Case 3:21-cv-03361-RS Document 60 Filed 07/15/22 Page 1 of 11
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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`AGUSTIN CACCURI,
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`Plaintiff,
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`v.
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`SONY INTERACTIVE
`ENTERTAINMENT LLC,
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`Defendant.
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`ADRIAN CENDEJAS,
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`Plaintiff,
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`v.
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`SONY INTERACTIVE
`ENTERTAINMENT LLC, et al.,
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`Defendant.
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`ALLEN NEUMARK,
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`Plaintiff,
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`v.
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`SONY INTERACTIVE
`ENTERTAINMENT LLC, et al.,
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`Defendant.
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`Case No. 21-cv-03361-RS
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`ORDER GRANTING MOTION TO
`DISMISS
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`Case No. 21-cv-03447-RS
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`Case No. 21-cv-05031-RS
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`United States District Court
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`Case 3:21-cv-03361-RS Document 60 Filed 07/15/22 Page 2 of 11
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`I. Introduction
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`Defendant Sony Interactive Entertainment LLC (“Sony”) moves to dismiss the
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`Consolidated Class Action Complaint for these three related antitrust putative class actions
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`pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiffs Agustin Caccuri, Adrian Cendejas,
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`and Allen Neumark aver that Sony engaged in monopolistic and anticompetitive conduct in the
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`sale of digital PlayStation games on its PlayStation Store, averring violations of Section 2 of the
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`Sherman Antitrust Act, 15 U.S.C. § 2, and California’s Unfair Competition Law (“UCL”), Cal.
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`Bus. & Prof. Code § 17200. The motion to dismiss is granted because Plaintiffs have failed to
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`allege adequately anticompetitive conduct under the Sherman Act, and the other claims are
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`derivative of the Sherman Act claims.
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`II. Factual Background1
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`In May and June 2021, these three putative class actions were filed in the Northern District
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`of California. On June 4, 2021 the Cendejas action was related to the Caccuri action, and on July
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`27, 2021, the Neumark action was also related to the Caccuri action. On December 3, 2021,
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`Michael M. Buchman of Motley Rice LLC was appointed Interim Lead Counsel for all three
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`related actions. Plaintiffs filed a Consolidated Class Action Complaint on December 20, 2021. In
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`the Consolidated Class Action Complaint, Plaintiffs aver five claims for relief: (1) monopolization
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`under Section 2 of the Sherman Act, 15 U.S.C. § 2 and Section 4 of the Clayton Act, 15 U.S.C. 4;
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`(2) attempted monopolization under Section 2 of the Sherman Act, 15 U.S.C. § 2 and Section 4 of
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`the Clayton Act, 15 U.S.C. 4; (3) declaratory and injunctive relief under Section 2 of the Sherman
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`Act, 15 U.S.C. § 2 and Sections 2 and 16 of the Clayton Act, 15 U.S.C. § 26; (4) damages under
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`the California Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200, et seq.; and (5) unjust
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`enrichment.
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`Sony manufactures, markets, and sells the PlayStation, one of the most popular home
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`video game systems. Sony launched its most recent model, the PlayStation 5, in November 2020,
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`1 As facts in a complaint are taken as true when evaluating a Rule 12(b)(6) motion to dismiss,
`Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005), the facts recited in this background section
`are from the Complaint unless otherwise noted.
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`ORDER GRANTING MOTION TO DISMISS
`CASE NO. 21-cv-03361-RS
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`2
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`Northern District of California
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`United States District Court
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`and by September 2021 it had sold over 13 million units. In addition to producing the physical
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`game console, the PlayStation franchise has many other arms: the PlayStation Store (an online
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`digital video game store), the PlayStation Network (an online multiplayer gaming service),
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`PlayStation Now (a subscription-based video game streaming service), and PlayStation Studios
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`(the video game development arm). Most relevant for this litigation is the PlayStation Store, which
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`launched in 2006 and allows users to purchase digital copies of PlayStation games and download
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`them directly onto the console, rather than having to buy physical disks and insert them into the
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`console’s disk drive. Sony sells two versions of the PlayStation 5: the $499 Base Model allows
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`users to purchase either physical disks or digital versions of games and the $399 Digital Edition is
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`only compatible with digital games downloaded from the PlayStation Store.
