USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 1 of 39
`
`No. 21-7078
`
`IN THE UNITED STATES COURT OF APPEALS
`FOR THE DISTRICT OF COLUMBIA CIRCUIT
`
`
`
`
`
`STATE OF NEW YORK; DISTRICT OF COLUMBIA; STATE OF CALIFORNIA; STATE OF
`COLORADO; STATE OF FLORIDA; STATE OF IOWA; STATE OF NEBRASKA; STATE OF
`NORTH CAROLINA; STATE OF OHIO; STATE OF TENNESSEE; STATE OF ALASKA;
`STATE OF ARIZONA; STATE OF ARKANSAS; STATE OF CONNECTICUT; STATE OF
`DELAWARE; TERRITORY OF GUAM; STATE OF HAWAII; STATE OF IDAHO; STATE
`OF ILLINOIS; STATE OF INDIANA; STATE OF KANSAS; COMMONWEALTH OF KEN-
`TUCKY; STATE OF LOUISIANA; STATE OF MAINE; STATE OF MARYLAND;
`COMMONWEALTH OF MASSACHUSETTS; STATE OF MICHIGAN; STATE OF MINNE-
`SOTA; STATE OF MISSISSIPPI; STATE OF MISSOURI; STATE OF MONTANA; STATE OF
`NEVADA; STATE OF NEW HAMPSHIRE; STATE OF NEW JERSEY; STATE OF NEW
`MEXICO; STATE OF NORTH DAKOTA; STATE OF OKLAHOMA; STATE OF OREGON;
`COMMONWEALTH OF PENNSYLVANIA; STATE OF RHODE ISLAND; STATE OF
`TEXAS; STATE OF UTAH; STATE OF VERMONT; COMMONWEALTH OF VIRGINIA;
`STATE OF WASHINGTON; STATE OF WEST VIRGINIA; STATE OF WISCONSIN; AND
`STATE OF WYOMING,
`Plaintiffs-Appellants,
`
`v.
`FACEBOOK, INC.,
`Defendant-Appellee.
`
`On Appeal from the United States District Court for the District of Columbia
`
`BRIEF OF AMICUS CURIAE THE AMERICAN ANTTRUST INSTITUTE
`IN SUPPORT OF PLAINTIFFS-APPELLANTS
`
`RANDY M. STUTZ
` Counsel of Record
`AMERICAN ANTITRUST INSTITUTE
`1025 Connecticut Avenue, NW, #1000
`Washington, DC 20036
`(202) 905-5420
`rstutz@antitrustinstitute.org
`Counsel for Amicus Curiae
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`January 28, 2022
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 2 of 39
`
`
`CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES
`Pursuant to Circuit Rule 28(a)(1), amicus curiae certifies as follows:
`
`
`
`A.
`
`Parties and Amici Curiae
`
`
`
`Except for the following, all parties, intervenors, and amici appearing before
`
`the district court and in this court are listed in the Brief for Appellants:
`
`
`
`The American Antitrust Institute
`
`B. Rulings Under Review
`
`
`
`References to the rulings at issue appear in the Brief for Appellants.
`
`C. Related Cases
`
`
`
`The case now pending before this Court was not previously before this Court
`
`or any other court. One related case is identified in the Brief for Appellants.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`/s/Randy M. Stutz
`Randy M. Stutz
`
`
`
`i
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 3 of 39
`
`
`CORPORATE DISCLOSURE STATEMENT
`Pursuant to Circuit Rule 26.1, amicus states:
`
`
`
`The American Antitrust Institute is a non-profit, non-stock corporation. It
`
`has no parent corporation and no publicly held corporation has any ownership in-
`
`terest in it.
