`
`
`
`Valarie C. Williams (Bar No. 335347)
`Tania Rice (Bar No. 294387)
`Tyler Blake (Bar No. 316623)
`Alston & Bird LLP
`560 Mission Street, Suite 2100
`San Francisco, CA 94105
`Telephone: (415) 243-1000
`valarie.williams@alston.com
`tania.rice@alston.com
`tyler.blake@alston.com
`
`B. Parker Miller (pro hac vice to be filed)
`Alston & Bird LLP
`1201 West Peachtree Street, Suite 4900
`Atlanta, GA 30309
`Telephone: (404) 881-7000
`parker.miller@alston.com
`
`Rakesh N. Kilaru (pro hac vice)
`Anastasia M. Pastan (pro hac vice)
`Jenna Pavelec (pro hac vice)
`Wilkinson Stekloff LLP
`2001 M Street NW, 10th Floor
`Washington, DC 20036
`Telephone: (202) 847-4000
`rkilaru@wilkinsonstekloff.com
`apastan@wilkinsonstekloff.com
`jpavelec@wilkinsonstekloff.com
`
`Counsel for Defendant Microsoft Corporation
`
`
`UNITED STATES DISTRICT COURT
`
`NORTHERN DISTRICT OF CALIFORNIA
`
`
`
`DANTE DEMARTINI, et al.,
`
`
`Plaintiffs,
`
`
`v.
`
`MICROSOFT CORPORATION,
`
`
`Defendant.
`
`Case No. 3:22-cv-08991-JSC
`
`DEFENDANT MICROSOFT
`CORPORATION’S NOTICE OF
`MOTION AND MOTION TO DISMISS;
`MEMORANDUM OF POINTS AND
`AUTHORITIES IN SUPPORT
`THEREOF
`
`Hon. Jacqueline Scott Corley
`
`Date: March 9, 2023
`Time: 10:00 a.m.
`Courtroom: 8 – 19th Floor
`
`i
`
`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
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`Case 3:22-cv-08991-JSC Document 42 Filed 01/31/23 Page 2 of 23
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`
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`NOTICE OF MOTION AND MOTION
`
`PLEASE TAKE NOTICE that on March 9, 2023, at 10:00 a.m., or as soon thereafter as the
`
`matter may be heard by the Court, located in Courtroom 8 – 19th Floor, 450 Golden Gate Ave., San
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`Francisco, CA 94102, Defendant Microsoft Corporation will and hereby does move the Court,
`
`pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), to dismiss this action for lack of
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`subject matter jurisdiction and failure to state a claim upon which relief can be granted.
`
`Microsoft moves to dismiss the action on the ground that the Court lacks subject matter
`
`jurisdiction, because Plaintiffs’ claims are unripe and they lack standing. Microsoft also moves to
`
`dismiss Plaintiffs’ Complaint on the ground that it does not allege sufficient facts to state a plausible
`
`claim of anticompetitive harm or harm to Plaintiffs.
`
`This motion is based on this Notice of Motion and Motion, the accompanying Memorandum
`
`of Points and Authorities, all pleadings and papers on file in this action, and upon such other matters
`
`that the Court may rely on or as may be presented to the Court at the time of the hearing.
`
`
`
`Dated: January 31, 2023
`
`Respectfully submitted,
`
`
`
`
`
`
`
`
`
`
`
`By: /s/ Valarie C. Williams
`
`Valarie C. Williams
`B. Parker Miller
`Tania Rice
`Tyler Blake
`Alston & Bird LLP
`
`Rakesh N. Kilaru
`Anastasia M. Pastan
`Jenna Pavelec
`Wilkinson Stekloff LLP
`
`Counsel for Defendant Microsoft Corporation
`
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`ii
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`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
`
`
`
`
`
`I.
`
`II.
`
`III.
`
`Case 3:22-cv-08991-JSC Document 42 Filed 01/31/23 Page 3 of 23
`
`
`TABLE OF CONTENTS
`
`INTRODUCTION .................................................................................................................... 1
`
`ISSUES TO BE DECIDED ...................................................................................................... 1
`
`FACTUAL BACKGROUND ................................................................................................... 2
`
`A.