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`On the PlayStation Store, game developers cannot set prices; instead, the prices are set by
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`Sony. Further, the prices for a digital version of a game on the PlayStation Store may vary from
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`the prices for a physical copy of the game available through any number of retailers. Until April
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`2019, game developers could sell download codes for digital PlayStation games through the same
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`online and brick-and-mortar retailers of the physical games. When this practice was active, the
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`prices for download codes could vary from the prices in the PlayStation Store. When Sony
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`eliminated the download code option, that meant the price in the PlayStation Store was the only
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`possible price for acquiring a digital copy of a PlayStation-compatible game.
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`Although Sony’s PlayStation is highly popular, it is not the only video game console on
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`the market. Major competitors include the Xbox from Microsoft and the Switch from Nintendo.
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`While some major video games have versions produced for each of the three consoles, a purchased
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`video game is only compatible with one specific console. For example, a consumer who owns
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`both a PlayStation and Xbox and wants to play the “NBA 2K22” game would need to purchase
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`two versions of the game, one compatible with PlayStation and one compatible with Xbox. The
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`different console manufacturers have different practices concerning the production and sale of
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`games for their consoles. While 85% of game sales for the Switch console are for games
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`developed by Nintendo that are exclusive to its console, only 17% of game sales for PlayStation
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`ORDER GRANTING MOTION TO DISMISS
`CASE NO. 21-cv-03361-RS
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`3
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`Northern District of California
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`United States District Court
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`Case 3:21-cv-03361-RS Document 60 Filed 07/15/22 Page 4 of 11
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`are games developed by Sony. Microsoft and Nintendo also operate their own virtual stores to
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`download games directly to consoles. The Microsoft and Nintendo online stores, however, allow
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`developers to set the retail price for the game.
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`A. Federal Rule of Civil Procedure 12(b)(6)
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`III. Legal Background
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`Rule 12(b)(6) governs motions to dismiss for failure to state a claim. A complaint must
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`contain a short and plain statement of the claim showing the pleader is entitled to relief. Fed. R.
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`Civ. P. 8(a). While “detailed factual allegations” are not required, a complaint must have sufficient
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`factual allegations to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556
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`U.S. 662, 678 (2009) (quoting Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007)). A Rule
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`12(b)(6) motion tests the legal sufficiency of the claims alleged in the complaint. See Parks Sch. of
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`Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). When evaluating such a motion,
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`courts generally “accept all factual allegations in the complaint as true and construe the pleadings
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`in the light most favorable to the nonmoving party.” Knievel v. ESPN, 393 F.3d 1068, 1072 (9th
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`Cir. 2005). However, “[t]hreadbare recitals of the elements of a cause of action, supported by mere
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`conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678.
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`B. Federal Antitrust Law
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`“To establish liability under [section 2 of the Sherman Act], a plaintiff must show: ‘(a) the
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`possession of monopoly power in the relevant market; (b) the willful acquisition or maintenance
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`of that power; and (c) causal antitrust injury.’” Fed. Trade Comm’n v. Qualcomm Inc., 969 F.3d
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`974, 990 (9th Cir. 2020) (quoting Somers v. Apple, Inc., 729 F.3d 953, 963 (9th Cir. 2013)). “[T]o
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`demonstrate attempted monopolization a plaintiff must prove (1) that the defendant has engaged in
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`predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous
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`probability of achieving monopoly power.” Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456
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`(1993).
