Sumotext Corp. -v- Zoove, Inc.

Background

Sumotext leased StarStar numbers from Zoove, Inc., doing business as StarStar Mobile, and then re-leased those numbers to end users while providing related services. The StarStar registry gave Zoove control over the distribution of StarStar numbers in the United States. After Zoove was acquired by VHT StarStar, the defendants terminated Sumotext’s existing leases and offered new terms that Sumotext claimed were so unfavorable that they amounted to a refusal to deal.

Sumotext alleged that the defendants excluded it from two markets: leasing StarStar numbers and servicing StarStar numbers in the United States. The operative complaint had five claims, but the court had dismissed defendant Mblox, and Sumotext had dismissed its three state-law claims. The remaining claims were Claim 4, restraint of trade under Section 1 of the Sherman Act, and Claim 5, conspiracy to monopolize and monopolization under Section 2. Zoove, VHT, VHT StarStar, and StarSteve sought summary judgment on those claims.

Summary-judgment standard

Summary judgment is appropriate only when there is no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law. The court must view the evidence and draw reasonable factual inferences in favor of the party opposing the motion. The court does not decide disputed facts or weigh witness credibility at this stage.

Relevant market

The defendants argued that StarStar numbers were not a distinct antitrust product market because customers could use other forms of mobile engagement, including ten-digit numbers, toll-free numbers, text messages, multimedia messages, and other mobile codes. Sumotext presented expert testimony from economist Ryan Sullivan, who identified separate markets for leasing and servicing StarStar numbers. His analysis addressed differences in price, function, customer demand, and the lack of operational connection between the StarStar registry and other products.

The court held that this evidence created a factual dispute. A jury would have to decide whether StarStar numbers were sufficiently unique to constitute separate markets or whether they belonged in a broader mobile-engagement market. The court therefore rejected summary judgment based on the defendants’ proposed market definition.

Market power and injury to competition

The defendants argued that Sumotext lacked evidence that they exercised market power or harmed competition. The defendants pointed to former Sumotext customers who leased directly from StarStar Mobile, other resellers, referral agreements, and the absence of evidence from dissatisfied customers.

Sumotext relied primarily on Sullivan’s opinions that the defendants increased prices, restricted the number of StarStar numbers leased, and reduced innovation by eliminating application service providers and the Toolkit. The court found those opinions admissible for purposes of the motion because the defendants had not made a formal challenge to exclude them or identified specific portions for exclusion. The opinions were sufficient to create factual disputes about market power and injury to competition.

Essential-facility theory

For Claim 5, Sumotext relied in part on the essential-facilities doctrine. That doctrine can impose antitrust liability when a monopolist controls a facility necessary for competition, a rival cannot reasonably duplicate it, the monopolist denies access, and providing access is feasible.

The court found factual disputes about each challenged aspect of the theory. Access to the StarStar registry was essential for competing in the StarStar-leasing market. The court also found evidence supporting Sumotext’s position that eliminating the Toolkit and application programming interfaces prevented third-party service providers from accessing information needed to service StarStar numbers.

The defendants argued that they had not refused access because they offered to negotiate new lease terms and Sumotext ended the discussions. Sumotext argued that the new terms were so unreasonable that they amounted to a practical refusal to deal. The court concluded that a jury could find either that the terms were reasonable and Sumotext ended negotiations prematurely, or that the defendants offered unreasonable terms or refused to deal. The court therefore denied summary judgment based on the essential-facilities argument.

Single-entity defense

The defendants argued that Section 1 did not apply because VHT, StarSteve, VHT StarStar, and Zoove operated as a single entity under the rule recognized in Copperweld. The court rejected summary judgment on that ground. It noted that StarSteve and VHT were separate entities when VHT acquired Zoove, that StarSteve was not part of that acquisition, and that StarSteve acquired its 49% interest in VHT StarStar only afterward. Because a substantial portion of the challenged conduct occurred before those later ownership arrangements, the court could not determine as a matter of law that the defendants were a single entity.

Disposition

The court held that Sumotext had submitted sufficient evidence to prevent summary judgment on the grounds raised by the defendants. The defendants’ motion for summary judgment was DENIED. The order did not decide whether Sumotext ultimately would prevail on either antitrust claim; it left the disputed factual questions unresolved.