`
`Plaintiffs’ Claims .......................................................................................................... 2
`
`Posture of the Underlying Transaction ......................................................................... 3
`
`B.
`
`IV.
`
`LEGAL STANDARD ............................................................................................................... 4
`
`V.
`
`VI.
`
`
`
`
`
`ARGUMENT ............................................................................................................................ 4
`
`A.
`
`Plaintiffs Have Not Plausibly Alleged an Appreciable Danger of
`Anticompetitive Effects ................................................................................................ 4
`
`1.
`
`2.
`
`3.
`
`Plaintiffs Have Not Alleged Facts Showing that the Proposed
`Acquisition May Substantially Lessen Competition (Horizontal Theory)
`........................................................................................................................... 5
`Plaintiffs Have Not Alleged Facts Showing that Microsoft Is Likely to
`Exclude Competitors’ Platforms (Vertical Theory) .......................................... 9
`Plaintiffs Have Not Alleged Facts Showing a Viable Claim Based on
`Lessened Competition in the Labor Market (Labor Market Theory) ............. 11
`
`Plaintiffs’ Claim Is Not Ripe ...................................................................................... 11
`
`Plaintiffs Lack Standing to Bring Their Claim ........................................................... 15
`
`1.
`
`B.
`
`C.
`
`D.
`
`2.
`
`Plaintiffs Lack Standing Because the Transaction Has Not Been
`Approved ......................................................................................................... 15
`Plaintiffs Lack Standing to Assert a Claim Based on Competition for
`Labor ............................................................................................................... 16
`
`Plaintiffs Are Not Entitled to Injunctive Relief .......................................................... 16
`
`CONCLUSION ....................................................................................................................... 17
`
`
`
`
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`iii
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`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
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`Case 3:22-cv-08991-JSC Document 42 Filed 01/31/23 Page 4 of 23
`
`
`
`Cases
`
`
`TABLE OF AUTHORITIES
`
`
`
`Page(s)
`
`Addington v. US Airline Pilots Ass’n,
`606 F.3d 1174 (9th Cir. 2010) ...........................................................................................12, 13
`
`Alberta Gas Chems., Ltd. v. E. I. Du Pont de Nemours & Co.,
`826 F.2d 1235 (3d Cir. 1987)...................................................................................................10
`
`Ashcroft v. Iqbal,
`556 U.S. 662 (2009) .............................................................................................................4, 10
`
`AT&T Mobility LLC v. Bernardi,
`No. C 11-03992 CRB, 2011 U.S. Dist. LEXIS 124084 (N.D. Cal. Oct. 26, 2011) ...........12, 14
`
`Bell Atl. Corp. v. Twombly,
`550 U.S. 544 (2007) .....................................................................................................4, 5, 6, 14
`
`Bradt v. T-Mobile US, Inc.,
`No. 19-cv-07752-BLF, 2020 U.S. Dist. LEXIS 44141 (N.D. Cal. Mar. 13, 2020) .................13
`
`California v. Am. Stores Co.,
`495 U.S. 271 (1990) .................................................................................................................16
`
`Camaisa v. Pharm. Rsch. Assocs.,
`No. 21-cv-00775, 2022 U.S. Dist. LEXIS 50803 (D. Del. Mar. 22, 2022) ...............................8
`
`Clapper v. Amnesty Int’l USA,
`568 U.S. 398 (2013) .................................................................................................................15
`
`Crouse-Hinds Co. v. Internorth, Inc.,
`518 F. Supp. 416 (N.D.N.Y. 1980) ..........................................................................................11
`
`DeHoog v. Anheuser-Busch InBev SA/NV,