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`IV. Discussion
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`Sony argues that the Complaint should be dismissed because (1) Plaintiffs have failed to
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`ORDER GRANTING MOTION TO DISMISS
`CASE NO. 21-cv-03361-RS
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`allege monopoly power or a dangerous probability of achieving monopoly power in a properly-
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`defined relevant antitrust market; (2) Plaintiffs have failed to allege anticompetitive conduct; (3)
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`Plaintiffs have failed to allege anticompetitive effects or antitrust injury; and (4) Plaintiffs have
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`failed to allege facts supporting its derivative claims. As explained below, Plaintiffs have failed to
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`plead one of the elements required to establish anticompetitive conduct. Each of Sony’s
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`arguments, however, are addressed in turn.
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`A. Monopoly Power
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`“A threshold step in any antitrust case is to accurately define the relevant market, which
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`refers to the area of effective competition.” Qualcomm, 969 F.3d at 992. The relevant market
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`“must encompass the product at issue as well as all economic substitutes for the product.” Hicks v.
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`PGA Tour, Inc., 897 F.3d 1109, 1120 (9th Cir. 2018) (quoting Newcal Indus., Inc. v. Ikon Office
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`Solution, 513 F.3d 1038, 1045 (9th Cir. 2008)). “Economic substitutes have a ‘reasonable
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`interchangeability of use’ or sufficient ‘cross-elasticity of demand’ with the relevant product.
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`Including economic substitutes ensures that the relevant product market encompasses ‘the group
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`or groups of sellers or producers who have actual or potential ability to deprive each other of
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`significant levels of business.’” Id. (citations omitted).
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`Plaintiffs define the relevant product market in this case as “the market for downloadable,
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`digitally-delivered video game content that is compatible with a PlayStation console (“digital
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`PlayStation games”).” Complaint ¶ 49. The Complaint also avers that “[d]ue to the high cost of
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`consoles, the differentiation among them, and the lack of cross-compatibility, each console creates
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`a separate aftermarket for games that can be played on it.” Id. at ¶ 51. Defendant argues that
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`Plaintiff’s single-brand market is implausible, because competition occurs at the platform level,
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`such as between Sony and Nintendo, “with manufacturers innovating and pricing their products
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`aggressively to attract users to the platform.” Motion to Dismiss, p.9. Defendant also argues
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`Plaintiffs fail to satisfy the requirements for pleading an aftermarket.
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`Addressing first the single-brand market issue, limiting a market definition to a single
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`brand is disfavored. See Reilly v. Apple Inc., No. 21-CV-04601-EMC, 2022 WL 74162, at *5
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`(N.D. Cal. Jan. 7, 2022) (“It is an understatement to say that single-brand markets are disfavored.
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`ORDER GRANTING MOTION TO DISMISS
`CASE NO. 21-cv-03361-RS
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`5
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`Case 3:21-cv-03361-RS Document 60 Filed 07/15/22 Page 6 of 11
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`From nearly the inception of modern antitrust law, the Supreme Court has expressed skepticism of
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`single-brand markets[.]” (internal quotation marks and citation omitted)); Herbert J. Hovenkamp,
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`Markets in IP & Antitrust, 100 Geo. L.J. 2133, 2137 (2012) (“[A]ntitrust law has found that a
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`single firm's brand constitutes a relevant market in only a few situations.”). This general
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`disfavoring, however, does not mean single-brand market theories are never viable. For example,
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`in Eastman Kodak v. Image Technical Services, 504 U.S. 451 (1992), which concerned service
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`and parts for Kodak equipment, the Supreme Court noted that “[t]he proper market definition in
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`this case can be determined only after a factual inquiry into the ‘commercial realities’ faced by
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`consumers[,]” and allowed the lawsuit to proceed on its single-market theory. Id. at 482 (citation
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`omitted). Similarly here, the market definition does not fail at the pleading stage for only
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`concerning a single brand.
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`Next, Plaintiff’s single brand aftermarket theory is viable at this stage in the proceedings.
