Sabol v. PayPal Holdings, Inc.

Background

The plaintiffs alleged that PayPal’s anti-discrimination provisions prevented merchants that accepted PayPal from offering discounts to consumers who used other payment methods. They claimed that these provisions eliminated price competition, maintained a price floor, and prevented merchants from steering consumers toward less expensive payment methods. The plaintiffs alleged that they purchased goods through e-commerce using alternatives to PayPal and lost discounts they otherwise could have received.

The plaintiffs asserted a claim under Section 1 of the Sherman Act, a claim under California’s Cartwright Act, and a claim under California’s Unfair Competition Law. They also sought an injunction against PayPal’s continued use of the anti-discrimination provisions.

Sherman Act claim

The court analyzed whether the plaintiffs had antitrust standing, meaning an injury of the type the antitrust laws are intended to prevent that was caused by the alleged unlawful conduct. Applying factors concerning the nature, directness, and speculative character of the injury, the risk of duplicative recovery, and the complexity of allocating damages, the court held that the plaintiffs’ theories of harm were too indirect and speculative.

Under the plaintiffs’ first theory, PayPal’s rules created a price floor by preventing merchants from offering discounts based on payment method. The court found that this theory depended on the assumption that millions of merchants would offer particular discounts to customers who did not use PayPal if the rules were absent. The plaintiffs did not provide direct support showing that this would occur.

Under the second theory, the plaintiffs alleged that, without the rules, merchants could charge higher prices only for PayPal transactions and competing payment processors could lower their fees to attract transactions. The court found this theory even more attenuated because it depended on assumptions about both merchant pricing and competing processors’ conduct. The complaint also did not adequately explain how the services the plaintiffs purchased were affected amid the other components that determine the final price of a product.

The court stated that the case did not appear to present a significant risk of duplicative recovery because merchants’ alleged lost-profit claims and consumers’ alleged overcharge claims were different theories of harm. It also stated that the complexity of allocating damages alone did not weigh strongly against standing. After weighing the factors, however, the court held that the plaintiffs’ claims were too indirect and speculative to maintain antitrust standing.

State-law claims

The Cartwright Act claim was based on the same allegations as the Sherman Act claim. The court held that the plaintiffs lacked standing under the Cartwright Act because that claim rose and fell with the federal antitrust claim.

The court also held that the plaintiffs failed to state a claim under the Unfair Competition Law. The “unlawful” theory failed because the plaintiffs had not adequately alleged a separate antitrust violation. The “unfair” theory failed because an unfair-competition claim based on antitrust allegations rose and fell with the antitrust claim.

Disposition

Judge Jeffrey S. White granted the motion to dismiss with leave to amend. The court ordered the plaintiffs to file an amended complaint within 45 days of the order. The opinion does not state that the dismissal was with prejudice or without prejudice.