`899 F.3d 758 (9th Cir. 2018) .....................................................................................4, 5, 10, 13
`
`EuroTec Vertical Flight Sols., LLC. v. Safran Helicopter Engines S.A.S.,
`No. 3:15-cv-3454, 2019 U.S. Dist. LEXIS 129084 (N.D. Tex. Aug. 1, 2019) .........................8
`
`FTC v. Facebook, Inc.,
`560 F. Supp. 3d 1 (D.D.C. 2021) ...............................................................................................7
`
`Golden Gate Pharmacy Servs., Inc. v. Pfizer, Inc.,
`No 3:09-cv-03854-MMC, U.S. Dist. LEXIS 133999 (N.D. Cal. Oct. 22, 2009) ....................16
`
`Korea Kumho Petrochemical v. Flexsys Am. LP,
`No. C07-01057, 2008 U.S. Dist. LEXIS 68559 (N.D. Cal. Mar. 11, 2008) ..............................7
`
`1 2 3 4 5 6 7 8 9
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`10
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`iv
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`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
`
`
`
`Case 3:22-cv-08991-JSC Document 42 Filed 01/31/23 Page 5 of 23
`
`
`Kowalski v. Tesmer,
`543 U.S. 125 (2004) .................................................................................................................16
`
`Los Angeles Mem’l Coliseum Comm’n v. Nat’l Football League,
`634 F.2d 1197 (9th Cir. 1980) .................................................................................................16
`
`Malaney v. UAL Corp.,
`No. 3:10-CV-02858, 2010 U.S. Dist. LEXIS 106049 (N.D. Cal. Sept. 27, 2010),
`aff’d, 434 F. App’x 620 (9th Cir. 2011) .....................................................................................6
`
`Med. Vets, Inc. v. VIP Petcare Holdings, Inc.,
`811 F. App’x 422 (9th Cir. 2020) ..............................................................................................7
`
`Med Vets, Inc. v. Vip Petcare Holdings, Inc.,
`No. 18-cv-02054-MMC, 2019 U.S. Dist. LEXIS 68099 (N.D. Cal. Apr. 22, 2019),
`aff’d, 811 F. App’x 422 (9th Cir. 2020) .....................................................................................9
`
`Netafim Irrigation, Inc. v. Jain Irrigation, Inc.,
`No. 1:21-cv-00540-AWI-EPG, 2022 U.S. Dist. LEXIS 126239 (E.D. Cal. July 15,
`2022) ..................................................................................................................................5, 6, 9
`
`New York v. Deutsche Telekom AG,
`439 F. Supp. 3d 179 (S.D.N.Y. 2020)......................................................................................13
`
`Norbert v. City & County of San Francisco,
`10 F.4th 918 (9th Cir. 2021) ....................................................................................................16
`
`Optronic Techs., Inc. v. Ningbo Sunny Elec. Co.,
`No. 5:16-cv-06370-EJD, 2017 U.S. Dist. LEXIS 160238 (N.D. Cal. Sept. 28,
`2017) ..........................................................................................................................................9
`
`Physician Specialty Pharm., LLC v. Prime Therapeutics, LLC,
`No. 18-cv-1044, 2019 U.S. Dist. LEXIS 159853 (D. Minn. Aug. 8, 2019) ............................10
`
`Reazin v. Blue Cross & Blue Shield, Inc.,
`663 F. Supp. 1360 (D. Kan. 1987) ...........................................................................................10
`
`Rebel Oil Co. v. Atl. Richfield Co.,
`51 F.3d 1421 (9th Cir. 1995) .....................................................................................................9
`
`S. Austin Coal. Cmty. Council v. SBC Commc’ns, Inc.,
`No. 98 C 3014, 1999 U.S. Dist. LEXIS 949 (N.D. Ill. Jan. 26, 1999), aff’d, 191
`F.3d 842 (7th Cir. 1999) ..........................................................................................................14
`
`Safe Air For Everyone v. Meyer,
`373 F.3d 1035 (9th Cir. 2004) ...................................................................................................4
`
`Sherwin-Williams Co. v. Dynamic Auto Images, Inc.,
`No. SACV 16-1792, 2017 U.S. Dist. LEXIS 174303 (C.D. Cal. Mar. 10, 2017) .....................8
`
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`v
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`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