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`The Ninth Circuit has identified four considerations when assessing whether a Plaintiff has pled a
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`cognizable aftermarket: (1) whether “the aftermarket here is wholly derivative from and dependent
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`on the primary market”; (2) that “allegations of illegal restraints of trade and illegal
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`monopolization relate only to the aftermarket, not to the initial market”; (3) if the defendant “does
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`not achieve market power in the aftermarket through contractual provisions that it obtains in the
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`initial market” but rather “market power [which] allegedly flows from its relationship with its
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`consumers”; and (4) “market imperfections . . . prevent consumers from realizing that their choice
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`in the initial market will impact their freedom to shop in the aftermarket” such that “[c]ompetition
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`in the initial market [] does not necessarily suffice to discipline anticompetitive practices in the
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`aftermarket.” Newcal Indus., Inc. v. Ikon Off. Sol., 513 F.3d 1038, 1049-51 (9th Cir. 2008). When
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`assessing the Complaint through the lens of these considerations, Plaintiffs have adequately
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`alleged a cognizable aftermarket.
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`Sony only challenges the second and fourth Newcal factors. Addressing the second Newcal
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`factor, Plaintiffs have adequately pled that the allegations of illegal restraints and monopolization
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`relate only to the aftermarket for Playstation-compatible digital games, not the initial market for
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`video game consoles. As stated by Plaintiffs, “the initial purchase of a PlayStation gaming console
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`ORDER GRANTING MOTION TO DISMISS
`CASE NO. 21-cv-03361-RS
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`Case 3:21-cv-03361-RS Document 60 Filed 07/15/22 Page 7 of 11
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`is a condition precedent to playing a PlayStation game[,]” and thus purchasing a digital game.
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`Opposition to Motion to Dismiss, p.8. Unlike the Steam gaming platform and Steam Store at issue
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`in Wolfire Games, LLC v. Valve Corp., 2021 WL 5415305 (W.D. Wash. Nov. 19, 2021), upon
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`which Sony heavily relies, the cost of the game is not the only cost to start playing. Wolfire
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`concerned a personal computer (“PC”) gaming platform and online digital game store. In Wolfire,
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`the Steam platform was free to users and only the games cost money. Here, the platform and the
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`games are separate purchases. Unlike for PlayStation users, a Steam user could switch to a game
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`on a different platform upon seeing a price differential between the Steam Store and another
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`online digital game store. Here, a PlayStation user wishing to find a lower price for a digital game
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`would have to look at the games for an entirely different console, necessitating another console
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`purchase in the hundreds of dollars. Thus in this case, “allegations of illegal restraints of trade and
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`illegal monopolization relate only to the aftermarket, not to the initial market.” Newcal, 513 F.3d
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`at 1050.
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`Next, competition in the console market does not “suffice to discipline anticompetitive
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`practices in the aftermarket.” Id. at 1051. Switching to another console to gain a cheaper price for
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`a single game would require purchasing a separate console, negating any lower price. Further,
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`switching from one console to another requires more than just an expenditure in price; it requires
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`the user to acclimate itself to a new system, and to rebuild the skills a user had developed for use
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`on a different platform. Plaintiffs also allege that consumers were unaware of the restricted nature
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`of the aftermarket, as Sony discontinued the practice of allowing the sale of download codes
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`through other retailers. Although the policy change happened well before the Plaintiffs in this case
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`purchased their PlayStation 5s, it is a factual question whether the disclosure of this change was
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`done in a public manner known to users. Further, consumers may not have known that Sony set
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`the price for each game—and thus users were subjecting themselves to whatever prices Sony set—
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`rather than allowing game developers to set their own prices. In short, Plaintiffs have offered
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`“factual allegations to rebut the economic presumption that [PlayStation] consumers make a
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`knowing choice to restrict their aftermarket options when they decide in the initial (competitive)
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`market” to purchase a PlayStation console rather than another console. Id.