`
`
`
`
`
`
`
`ii
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 4 of 39
`
`
`TABLE OF CONTENTS
`
`Page
`CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES ............. i
`CORPORATE DISCLOSURE STATEMENT ........................................................ ii
`TABLE OF AUTHORITIES ................................................................................... iii
`INTEREST OF AMICUS CURIAE ......................................................................... 1
`SUMMARY OF ARGUMENT ................................................................................ 1
`ARGUMENT ............................................................................................................ 6
`I. THE DISTRICT COURT FAILED TO EVALUATE THE
`COMPLAINT AS A WHOLE AND MISCLASSFIED
`CONDITIONAL DEALING .................................................................... 6
`A. The Complaint as a Whole Confirms the States Allege
`Conditional Dealing, Not a Refusal to Deal ................................... 6
`B. The States Allege Facebook Deals on Anticompetitive Terms ....... 8
`C. Conditional Dealing Does Not Raise the Policy Concerns that
`Refusals to Deal Raise .................................................................. 12
`II. THE DISTRICT COURT IGNORED ALLEGATIONS OF ANTI-
`COMPETITIVE DECEPTION THAT CANNOT BE RESOLVED
`ON A MOTION TO DISMISS .............................................................. 14
`A. An Open First–Closed Later Strategy is Deceptive ..................... 14
`B. Deception Has No Efficiencies as a Matter of Law ..................... 18
`C. An Open First–Closed Later Strategy in a Network Market
`Plausibly Affects Competition ..................................................... 21
`III. THE DISTRICT COURT ERRED IN DETERMINING IT COULD
`NOT AWARED INJUNCTIVE RELIEF .............................................. 24
`A. Both Anticompetitive Policies and Deception Are Actionable
`Under Section 2 ............................................................................ 25
`B. The Alleged Conduct Can Be Enjoined ....................................... 26
`CONCLUSION ....................................................................................................... 29
`CERTIFICATES REGARDING SEPARATE BRIEF AND OF COMPLIANCE
`CERTIFICATE OF SERVICES
`
`
`
`iii
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 5 of 39
`
`
`
`
` TABLE OF AUTHORITIES
`
`Cases
`
`Allied Tube & Conduit Corp. v. Indian Head, Inc.,
`486 U.S. 492 (1988) ............................................................................................ 19
`
`
`Aspen Skiing Co. v. Aspen Highlands Skiing Corp.,
`472 U.S. 585 (1985) ............................................................................................ 25
`
`
`Broadcom Corp. v. Qualcomm Inc.,
`501 F.3d 297 (3d Cir. 2007) ................................................................................ 26
`
`
`City of Anaheim v. S. Cal. Edison Co.,
`955 F.2d 1373 (9th Cir. 1992) ............................................................................... 6
`
`
`Cont’l Ore Co. v. Union Carbide & Carbon Corp., 3
`70 U.S. 690 (1962); ............................................................................................... 6
`
`
`Carribb. Broad. Sys. Ltd. v. Cable & Wireless PLC,
`148 F.3d 1080 (D.C. Cir. 1998) .......................................................................... 19
`
`
`Conwood Co. v. U.S. Tobacco Co.,
`290 F.3d 768 (6th Cir. 2002) ............................................................................... 19
`
`
`Fortner Enters. v. United States Steel Corp.,
`394 U.S. 495 (1969) ............................................................................................ 24
`
`
`Hecht v. Pro-Football, Inc.,
`570 F.2d 982 (D.C. Cir. 1977) ............................................................................ 23
`
`
`Eastman Kodak Co. v Image Tech Servs. Inc.,
`504 U.S. 451 (1992) ............................................................................................ 25
`
`
`In re Wholesale Grocery Prod. Antitrust Litig.,
`752 F.3d 728 (8th Cir. 2014) ............................................................................... 27
`
`
`Int’l Travel Arrangers, Inc. v. W. Airlines, Inc.,
`623 F.2d 1255 (8th Cir. 1980) ............................................................................. 19
`
`
`
`
`
`
`iv
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 6 of 39
`
`
`LePage’s, Inc. v. 3M,
`324 F.3d 141 (3d Cir. 2003) .................................................................................. 6
`
`
`Monsanto Co. v. Spray-Rite Serv. Corp.,
`465 U.S. 752 (1984) ............................................................................................ 25
`
`
`NYNEX Corp. v. Discon, Inc.,
`525 U.S. 128 (1998) ........................................................................................... 20
`
`
`Novartis Corp. v. FTC,
`223 F.3d 783 (D.C. Cir. 2000) ............................................................................ 26
`
`
`Rambus Inc. v. FTC,
`522 F.3d 456 (2008) ..................................................................................... 20, 21
`
`
`Retractable Techs., Inc. v. Becton Dickinson & Co.,