`
`
`
`Case 3:22-cv-08991-JSC Document 42 Filed 01/31/23 Page 6 of 23
`
`
`South Austin Coalition Community Council v. SBC Communications, Inc.,
`191 F.3d 842 (7th Cir. 1999) .............................................................................................12, 14
`
`Spokeo, Inc. v. Robins,
`578 U.S. 330 (2016) .................................................................................................................15
`
`SureShot Golf Ventures, Inc. v. Topgolf Int’l, Inc.,
`No. H-17-127, 2017 U.S. Dist LEXIS 135796 (S.D. Tex. Aug. 24, 2017), aff’d in
`part & modified in part by 754 F. App’x 235 (5th Cir. 2017) .................................................15
`
`Taleff v. Sw. Airlines Co.,
`828 F. Supp. 2d 1118 (N.D. Cal. 2011), aff’d 554 F. App’x 598 (9th Cir. 2014) ...................16
`
`TransUnion LLC v. Ramirez,
`141 S. Ct. 2190 (2021) .............................................................................................................15
`
`Trump v. New York,
`141 S. Ct. 530 (2021) ...............................................................................................................11
`
`United States v. AT&T Inc.,
`310 F. Supp. 3d 161 (D.D.C. 2018), aff’d, 916 F.3d 1029 ......................................................10
`
`United States v. AT&T, Inc.,
`916 F.3d 1029 (D.C. Cir. 2019) ...........................................................................................9, 10
`
`United States v. Syufy Enters.,
`903 F.2d 659 (9th Cir. 1990) .................................................................................................8, 9
`
`Statutes
`
`Clayton Antitrust Act ............................................................................................................. passim
`
`Other Authorities
`
`Rule 12(b)(1) ................................................................................................................................3, 4
`
`Rule 12(b)(6) ................................................................................................................................3, 4
`
`
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`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
`
`
`
`Case 3:22-cv-08991-JSC Document 42 Filed 01/31/23 Page 7 of 23
`
`
`
`MEMORANDUM OF POINTS AND AUTHORITIES
`
`I.
`
`INTRODUCTION
`
`Microsoft, the third largest manufacturer of gaming consoles and only one of a multitude of
`
`companies producing video game content for various platforms, is attempting to acquire Activision
`
`Blizzard, a producer of popular video games. Ten individual gamers have brought this case to try to
`
`stop that prospective transaction—a transaction they readily admit is under antitrust review around the
`
`world and accordingly is subject to change before it closes. Rather than wait for the results of
`
`investigations by the Federal Trade Commission, the European Commission, the U.K.’s Competition
`
`& Markets Authority, and other worldwide regulators, they contend that they are entitled to access a
`
`federal court now, to seek relief for ambiguous, speculative, and theoretical harms. The gamers also
`
`seek to leverage their inadequate claims to justify extensive discovery, including immediate
`
`depositions of top executives at Microsoft, Activision Blizzard, and other third parties. Finally, they
`
`contend that this Court should hold a trial and permanently enjoin Microsoft from acquiring Activision
`
`Blizzard, under the current deal terms, as soon as possible, without waiting for world regulators to
`
`finish their work.
`
`As discussed below, this Complaint should be dismissed because Plaintiffs have failed to state
`
`any facts that would support a claim for a violation of antitrust law. Their Complaint is devoid of facts
`
`except for a single unsupported “market share” figure that is untethered to any of Plaintiffs’ alleged
`
`product markets. Additionally, Plaintiffs’ claim is unripe and Plaintiffs lack constitutional standing to
`
`assert it. Finally, Plaintiffs are not legally entitled to seek the equitable remedy of an injunction when,
`
`as here, monetary damages would provide an adequate remedy.
`
`II.
