California Crane School, Inc. v. Google LLC

Background

California Crane School, Inc. brought a class action against Google LLC, Alphabet Inc., XXVI Holdings Inc., Google CEO Sundar Pichai, former Google CEO Eric Schmidt, Apple Inc., and Apple CEO Tim Cook. It alleged that Google and Apple agreed that Apple would not enter the search and search-advertising markets and would instead make Google the default search engine on Apple devices. The second amended complaint asserted five claims: violations of Sections 1 and 2 of the Sherman Act, a violation of California’s Cartwright Act, a violation of California’s Unfair Competition Law, and unjust enrichment.

CCS sought an order voiding the alleged agreement, an injunction preventing future non-compete agreements involving the search and search-advertising markets, treble damages, disgorgement, and divestiture. The Google defendants moved to compel arbitration under their advertising Terms of Service. Google and the Apple defendants separately moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not adequately state a legal claim.

Arbitration ruling

The court granted in part Google’s motion to compel arbitration. It relied on the Terms of Service’s clear provision allowing an advertiser to opt out of arbitration within 30 days. Because CCS did not timely opt out, the court rejected CCS’s arguments that the arbitration provision was an adhesive or improperly imposed term. The court also found that Google had not waived arbitration by filing a motion to dismiss because Google moved to compel arbitration before seeking dismissal.

The court separately considered CCS’s claim for public injunctive relief under California’s Unfair Competition Law. Under California’s McGill rule, an arbitration provision is unenforceable if it prevents a party from seeking public injunctive relief in any forum. The court held that CCS’s requested injunction—preventing Google and Apple from entering future agreements restricting competition in search and search advertising—would provide diffuse benefits to the general public, including potentially greater competition, consumer choice, data privacy, lower costs, and innovation. The court therefore held that the arbitration provision was unenforceable as to that claim and severed the claim from arbitration.

The court granted Google’s motion to compel arbitration of CCS’s remaining claims against the Google defendants. The order thus required arbitration of four claims against Google while leaving the UCL claim for public injunctive relief in court.

Dismissal ruling

The court granted the defendants’ motions to dismiss. It held that CCS had not plausibly pleaded a Section 1 Sherman Act conspiracy because it did not provide direct evidence of the alleged agreements and did not allege enough circumstantial evidence, or “plus factors,” to distinguish an unlawful conspiracy from independent, rational business conduct. Photographs of Pichai and Cook dining together, Google’s market dominance, Apple’s abandoned search-engine project, and Google’s payments to Apple were not enough to make the alleged conspiracy plausible.

The court likewise dismissed the Section 2 Sherman Act conspiracy-to-monopolize claim. CCS had not adequately alleged the required agreement or conspiracy, and it had not pleaded facts showing that the Apple defendants specifically intended to enable Google’s monopolization. The court dismissed these federal antitrust claims without leave to amend.

Because the Cartwright Act claim had the same relevant elements as the Sherman Act claims, the court dismissed it without leave to amend. The court also dismissed the UCL claim without leave to amend because CCS had not adequately pleaded a predicate antitrust violation or another unlawful act. The court additionally found that the complaint did not plead fraudulent concealment with the required particularity or facts supporting an unfairness theory under the applicable tests.

Finally, the court dismissed the unjust-enrichment claim without leave to amend. CCS had not identified a benefit that the Apple defendants received from CCS and that should be returned, and the claim depended on the alleged unlawfulness that the complaint had not adequately pleaded.

Disposition

Judge P. Casey Pitts granted the Google defendants’ motion to compel arbitration of all claims except CCS’s UCL claim for public injunctive relief. The court granted without leave to amend the Google and Apple defendants’ motions to dismiss that UCL claim, and granted without leave to amend the Apple defendants’ motion to dismiss the remaining claims.