual or potential ability to deprive each other of significant levels of
`business.” Id. (quoting Thurman Industries, Inc. v. Pay ‘N Pak Stores, Inc., 875 F.2d 1369, 1374
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`ORDER
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`Case 2:22-cv-01599-JCC Document 61 Filed 06/08/23 Page 8 of 10
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`(9th Cir. 1989)).
`Here, Plaintiffs identify the market at issue as the two-sided “U.S. Online Marketplace”,
`in which Amazon is one player among many. (Dkt. No. 37 at 32, 43.) Within that market,
`Plaintiff identifies a submarket for “smartphone transactions.” (Id.) Plaintiff pleads facts to
`demonstrate that companies treat smartphones as a “distinct product line.” (Id.) Using similar
`logic and facts, Plaintiff also identifies a submarket for “tablet transactions.” (Id.) The Supreme
`Court has held that submarkets, “which, in themselves, constitute product markets for antitrust
`purposes,” may exist within the broader product market. Brown Shoe Co. v. U.S., 370 U.S. 294,
`325 (1962.) Submarkets may be determined by “examining such practical indicia as industry or
`public recognition of the submarket as a separate economic entity, the product’s peculiar
`characteristics and uses, unique production facilities, distinct customers, distinct prices,
`sensitivity to price changes, and specialized vendors.” Id. These indicia were not intended “as a
`litmus test, and subsequent decisions have made clear that submarkets can exist where only some
`of these factors are present.” Bon-Ton Stores, Inc. v. May Dep’t Stores Co., 881 F. Supp. 860,
`868 (W.D.N.Y. 1994).
`Plaintiffs have provided sufficient “practical indicia” to allege, at a minimum, that the
`supposed submarkets here are not necessarily facially unsustainable. Plaintiffs allege that the
`smartphone and tablet submarkets are publicly recognized as distinct markets within the online
`marketplace by consumers and retailers, (Dkt. No. 37 at 34–39), that brick-and-mortar stores are
`not a reasonable substitute, (id. at 39), and that Amazon’s marketplace has substantial market
`power that reverberates across all online marketplaces, (id. at 46).
`Defendant Apple, for its part, argues that Plaintiff’s alleged market is both over-and-
`under-inclusive. (Dkt. No. 43 at 18–19.) It contends that the alleged market is over-inclusive
`because it purports to include “all retail goods” which are neither “reasonably interchangeable
`nor have ‘cross-elasticity of demand’ with the iPhones and iPads at issue.” (Id. at 18.) And that it
`is under-inclusive because it “fails to capture many other avenues for a customer to purchase
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`ORDER
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`smartphones and tablets.” (Id. at 19.) The Court is unpersuaded.
`Plaintiff has alleged sufficient facts to (1) demonstrate why the proffered submarkets do
`not exclude any reasonable substitutes, (Dkt. No. 37 at 18), and (2) to support a distinction
`between the submarkets for iPhones and iPads and the rest of the goods sold on online
`marketplaces, (id.), even though the same products may be available in both. See F.T.C. v. Whole
`Foods Mkt., Inc., 548 F.3d 1028, 1040 (D.C. Cir. 2008) (holding that premium natural and
`organic supermarkets may constitute a submarket distinct from conventional supermarkets even
`if some of the products were available in both markets). As the court in Whole Foods explained,
`“[t]he fact that a customer might buy a stick of gum at a supermarket or at a convenience store
`does not mean there is no definable groceries market.” Id.
`Finding no “fatal legal defect,” the Court cannot conclude, as Defendants argue, that the
`“relevant market” here is facially unsustainable. Hicks, 897 F.3d at 1120. Both Defendants
`dispute the facts as pled in the FAC, but the validity of the relevant market is a question reserved
`for a jury, and the Court makes no such determination here. Newcal, 513 F.3d at 1045; see also
`GTE Corp., 692 F.3d at 790 (holding that “[d]efining the relevant market is a factual inquiry
`ordinarily reserved for the jury.”).
`b. Alleged Injury
`Defendants further argue that Plaintiff failed to show injury to self and/or anticompetitive
`effect. (Dkt. Nos. 42 at 26, 43 at 24.) “A plaintiff may only pursue an antitrust action if it can
`show antitrust injury, which is to say injury of the type the antitrust laws were intended to
`prevent and that flows from that which makes defendants’ acts unlawful.” Am. Ad Mgmt., Inc. v.
`Gen. Tel. Co. of California, 190 F.3d 1051, 1055 (9th Cir. 1999) (internal citations omitted).
`According to the FAC, Plaintiff purchased an Apple iPad on the Amazon Marketplace,
`and, but for the GTA, he would have “paid a lower price.” (Dkt. No. 37 at 12.) Plaintiff claims
`the GTA “eliminated competitive resellers of Apple products” and “those eliminated sellers
`would have would have caused prices for these products, including the Apple iPad purchased by
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`ORDER
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`Plaintiff, to be lower.” (Id.) Plaintiff has also pled facts to show the GTA had anticompetitive
`effects on the merchant side of the market, (id. at 24); on the consumer side of the market, (id. at
`25); and that it reduced output, (id. at 28). This combined to benefit Defendants, (id. at 29), and
`harm consumers, (id. at 30). While Defendants assert the GTA, and its subsequent effects, are the
`result of pro-competitive and anti-counterfeit motivations, (Dkt. No. 42 at 26, 43 at 24), the
`Court will cannot address that countervailing fact at this time. See SmileCare Dental Group v.
`Delta Dental Plan of California, 88 F.3d 780, 783 (9th Cir. 1996) (holding that “[d]ismissal for
`failure to state a claim is appropriate where the complaint states no set of facts which, if true,
`would constitute an antitrust offense, notwithstanding its conclusory language regarding the
`elimination of competition and improper purpose.”)
`Accordingly, the Court finds that, based on an application of the rule of reason, the facts
`as alleged would constitute an offense—regardless of how Defendants would prefer to frame
`them—and that they are sufficient to survive a motion to dismiss.
`III. CONCLUSION
`For the foregoing reasons, Defendants’ motions to dismiss (Dkt. Nos. 42, 43) are
`DENIED in part and GRANTED in part. The Court DENIES Defendants’ motions to dismiss
`under a rule of reason analysis. The Court GRANTS Defendant’s motions to dismiss Plaintiff’s
`claim under a per se analysis with prejudice.
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`DATED this 8th day of June, 2023.
`
`A
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`John C. Coughenour
`UNITED STATES DISTRICT JUDGE
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`
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`ORDER
`C22-1599-JCC
`PAGE - 10
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