`
`ISSUES TO BE DECIDED
`
`Whether Plaintiffs’ claim alleging violation of Section 7 of the Clayton Antitrust Act (15
`
`U.S.C. § 18), seeking to prohibit Microsoft’s acquisition of Activision Blizzard, should be dismissed
`
`because: (1) Plaintiffs have failed to allege a plausible claim of harm to competition, (2) it is unripe,
`
`(3) Plaintiffs lack constitutional standing, and/or (4) Plaintiffs are not legally entitled to injunctive
`
`relief when monetary remedies are available.
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`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
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`
`
`Case 3:22-cv-08991-JSC Document 42 Filed 01/31/23 Page 8 of 23
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`
`
`III.
`
`FACTUAL BACKGROUND
`
`A.
`
`Plaintiffs’ Claims
`
`Plaintiffs seek to stop a prospective transaction in which Microsoft would acquire Activision
`
`Blizzard. (Compl. ¶ 1.) Plaintiffs allege that both Microsoft and Activision Blizzard develop, publish,
`
`and distribute competing video games. (Id. ¶¶ 5, 124-129.) Microsoft and Activision Blizzard are
`
`two of many companies that develop, publish, and/or distribute video games (Plaintiffs do not allege
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`specifically how many competitors there are). (Id. ¶¶ 76, 124-129.) Video games can generally be
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`played on a variety of different platforms, including game consoles, personal computers (“PCs”),
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`mobile devices, and cloud-based systems. (Id. ¶¶ 78-122, 286.) Microsoft owns and sells one of the
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`three major game consoles (Xbox) and one of the primary operating systems for PCs (Windows). (Id.
`
`¶¶ 7, 87.)
`
`Plaintiffs are ten individuals who play video games and have purchased Activision Blizzard
`
`titles, which they play on a variety of platforms—Xbox, PlayStation, and Nintendo Switch consoles,
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`PCs, and/or mobile devices. (Id. ¶¶ 23-33.) Eight of the ten Plaintiffs play Activision Blizzard games
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`on more than one platform—usually both a console and their PC. (Id.) Plaintiffs assert a claim under
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`Section 7 of the Clayton Antitrust Act, which concerns mergers and acquisitions whose effect “may
`
`be substantially to lessen competition, or to tend to create a monopoly.” 15 U.S.C. § 18. They allege
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`three theories of relief:
`
`(1)
`
`“Horizontal Theory”: Plaintiffs allege that Microsoft and Activision Blizzard are
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`horizontal competitors in developing, publishing, and selling video games and that the proposed
`
`acquisition may lessen competition in the video game market. (Id. ¶¶ 252-275.) Plaintiffs have alleged
`
`ten scattershot product markets that they assert are relevant to their Complaint, but only five in which
`
`they allege that Microsoft and Activision Blizzard both compete: video games; console gaming; PC
`
`gaming; mobile gaming; and “Triple-A” games. (Id. ¶¶ 130-179.) Plaintiffs have not alleged how
`
`many competitors develop, publish, and/or distribute video games in each of these supposed
`
`“markets.” They allege only a single, unsupported (and vastly incorrect) market share statistic, related
`
`to one component of one of the product markets (video games): alleging that Microsoft has an
`
`approximate 23.9% market share of some undefined market for game publishing and Activision
`
`2
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`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
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`Blizzard has an approximate 10% market share of game publishing. (Id. ¶¶ 269-270.)
`
`(2)
`
`“Vertical Theory”: Plaintiffs allege that Microsoft’s control of one of the popular video
`
`game consoles and computer operating systems and its proposed purchase of Activision Blizzard could
`
`allow it to make Activision Blizzard’s games exclusive or partially exclusive to Microsoft platforms.
