Reveal Chat Holdco LLC v. Facebook, Inc.

Background

Reveal Chat Holdco LLC, USA Technology and Management Services, Inc. (identified as “Lenddo”), and Beehive Biometric, Inc. sued Facebook, Inc. under Section 2 of the Sherman Act. The plaintiffs alleged that Facebook used a scheme to attract third-party developers to build applications using Facebook’s application programming interfaces (APIs), then removed access to APIs that were central to those applications. The plaintiffs alleged that the conduct harmed competition and their businesses.

Reveal Chat operated a dating platform that used Facebook social data for matchmaking and advertising. Lenddo developed a mobile application that used social data to assess creditworthiness. Beehive developed an algorithm that used social connections and interactions to help determine whether a Facebook user was authentic. Each plaintiff alleged that its business depended on access to Facebook APIs and that access was removed in 2015.

The plaintiffs alleged that Facebook publicly attributed the API removals to user control and privacy concerns but concealed its real purpose, which they said was to eliminate competitive or potentially competitive applications. They alleged that they learned the true reasons for the removal on November 6, 2019, when internal Facebook documents were publicly released.

Statute of Limitations

The court applied the four-year statute of limitations for private Sherman Act claims. Under the rule the court applied, an antitrust claim accrues when the defendant commits an act that injures the plaintiff’s business. The plaintiffs acknowledged that they knew of their injury by April 30, 2015, when the Core APIs on which their businesses relied were withdrawn. Because they did not file suit until January 16, 2020, their claims were untimely unless a tolling doctrine applied.

The court rejected the plaintiffs’ argument that Facebook’s later conduct created a continuing violation. To restart the limitations period, a defendant must commit a new and independent act that causes new and accumulating injury, rather than merely reaffirming an earlier act. The court found that the alleged copying of Snapchat features in 2016 was not alleged to have caused a new injury beyond the plaintiffs’ exclusion from the market in 2015. It also found that the continued existence of data-sharing agreements did not constitute new and independent acts because the relevant agreements began, at the latest, in April 2015.

Fraudulent Concealment

Fraudulent concealment is a doctrine that can toll, or pause, a statute of limitations when a defendant uses affirmative acts to mislead a plaintiff, the plaintiff lacks actual or constructive knowledge of the facts supporting the claim, and the plaintiff acts diligently to discover those facts. Because the plaintiffs relied on alleged misleading statements, the court also applied Federal Rule of Civil Procedure 9(b), which requires fraud allegations to identify the circumstances of the alleged fraud with particularity, including the time, place, content, and participants in the misrepresentations.

The court found that the plaintiffs had not adequately pleaded fraudulent concealment. Their alleged injury—the loss of API access—was apparent when the APIs were removed in April 2015. The court held that not knowing Facebook’s alleged motives, or Facebook’s failure to admit unlawful conduct, did not establish that the plaintiffs lacked knowledge of the facts giving rise to their claims.

The court also found that the plaintiffs had not identified sufficiently specific affirmative misrepresentations directed to them. Some alleged statements were made to other developers, while other allegations did not identify the speaker, date, or precise content. The complaint also did not allege that any plaintiff read or relied on certain Facebook statements. In addition, the court found that the plaintiffs had not pleaded their diligence with the required particularity. Contacting Facebook acquaintances, seeking exemptions, and reading some Facebook posts did not adequately show a diligent effort to determine whether the API withdrawal was unlawful.

Disposition

The court concluded that the plaintiffs’ claims were barred by the four-year statute of limitations and that the plaintiffs had not adequately pleaded either a continuing-violation theory or fraudulent concealment. Because the plaintiffs had already been given an opportunity to amend and still had not cured the deficiencies, the court found that further amendment would be futile.

The court granted Facebook’s motion to dismiss with prejudice. It did not reach Facebook’s remaining arguments that the plaintiffs had not plausibly alleged an antitrust injury or a violation of Section 2 of the Sherman Act.