`842 F.3d 883 (5th Cir. 2016) ........................................................................ 19, 20
`
`
`Verizon Commc’ns., Inc. v. Law Offices of Curtis V. Trinko, LLP,
`340 U.S. 398 (2004) ........................................................................... 6, 11, 12, 13
`
`
`United States v. Microsoft Corp.,
`253 F.3d 34 (2001) ...................................................................... 15, 16, 19, 20, 26
`
`
`Walker Process Equip., Inc. v. Food Mach. & Chem. Corp.,
`382 U.S. 172 (1965) ............................................................................................ 19
`
`
` Other Authorities
`
`Apple, Inc., Annual Report (Form 10-K) (Oct. 29, 2020) ...................................... 17
`
`Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law (3d ed. 2008) ................ 19
`
`Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law
`(4th and 5th Eds. 2015-2021) ........................................................................ 25, 26
`
`
`Jonathan Baker, Exclusion as a Core Competition Concern,
`78 Antitrust L.J. 527 (2013) ................................................................................ 28
`
`
`Stanley M. Besen & Joseph Farrell, Choosing How to Compete:
`Strategies and Tactics in Standardization, 8 J. Econ. Persp. 117 (1994) .... 16, 17
`
`
`
`v
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 7 of 39
`
`
`
`Dennis W. Carlton & Ken Heyer, Appropriate Antitrust Policy Toward Single-
`Firm Conduct, Economic Analysis Group, Antitrust Div.,
`U.S. Dep’t of Just. (Discussion Paper No. 08-2, March 2008) .......................... 10
`
`
`Susan Creighton et al., Cheap Exclusion,
`72 Antitrust L.J. 975 (2005) ................................................................................ 18
`
`
`Facebook, Inc., Annual Report (Form 10-K) (Jan. 27, 2021) ............. 11, 12, 17, 23
`
`Joseph Farrell et al., Standard Setting, Patents, and Hold-Up,
`74 Antitrust L.J. 603 (2007) ................................................................................ 18
`
`
`Fed. Trade Comm'n, Policy Statement on Deception (1983),
`reprinted in 4 Trade Reg. Rep.(CCH ) ................................................................ 26
`
`
`Harry S. Gerla, Federal Antitrust Law and the Flow of Consumer Information,
`42 Syracuse L. Rev. 1029 (1991) ........................................................................ 19
`
`
`Herbert J. Hovenkamp, FRAND and Antitrust,
`105 Cornell L. Rev. 1683 (2020) .......................................................................... 9
`
`
`Michael L. Katz & Carl Shapiro, Network Externalities, Competition, and
`Compatibility, 75 Am. Econ. Rev. 424 (1985) .................................................... 15
`
`
`Michael L. Katz & Carl Shapiro, Systems Competition and Network Effects,
`8 J. Econ. Persp. 93 (1994) .................................................................................. 16
`
`
`Mark R. Patterson, Coercion, Deception, and Other Demand-Increasing
`Practices in Antitrust Law, 66 Antitrust L.J. 1 (1997) ........................................ 18
`
`
`Richard A. Posner, Antitrust Law (2d ed. 2001) .................................................... 24
`
`Carl Shapiro, Testimony Before the Antitrust Modernization Commission
`re Exclusionary Conduct 15–16 (Sept. 2005),
`available at https://bit.ly/3fTuZLJ ................................................................ 14, 15
`
`
`Carl Shapiro & Hal R. Varian, Information Rules: A Strategic Guide to the
`Network Economy (1999) ........................................................... 15, 16, 17, 18, 22
`
`
`Spencer Waller, Antitrust and Social Networking,
`90 N.C. L. Rev. 1787 (2012) ............................................................................... 15
`
`
`
`vi
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 8 of 39
`
`
`Maurice E. Stucke, When a Monopolist Deceives, 7
`6 Antitrust L.J. 823 (2010) .................................................................................. 18
`
`
`
`
`
`vii
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 9 of 39
`
`
`INTEREST OF AMICUS CURIAE1
`The American Antitrust Institute (AAI) is an independent nonprofit organi-
`
`zation devoted to promoting competition that protects consumers, businesses, and
`
`society. It serves the public through research, education, and advocacy on the ben-
`
`efits of competition and the use of antitrust enforcement as a vital component of
`
`national and international competition policy. AAI enjoys the input of an Advisory
`
`Board that consists of over 130 prominent antitrust lawyers, law professors, econo-
`
`mists, and business leaders. See http://www.antitrustinstitute.org.2
`
`SUMMARY OF ARGUMENT
`
`The district court rejected allegations by 46 states, the District of Columbia,
`
`and the Territory of Guam (“States”) that Facebook, Inc. (“Facebook”) unlawfully
`
`maintained monopoly power in the personal-social-networking market by imple-
`
`menting a two-prong “buy or bury” scheme. According to the complaint,
`
`Facebook acquired some of its potential rivals and intentionally injured others in a
`
`unified effort to eliminate the risk they would create future competition.