`
`Plaintiffs’ other five product “markets” could only relate to this theory since Activision Blizzard is not
`
`a competitor in these markets: video game subscription services; video game console systems; high-
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`performance video game console systems; computer operating systems; and cloud-based gaming
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`services. (Id. ¶¶ 171-203.) Plaintiffs allege that Microsoft (Xbox) and Sony (PlayStation) “compete
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`vigorously with one another” in the console space. (Id. ¶ 292.) But they allege that the prospective
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`acquisition could give Microsoft “the ability to foreclose important inputs to rivals of console gaming
`
`by making some or all of Activision Blizzard’s important catalog of games, including Call of Duty,
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`exclusive . . . or partially exclusive” to Microsoft platforms. (Id. ¶ 290.) Plaintiffs admit, however,
`
`that Microsoft has made public promises that it will continue to keep Activision Blizzard’s games
`
`available on other platforms. (Id. ¶ 306.)
`
`(3)
`
`“Labor Market Theory”: Plaintiffs allege that the proposed acquisition could lessen
`
`competition for labor between video game developers, publishers, and distributors. (Id. ¶¶ 276-279.)
`
`However, Plaintiffs do not allege a legally proper market, they do not allege that they work in this
`
`industry, and they do not allege how they would be harmed by any change in the labor market.
`
`B.
`
`Posture of the Underlying Transaction
`
`While Plaintiffs’ allegations are taken as true for purposes of Microsoft’s motion to dismiss
`
`under Rule 12(b)(6), the Court may consider an important additional fact with respect to Microsoft’s
`
`motion under Rule 12(b)(1): the prospective acquisition has not yet closed and is under review by
`
`multiple domestic and foreign regulators. Microsoft is currently working cooperatively with multiple
`
`regulators around the world, including the European Commission (“EC”) and the United Kingdom’s
`
`Competition and Markets Authority (“CMA”), to obtain approvals to close the transaction. (See Dkt.
`
`26-1 through 26-8.) The FTC has filed a complaint against Microsoft and Activision Blizzard, in
`
`which it is has a deadline of April 7 to complete discovery and has a hearing set for August of 2023.
`
`(Dkt. 26-6.) The EC and CMA’s reviews are currently scheduled to continue through April. (Dkt.
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`3
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`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
`
`
`
`Case 3:22-cv-08991-JSC Document 42 Filed 01/31/23 Page 10 of 23
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`
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`26-7, 26-8.) Microsoft has stated that it is engaging with the regulators, which could lead to remedies
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`that may alter the transaction, such as a provision requiring Microsoft to continue making Activision
`
`Blizzard games available on competitors’ consoles (which directly relates to Plaintiffs’ Vertical
`
`Theory). (See Dkt. 26 at 5, 7.)
`
`IV.
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`LEGAL STANDARD
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`Pursuant to Federal Rule of Civil Procedure 12(b)(6), a court must dismiss the plaintiff’s
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`complaint if it fails to state a claim for relief. To survive a motion to dismiss, the plaintiff must have
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`alleged facts establishing a plausible claim for relief that exceeds a speculative level. Ashcroft v. Iqbal,
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`556 U.S. 662, 678 (2009). “[L]abels and conclusions” or “‘naked assertion[s]’ devoid of ‘further
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`factual enhancement’” do not constitute well-pleaded facts that are entitled to the presumption of truth.
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`Id.
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`Pursuant to Rule 12(b)(1), a court must dismiss an action for lack of subject matter jurisdiction
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`under Article III of the Constitution if the plaintiff’s claim is unripe or the plaintiff lacks standing. “A
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`Rule 12(b)(1) jurisdictional attack may be facial or factual.” Safe Air For Everyone v. Meyer, 373
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`F.3d 1035, 1039 (9th Cir. 2004). “In resolving a factual attack on jurisdiction, the district court may
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`review evidence beyond the complaint without converting the motion to dismiss into a motion for
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`summary judgment,” and the court “need not presume the truthfulness of the plaintiff’s allegations.”
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`Id.
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`V.
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`ARGUMENT
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`A.
