Arcell v. Google LLC

Background

Twenty-seven individuals who use internet search-engine services sued Google LLC, Alphabet Inc., XXVI Holdings Inc., Apple Inc., Tim Cook, Sundar Pichai, and Eric Schmidt. The plaintiffs alleged that Google and Apple entered into an agreement in 2005 under which Apple would not enter the search-engine business, Google would pay Apple a share of its profits, and Apple would use Google as the automatic general search engine for its products.

The plaintiffs alleged that the arrangement was part of a de facto merger and that the companies’ executives held secret meetings to create or reaffirm it. They relied on statements about the companies working “as if we are one company,” “merg[ing] without merging,” and “AppleGoo,” as well as photographs allegedly showing Cook and Pichai meeting for dinner.

The plaintiffs brought a private antitrust action under Sections 4 and 16 of the Clayton Act. They alleged that the arrangement was a per se illegal agreement under Section 1 of the Sherman Act and a conspiracy to monopolize under Section 2. They sought declaratory and injunctive relief, damages, divestiture, and disgorgement. They also alleged fraudulent concealment.

Legal standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. The court explained that a complaint must contain enough factual matter to make entitlement to relief plausible, not merely possible. Fraud allegations also must meet Rule 9(b), which requires the circumstances of the alleged fraud to be stated with particularity.

Section 1 claim

To plead a Section 1 violation, the plaintiffs had to allege facts showing that Google and Apple reached an agreement restraining trade. They could rely on direct or circumstantial evidence, but a bare allegation that an agreement existed was not enough.

The court found that the statements cited by the plaintiffs were vague, lacked context, and were not alleged to concern search engines specifically. The alleged photographs and allegations that the executives met also did not, without more, provide evidence of an illegal agreement.

The plaintiffs alternatively relied on circumstantial evidence. They identified Apple’s failure to enter the search-engine industry and Google’s payments to Apple as parallel conduct, and identified secret executive meetings as a possible additional factor. The court concluded that these allegations could just as easily reflect lawful business behavior and did not plausibly establish an agreement. The court therefore granted the motion to dismiss Count 1 with leave to amend.

Section 2 claim

A conspiracy-to-monopolize claim requires a conspiracy, an overt act advancing it, specific intent to monopolize, and antitrust injury. Because the complaint did not plausibly allege the underlying agreement preventing Apple from entering the search-engine market, the court also granted the motion to dismiss Count 2 with leave to amend.

Standing and antitrust injury

The court separately considered antitrust standing, which is the requirement that a private antitrust plaintiff show an injury of the type the antitrust laws are meant to prevent and that is sufficiently connected to the alleged conduct. The court found that the plaintiffs had not plausibly alleged antitrust injury.

The plaintiffs alleged higher prices, reduced production and innovation, lower quality and privacy protections, reduced user choice, and distorted or steered search results. The court found these allegations vague and conclusory. It noted that the plaintiffs used free search engines and did not explain how prices could be higher. It also found that the alleged connection between Apple’s failure to create a search engine and the claimed reductions in innovation or production, poorer privacy practices, and distorted search results was too attenuated. The claim that user choice was reduced was also too speculative at this stage.

The court additionally found that the plaintiffs had not defined the relevant market. The complaint referred to several possible markets, including mobile search, computer search, the general search market, and search advertising, without identifying which market was relevant to the alleged injuries. The court concluded that the plaintiffs had not established antitrust standing at that stage.

Statute of limitations and fraudulent concealment

The court stated that a four-year statute of limitations applied. Claims for injuries occurring before April 22, 2018, were generally barred because the plaintiffs filed suit four years after that date.

The plaintiffs argued that the alleged revenue-sharing arrangement was a continuing violation. The court explained that a new act causing a new injury may begin a new limitations period, but does not generally permit recovery for injuries caused by older acts outside the limitations period. Because the complaint did not adequately allege an overt act, it also did not establish a continuing violation that would restart the limitations period.

The plaintiffs also invoked fraudulent concealment. The court explained that this exception requires allegations that the defendants took affirmative steps to mislead the plaintiffs, that the plaintiffs lacked actual or constructive knowledge, and that they acted diligently to uncover the facts. The alleged secret meetings did not constitute fraud merely because the meetings were not publicly announced. The court also noted that the complaint did not adequately plead the other two elements of fraudulent concealment.

Disposition

For these reasons, the court granted the defendants’ motion to dismiss with leave to amend. The opinion specifically states that the motion to dismiss Counts 1 and 2 was granted with leave to amend. It does not state that the dismissal was with or without prejudice.