`
`
`1 All parties consent to the filing of this amicus brief. Pursuant to Fed. R. App. P.
`29(c)(5), amicus states no counsel for a party has authored this brief in whole or in
`part, and no party, party’s counsel, or any other person—other than amicus or its
`counsel—has contributed money that was intended to fund preparing or submitting
`this brief.
`2 Individual views of members of AAI’s Board of Directors or Advisory Board
`may differ from AAI’s positions.
`
`
`
`1
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 10 of 39
`
`
`The complaint alleges numerous acts in furtherance of the alleged two-prong
`
`scheme, including actual and attempted exclusionary acquisitions, deception, dis-
`
`criminatory API-access policies, dealing on anticompetitive terms, and sabotaging
`
`rivals’ products. Brief for Appellants (“App. Br.”) at 7–13. The district court de-
`
`termined that neither prong of the alleged scheme, nor any of the acts allegedly in
`
`furtherance of each prong, stated a claim on which relief could be granted under
`
`Section 2 of the Sherman Act.
`
`But the district court never analyzed the scheme as a whole. It improperly
`
`compartmentalized the prongs and then wiped the slate clean after scrutiny of each.
`
`Slip opinion (“Slip op.”) at 21–40 (“bury”); id. at 40–58 (“buy”). It rejected the
`
`“buy” prong based on laches, an affirmative defense. Id. at 43. It rejected the
`
`“bury” prong because it believed it could not order injunctive relief. Id. at 31, 35.
`
`The district court erred. It is clear from the district court’s analysis—partic-
`
`ularly its rejection of the “bury” prong based on an inability to award injunctive
`
`relief—that it did not evaluate the scheme correctly. The district court confused
`
`the scheme’s means and ends, mistaking an alleged cause of the harm for the harm
`
`itself.
`
`The States allege a campaign of conduct designed to discourage nascent and
`
`future competitors from entering or competing. Compl. ¶ 9 (eliminating “emer-
`
`gence and growth” of rivals); id. ¶ 10 (“forestall[ing]” competing services that
`
`
`
`2
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 11 of 39
`
`
`“might threaten” its dominance); id. ¶ 15 (conditioning developer API access “on
`
`their staying away” from Facebook’s markets). To create that deterrent, the States
`
`allege Facebook sometimes had to revoke network access to current competitors
`
`when it was unable to purchase them. Id. ¶ 13. These revocations are part of the
`
`alleged conduct. They are means, not ends.
`
`Apparently, the district court thought the States were seeking relief designed
`
`to redress injury to current competitors whose access was revoked. Slip op. at 3
`
`(past “revocations of access” cannot be enjoined); id. at 33 (scheme alleges “un-
`
`lawful revocations” and “there is nothing the court could order Facebook to do to
`
`remedy that specific injury.”). But harm to current competitors whose access was
`
`revoked is the not the harm the States allege. The States allege “that specific in-
`
`jury” is a means of achieving the anticompetitive ends alleged in the scheme, not
`
`that it is the end itself. Properly viewed as a coordinated scheme, all the scheme’s
`
`elements are designed with the common purpose of thwarting nascent and future
`
`competitors, not inducing the exit of current competitors. The alleged scheme’s
`
`common purpose cannot be ignored; it is what makes the scheme a scheme.
`
`I. Because the district court failed to evaluate the alleged scheme as a uni-
`
`fied, coordinated campaign to thwart competition from nascent and future
`
`competitors, it erroneously relied on refusal-to-deal law and injuries to current
`
`competitors to decide this case. The alleged conduct the district court mislabeled a
`
`
`
`3
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 12 of 39
`
`
`refusal to deal is not a “refusal.” Antitrust law has long distinguished between a
`
`monopolist’s refusal to deal with rivals on any terms and its conditional dealing: a
`
`willingness to deal, but only on anticompetitive terms. According to the com-
`
`plaint, Facebook is willing and eager to deal with third-party content providers, but
`
`it requires in exchange that they refrain from specific actions that can lead to future
`
`competition. That is conditional dealing, and enjoining it would not obligate Face-
`
`book to aid competitors. None of the policy concerns raised by forced sharing are
`
`implicated by enjoining the alleged conduct.