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`ORDER GRANTING MOTION TO DISMISS
`CASE NO. 21-cv-03361-RS
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`Case 3:21-cv-03361-RS Document 60 Filed 07/15/22 Page 8 of 11
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`B. Anticompetitive Conduct
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`“[A]s a general matter, the Sherman Act ‘does not restrict the long recognized right of [a]
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`trader or manufacturer engaged in an entirely private business, freely to exercise his own
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`independent discretion as to parties with whom he will deal.’” Verizon Commc’ns Inc. v. L. Offs.
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`of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004). That right, however, is not absolute, and
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`“[u]nder certain circumstances, a refusal to cooperate with rivals can constitute anticompetitive
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`conduct and violate § 2.” Id. The Supreme Court articulated this exception in Aspen Skiing Co. v.
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`Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). The Supreme Court identified three relevant
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`circumstances for creating antitrust liability: (1) “the unilateral termination of a voluntary and
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`profitable course of dealing”; (2) “a willingness to sacrifice short-term benefits in order to obtain
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`higher profits in the long run from the exclusion of competition”; and (3) that the refusal to deal
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`involves “products that were already sold in a retail market to other customers.” MetroNet Servs.
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`Corp. v. Qwest Corp., 383 F.3d 1124, 1132-33 (9th Cir. 2004). Sony challenges the existence of
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`each of these circumstances. For the reasons explained below, Plaintiffs have failed to satisfy the
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`requirements for the Aspen Skiing exception.
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`First, Plaintiffs provide conclusory statements that Sony voluntarily terminated a profitable
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`practice, but do not provide sufficient factual detail. See Iqbal, 556 U.S. at 678 (“Threadbare
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`recitals of the elements of a cause of action, supported by mere conclusory statements, do not
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`suffice.”). From the Complaint, it is unclear how Sony generated a revenue stream from the sale of
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`download codes by third party retailers. The Complaint avers that “Sony [] charges a Platform
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`Royalty Fee on each game sold by retailers for use on its gaming consoles, including PlayStation
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`5” and that “Sony’s Platform Royalty Fee for physical games sold at external retailers is 11.5%[,]”
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`but does not state whether a royalty fee also applied to download code sales. Complaint ¶ 44. For
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`games sold on the PlayStation Store, the Complaint avers that Sony takes a 30% cut of the price.
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`Id. at ¶ 37. Although it seems almost certain that Sony gained some revenue through download
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`codes, and Plaintiffs need not at this stage prove that the practice was profitable, Plaintiffs must at
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`a minimum describe the process through which Sony earned money from the practice. The Court
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`cannot assume the practice was profitable when Plaintiffs have failed to plead how Sony received
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`ORDER GRANTING MOTION TO DISMISS
`CASE NO. 21-cv-03361-RS
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`Case 3:21-cv-03361-RS Document 60 Filed 07/15/22 Page 9 of 11
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`any money through the practice.2
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`Sony’s arguments that it merely made a change in distribution methods, however, is
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`rejected at this stage. Although “[i]t is well settled that a manufacturer may discontinue dealing
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`with a particular distributor for business reasons which are sufficient to the manufacturer[,] Bushie
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`v. Stenocord Corp., 460 F.2d 116, 119 (9th Cir. 1972) (internal quotation marks and citation
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`omitted), Sony acted as both a distributor and a retailer. For the purposes of reviewing a motion to
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`dismiss, it is proper to view Sony in both roles, including their role as a competitor in the sale of
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`games.
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`The second and third elements fail due to Plaintiffs’ shortcomings as to the first element.
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`As for the second element, pleading “a willingness to sacrifice short-term benefits in order to
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`obtain higher profits in the long run from the exclusion of competition,” MetroNet, 383 F.3d at
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`1132, requires pleading that Sony received revenue—and thus benefits—from the scheme. As for
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`the third element, the structure is also relevant for assessing whether Sony “refused to provide to
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`their competitors products that were already sold in a retail market to other customers.” Id. at
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`1133. If Sony was selling download codes to third-party retailers, which those retailers then sold
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`to consumers, it appears that practice could be analogous to the situation in Aspen Skiing, where
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`the ski resort refused to sell ski passes to a competitor that the ski resort was selling directly to
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`consumers. 472 U.S. at 593. Without knowing how Sony earned revenue through the practice,
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`however, it is difficult to analogize to Aspen Skiing. In short, Plaintiffs have failed to plead
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`anticompetitive conduct necessary for their Sherman Act claims.