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`Plaintiffs Have Not Plausibly Alleged an Appreciable Danger of Anticompetitive
`Effects
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`Section 7 of the Clayton Antitrust Act concerns mergers and acquisitions whose effect “may
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`be substantially to lessen competition, or to tend to create a monopoly.” 15 U.S.C. § 18. Under the
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`Ninth Circuit’s burden-shifting framework for claims under Section 7 of the Clayton Act, Plaintiffs
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`“must first establish a prima facie case that a merger is anticompetitive.” DeHoog v. Anheuser-Busch
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`InBev SA/NV, 899 F.3d 758, 763 (9th Cir. 2018) (quoting St. Alphonsus Med. Ctr. - Nampa, Inc. v. St.
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`Luke’s Health Sys., 778 F.3d 775, 783 (9th Cir. 2015)). To survive a motion to dismiss, Plaintiffs
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`must also meet the standard of Twombly and Iqbal: alleging sufficient factual matter to state a plausible
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`4
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`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
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`Case 3:22-cv-08991-JSC Document 42 Filed 01/31/23 Page 11 of 23
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`claim for relief that exceeds a speculative level and does not rely on naked assertions or conclusions.
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`Id. “In practical terms, this means adequately alleging facts that an acquisition creates ‘an appreciable
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`danger’ or ‘a reasonable probability’ of anticompetitive effects in the relevant market.” Id.
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`“[P]roceeding to antitrust discovery can be expensive” and carry “unusually high” costs; the
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`plausibility requirement is important, “lest a plaintiff with ‘a largely groundless claim’ be allowed to
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`‘take up the time of a number of other people, with the right to do so representing an in terrorem
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`increment of the settlement value.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557-58 (2007).
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`Microsoft and third parties, who are otherwise fully engaged with antitrust regulators around the
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`world, should not be forced to concurrently litigate a parallel case based on the speculative and
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`conclusory allegations in this Complaint. Plaintiffs have not alleged facts establishing the plausibility
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`of an “appreciable danger” or “reasonable probability” of anticompetitive effects. Each of their three
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`theories (Horizonal Theory, Vertical Theory, and Labor Market Theory) fails.
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`1.
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`Plaintiffs Have Not Alleged Facts Showing that the Proposed Acquisition
`May Substantially Lessen Competition (Horizontal Theory)
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`To plead their Horizontal Theory, Plaintiffs must plausibly allege facts showing that
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`Microsoft’s post-acquisition market power—its singular ability to raise prices and restrict output in
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`the market—may substantially lessen competition. Netafim Irrigation, Inc. v. Jain Irrigation, Inc.,
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`No. 1:21-cv-00540-AWI-EPG, 2022 U.S. Dist. LEXIS 126239, at *15-16 (E.D. Cal. July 15, 2022).
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`“[A]llegations of market power must be sufficiently detailed ‘to raise a right to relief above the
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`speculative level.’” Id. at *16 (quoting Rick-Mik Enters., Inc. v. Equilon Enters. LLC, 532 F.3d 963,
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`973 (9th Cir. 2008)). Plaintiffs may meet this hurdle by alleging direct evidence of actual injury (such
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`as restricted output or supracompetitive prices) or circumstantial evidence of market share and barriers
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`to market entry. Id. at *15. Here, Plaintiffs do not (and cannot) allege direct evidence because the
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`transaction has not yet occurred. To plead circumstantial evidence, Plaintiffs are required to (1) define
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`the relevant market, (2) plead factual allegations showing that “the defendant owns a dominant share
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`of that market,” and (3) plead factual allegations showing that “there are significant barriers to entry
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`and that existing competitors lack the capacity to increase their output in the short run.” Id. at *15
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`(emphasis added) (citing Optronic Techs., Inc. v. Ningbo Sunny Elec. Co., 20 F.4th 466, 484 (9th Cir.
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`5
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`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
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`Case 3:22-cv-08991-JSC Document 42 Filed 01/31/23 Page 12 of 23
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`2021)). Plaintiffs have not done so. To the extent Plaintiffs attempt to rely, as they do in their motion
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`for preliminary injunction, on decades-old cases for the proposition that removing a significant
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`competitor from the relevant market is sufficient to state a Section 7 claim, courts have already rejected
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`those arguments made by these same counsel in other cases. See Malaney v. UAL Corp., No. 3:10-
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`CV-02858, 2010 U.S. Dist. LEXIS 106049, at *25 (N.D. Cal. Sept. 27, 2010) (“[P]laintiffs’ proposed
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`approach that any non-trivial acquisition of a significant rival is per se violative of the Clayton Act is
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`wrong.”), aff’d, 434 F. App’x 620 (9th Cir. 2011).