`
`II. Given that monopoly power was adequately pled, Facebook’s motion to
`
`dismiss should have been denied because the States plausibly allege that Facebook
`
`implemented its discriminatory API-access policy and conditional dealing using
`
`deception. The relevant deception allegations—never squarely addressed by the
`
`district court—are that Facebook implemented an “open first–closed later” strat-
`
`egy, which economists have long recognized as a pernicious form of deceptive
`
`conduct in network markets. Compl. ¶¶ 14, 226; see generally id. ¶¶ 189, 191–96,
`
`199–202, 205, 213–14, 217–21, 231.
`
`As a matter of law, deceptive behavior can support a monopolization claim,
`
`and deception is categorically incapable of generating procompetitive benefits.
`
`Although deception allegations can raise factual questions about harm to competi-
`
`tion at summary judgment or trial, those questions are not ripe on a motion to
`
`
`
`4
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 13 of 39
`
`
`dismiss. Where, as here, a dominant firm is plausibly alleged to have used an open
`
`first–closed later strategy in a network market, the inference that the conduct regis-
`
`tered a competitive effect (and not merely harm to a competitor) is not only
`
`reasonable but inescapable.
`
`III. The district court’s myopic preoccupation with refusal-to-deal law and
`
`its failure to credit deception allegations also infected its analysis of whether in-
`
`junctive relief is available. Its analysis is premised on a faulty distinction between
`
`“having” anticompetitive policies and “implementing them” via “particular acts.”
`
`Both anticompetitive policies and acts satisfy the conduct element of Section 2 if
`
`they have anticompetitive effects. If anything, the fact that discriminatory access
`
`was implemented network-wide as a “policy” is inculpatory, not exculpatory. The
`
`policy allegations and Facebook’s unpled 2018 policy statements bolster both the
`
`“closed late” and competitive-harm elements of the open first–closed later allega-
`
`tions. And regardless, deception is a “particular act.” The district court thus
`
`ignored allegations that satisfy its incorrect test. The district court’s failure to real-
`
`ize that an injunction can plausibly remedy ongoing competitive harm by
`
`reopening an unlawfully closed network is reversible error.
`
`
`
`
`
`
`
`
`
`5
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 14 of 39
`
`
`
`I.
`
`
`
`ARGUMENT
`
`THE DISTRICT COURT FAILED TO EVALUATE THE COM-
`PLAINT AS A WHOLE AND MISCLASSIFIED CONDITIONAL
`DEALING
`
`The district court’s constraining and ill-fitting reliance on refusal-to-deal law
`
`to analyze allegations of conditional dealing and discriminatory API-access poli-
`
`cies is plain error. The States allege a campaign to build a “moat” to keep nascent
`
`and future competitors out of the market. Compl. ¶ 181. Properly evaluating the
`
`alleged scheme as a unified and coordinated effort to achieve that goal reveals that
`
`the States’ allegations are rooted in shaping other firms’ behavior, not in inducing
`
`them to exit the market. Facebook is willing to deal on anticompetitive terms; it is
`
`not unwilling to deal. The Supreme Court’s Trinko decision therefore does not
`
`govern this case; its policy underpinnings have no application here.
`
`A.
`
`The Complaint as a Whole Confirms the States Allege Condi-
`tional Dealing, Not a Refusal to Deal
`
`
`
`“The duty” of the factfinder is “to look at the whole picture and not merely
`
`at the individual figures in it.” Cont’l Ore Co. v. Union Carbide & Carbon Corp.,
`
`370 U.S. 690, 699 (1962); LePage’s, Inc. v. 3M, 324 F.3d 141, 162 (3d Cir. 2003);
`
`City of Anaheim v. S. Cal. Edison Co., 955 F.2d 1373, 1376 (9th Cir. 1992). The
`
`district court did not report for duty.
`
`The States allege a coordinated campaign to thwart nascent and future com-
`
`petitors from entering or expanding in the market. Viewing the “whole picture”
`
`
`
`6
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 15 of 39
`
`
`therefore means viewing each allegation not in a vacuum, but rather as part of an
`
`effort toward that alleged goal and that alleged harm. Viewed as conditional deal-
`
`ing pursuant to a unified scheme with a common goal of preventing competition
`
`from future rivals, the States’ API-access denial allegations fit into the scheme;
`
`viewed as refusals to deal in isolation, they either contradict or countermand the
`
`common goal of the alleged scheme.