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`C. Anticompetitive Effects or Antitrust Injury
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`“[T]o be condemned as exclusionary, a monopolist’s act must have an anticompetitive
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`effect —that is, it must harm the competitive process and thereby harm consumers.” Qualcomm,
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`2 Plaintiffs argue they are entitled to a presumption under Trinko that Sony’s business practice was
`profitable. See Trinko, 540 U.S. at 409 (“The unilateral termination of a voluntary (and thus
`presumably profitable) course of dealing suggested a willingness to forsake short-term profits to
`achieve an anticompetitive end.”). Plaintiff cites no case or other authority supporting their
`argument that the mere use of the word “presumably” in this opinion creates a burden-shifting
`presumption of profitability. No presumption, therefore, is applied in ruling on this motion.
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`ORDER GRANTING MOTION TO DISMISS
`CASE NO. 21-cv-03361-RS
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`Case 3:21-cv-03361-RS Document 60 Filed 07/15/22 Page 10 of 11
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`969 F.3d at 990 (internal quotation marks and citation omitted). Direct evidence of anticompetitive
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`effects may include “reduced output, increased prices, or decreased quality in the relevant
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`market[.]” Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018). Plaintiffs must also plead
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`antitrust injury, defined as “injury of the type the antitrust laws were intended to prevent and that
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`flows from that which makes defendants’ acts unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat,
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`Inc., 429 U.S. 477, 489 (1977).
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`Plaintiffs have pled an anticompetitive effect because, at a minimum, they have pled
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`increased prices. Plaintiffs plead that numerous games are more expensive in digital versions than
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`in physical versions, despite additional costs present for physical versions like the production of
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`the materials and shipping. Although as Defendant points out there may be other reasons for the
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`increased prices, and physical versions of the game may not be the appropriate benchmark,
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`Plaintiffs have at this stage pled increased prices. Plaintiffs have also pled an “injury of the type
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`the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts
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`unlawful.” Brunswick, 429 U.S. at 489. “[M]aintain[ing] supracompetitive prices” is a cognizable
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`antitrust injury, and Plaintiffs argue that Sony’s actions were designed to maintain
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`supracompetitive prices. See F.T.C. v. Actavis, Inc., 570 U.S. 136, 157 (2013),
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`D. California UCL Claim and Unjust Enrichment
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`Plaintiffs’ UCL claim is derivative of their Sherman Act claims, and because the Sherman
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`Act claims are not adequately pled, the UCL claim must be dismissed. See City of San Jose v. Off.
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`of the Comm’r of Baseball, 776 F.3d 686, 692 (9th Cir. 2015) (“An independent claim under
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`California’s UCL is therefore barred so long as [the defendant’s] activities are lawful under the
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`antitrust laws.”). The claim for unjust enrichment fails for the same reason.
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`V. Conclusion
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`For all the foregoing reasons, the motion to dismiss is granted because Plaintiffs have
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`failed to allege adequately anticompetitive conduct under the Sherman Act, and the other claims
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`are derivative of the Sherman Act claims. Although it is unclear at this time if the deficiencies may
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`be cured, Plaintiff is granted leave to amend. Any amended Complaint must be filed within 30
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`days of the filing of this Order.
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`ORDER GRANTING MOTION TO DISMISS
`CASE NO. 21-cv-03361-RS
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`Case 3:21-cv-03361-RS Document 60 Filed 07/15/22 Page 11 of 11
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`IT IS SO ORDERED.
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`Dated: July 15, 2022
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`______________________________________
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`RICHARD SEEBORG
`Chief United States District Judge
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`ORDER GRANTING MOTION TO DISMISS
`CASE NO. 21-cv-03361-RS
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