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`Plaintiffs do not allege facts establishing market share in any of the Complaint’s identified
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`relevant markets. Indeed, Plaintiffs’ background allegations describe an overall video game market
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`in which there is dispersed competition at multiple levels: there are numerous game developers
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`(Plaintiffs do not specify how many) that create and develop games (Compl. ¶¶ 76, 124-127); there
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`are “several” publishers (Plaintiffs do not allege how many) who produce the games for distribution
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`(Id. ¶ 128); there are various distributors who sell the games (again, Plaintiffs do not allege how many)
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`through digital stores and elsewhere (Id. ¶ 129); and there are several ways that consumers can access
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`the games, including through three competitors’ console systems, consumers’ own computers, and
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`cloud and mobile outlets (Id. ¶¶ 78-122).
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`Plaintiffs’ allegations are insufficient to plausibly show that the acquisition would give
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`Microsoft a “dominant share” in any relevant market that would allow it to decrease the quality,
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`innovation, diversity, and output of video games or increase video game prices (as asserted in
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`paragraph 331 of the Complaint). See Netafim Irrigation, 2022 U.S. Dist. LEXIS 126239, at *15.
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`Notably, Plaintiffs do not include any factual allegations of the combined market share of Microsoft
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`and Activision Blizzard, the number of competitors remaining post-merger, or any other specific facts
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`to support an ability to increase prices or decrease output in any of the alleged horizontal markets.
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`Rather, Plaintiffs’ Complaint is rife with conclusory allegations that Microsoft and Activision Blizzard
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`are two of the “most important” competitors in the video game market with some of the “most iconic
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`and popular” games. (Compl. ¶¶ 255-256, 282). Plaintiffs also summarily allege that “the proposed
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`acquisition may substantially lessen competition” in each of the ten relevant markets, but they provide
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`no factual support. (Id. ¶ 223). Such unsupported allegations should be disregarded. See Twombly,
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`6
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`MICROSOFT’S MOTION TO DISMISS
`Case No. 3:22-cv-08991-JSC
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`Case 3:22-cv-08991-JSC Document 42 Filed 01/31/23 Page 13 of 23
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`550 U.S. at 564-65 (failure to plead facts showing an antitrust agreement, beyond descriptions of
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`parallel conduct and conclusions of an agreement, warranted dismissal); Korea Kumho Petrochemical
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`v. Flexsys Am. LP, No. C07-01057, 2008 U.S. Dist. LEXIS 68559, at *28-29 (N.D. Cal. Mar. 11,
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`2008) (dismissing complaint alleging that because of the defendant’s market dominance there was a
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`dangerous probability of it achieving monopoly power with its actions, for failure to plead concrete
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`factual allegations).
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`Two of the very few facts alleged by Plaintiffs are that Microsoft has an approximate 23.9%
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`market share of game publishing and Activision Blizzard has an approximate 10% market share of
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`game publishing. (Compl. ¶¶ 269-270.) These unsupported (and incorrect) figures are not tied to
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`Plaintiffs’ defined product markets: video games as a whole or submarkets of certain types of video
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`games. They speak, at best, to only one component of video game output. Plaintiffs allege no facts
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`showing how this share of publishing activity would give Microsoft market dominance over either the
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`entire video game market or any of the various alleged submarkets. Nor is it plausible that the
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`development and distribution components would not be significant drivers of market output and
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`pricing. In FTC v. Facebook, Inc., 560 F. Supp. 3d 1, 17 (D.D.C. 2021), the court cautioned that
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`evaluating market power requires looking at the “market definition” and “market share” allegations
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`toge