California Crane School, Inc. v. Google LLC

Background

California Crane School, Inc. filed a putative class action against Apple and Google. It alleged that Apple agreed not to compete with Google in the search business, while Google agreed to share search profits with Apple and make additional payments. The complaint further alleged that Google became the only search engine automatically included on Apple devices, giving Google an anticompetitive advantage over other search providers. California Crane alleged that it and the proposed class paid more for Google search advertising than they would have paid in a competitive market.

The First Amended Complaint asserted a Sherman Act Section 1 claim based on an alleged agreement not to compete, a Sherman Act Section 2 claim for conspiracy to monopolize, and fraudulent concealment. California Crane sought declaratory and injunctive relief, damages, divestiture, and disgorgement. The opinion states that Google’s motion to compel arbitration had already been granted and that the court allowed supplemental briefing on whether the complaint stated plausible claims against Apple. The order ultimately addressed Apple’s motion to dismiss.

Section 2 claims and antitrust injury

The court dismissed the Section 2 claims because California Crane did not adequately allege antitrust injury, which is harm of the type the antitrust laws are intended to prevent and that flows from the conduct making the defendants’ conduct unlawful. The court explained that defining the relevant market is a threshold step in an antitrust case and that the complaint appeared to allege restraint in a search market while claiming injury in a search-advertising market.

The court found that the complaint did not explain why those markets should be treated as the same. It also found that the complaint’s references to market share did not clarify whether the allegations concerned users, advertisements, or advertising revenue. Because California Crane did not adequately allege antitrust injury, it also failed to allege antitrust standing, meaning the right to bring a private antitrust claim. The court DISMISSED WITH LEAVE TO AMEND the Section 2 claims.

Section 1 conspiracy claim

For a Sherman Act Section 1 claim, the complaint had to plausibly allege an agreement between separate entities, an intent to restrain interstate or foreign commerce, and actual injury to competition. The court found that California Crane’s allegations of secret meetings between Apple and Google executives were conclusory because the complaint did not provide facts showing when or how the alleged agreement was formed.

The photographs of executives dining together and the quoted statements did not cure that problem. In the court’s view, those facts could just as easily describe lawful business conduct between companies with an existing business relationship. The court also found that the alleged meetings did not provide the additional facts—sometimes called “plus factors”—needed to make a conspiracy based on parallel conduct plausible. It therefore DISMISSED WITH LEAVE TO AMEND the Section 1 per se violation claim.

Statute of limitations and fraudulent concealment

The court applied the four-year statute of limitations for antitrust damages. It rejected California Crane’s argument that an alleged continuing violation allowed recovery for injuries incurred outside the limitations period. The court held that the limitations period is triggered when advertisers paid the allegedly inflated prices, so a later act does not generally allow recovery for injury caused by older acts outside the four-year period.

The court also found that California Crane had not adequately pleaded fraudulent concealment. To rely on fraudulent concealment to extend the limitations period, the plaintiff had to plead facts showing that the defendant affirmatively misled it and that it lacked actual or constructive knowledge of the facts despite diligence. To the extent California Crane sought recovery for incidents before December 27, 2017, those claims were DISMISSED WITH LEAVE TO AMEND. The court stated that any amended allegations would need to plead the concealment circumstances and supporting diligence with particularity.

Disposition

Judge Gilliam’s conclusion states that the court GRANTS WITH LEAVE TO AMEND Apple’s motion to dismiss. The court TERMINATES AS MOOT California Crane’s motion to amend and states that it did not reach that motion on the merits. Amended pleadings were due by April 28, 2023. The discovery stay remained in place unless and until the court found that California Crane had stated a claim.