`
`Consider the exclusionary acquisitions alleged to be part of the scheme. Be-
`
`cause the alleged goal of the scheme is to deter other firms who might be
`
`contemplating competitive actions in the future, exclusionary acquisitions are par-
`
`ticularly effective. Acquiring potential competitors gives a dominant firm
`
`complete control and the assurance they will not enter the market. It owns them.
`
`Yet in considering whether to view the States’ access-denial allegations through
`
`the lens of conditional dealing or a refusal to deal, the district court never consid-
`
`ered how they fit together with the States’ acquisition allegations.
`
`A refusal to deal with a competitor is the economic opposite of acquiring it.
`
`By refusing to deal, the monopolist has no relationship it can lever to shape the
`
`competitor’s future entry decisions. Unencumbered, the stranded competitor is
`
`free to attempt to compete on its own, or if it chooses, to merge with another po-
`
`tential rival and become an even bigger competitive threat. For the monopolist,
`
`
`
`7
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 16 of 39
`
`
`surrendering influence over a competitor’s choices would seem to be especially
`
`foolish if the goal is to shape those choices in the future.
`
`Consider, too, the States’ allegations that Facebook sabotaged its rivals’
`
`products. Compl. ¶ 205 (“Facebook has used its control over Facebook Platform to
`
`degrade the functionality and distribution of potential rivals’ content”). This be-
`
`havior is the quintessential example of what a refusal to deal is not. Sabotaging
`
`your rivals’ products is a sign you care very much about the competitive threat
`
`your rivals pose; refusing to deal with them means you do not care at all. What
`
`kind of schizophrenic scheme would care so much and so little about the same ri-
`
`vals at the same time?
`
`If the district court had viewed the alleged scheme as a “whole picture,” it
`
`would have quickly realized that the States’ API-access allegations make sense as
`
`conditional dealing allegations. Conditional dealing can give Facebook some as-
`
`surance that potential competitors will not enter the market in the future. The
`
`allegations do not make sense as refusals to deal. Refusals to deal leave Facebook
`
`powerless to control the next moves of the competitive threats they allegedly seek
`
`to thwart.
`
`B.
`
`The States Allege Facebook Deals on Anticompetitive Terms
`
`The district court’s error in mistaking conditional dealing allegations for re-
`
`fusal-to-deal allegations is evident from its misreading of Professor Hovenkamp’s
`
`
`
`8
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 17 of 39
`
`
`article, from which it selectively quotes. Slip op. at 35–36 (quoting Herbert J.
`
`Hovenkamp, FRAND and Antitrust, 105 Cornell L. Rev. 1683, 1697 (2020). The
`
`article illustrates how to avoid two different errors: mistaking a refusal for a condi-
`
`tion and mistaking a condition for a refusal.
`
`When a complaint alleges that a dominant firm does not deal with another
`
`firm based on its status as a competitor, the claim alleges a refusal that should not
`
`be mistaken for a condition. The deal is not actually “conditional” because it
`
`would require the competing firm “to exit from the market in which it was compet-
`
`ing” to accept the deal. Id. at 1697. A condition that requires exit is no condition
`
`at all. It is no different than refusing to deal outright.
`
`When a complaint alleges that a dominant firm does not deal with another
`
`firm based on its conduct as a competitor, it alleges a condition that should not be
`
`mistaken for a refusal. As Professor Hovenkamp explains, “[conditional] dealing
`
`occurs when a firm deals under different terms with different contracting partners,
`
`such as competitors and noncompetitors.” Id. (emphasis added). Conditional deal-
`
`ing is unlawful, he explains, when the defendant refuses to sell or license some
`
`interest unless the buyer agrees to terms that are anticompetitive. Id. at 1700.
`
`Thus, if the dominant firm causes an anticompetitive effect by inducing another
`
`firm to leave its market, it is refusing to deal. But if the dominant firm causes an
`
`anticompetitive effect by inducing another firm to stay in its market and behave in
`
`
`
`9
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 18 of 39
`
`
`anticompetitive ways, it is dealing conditionally. Conduct can meddle with com-
`
`petition because it implicates choices to undertake or forego future actions that,
`
`unlike status, are meaningfully within a firm’s power to control.
`
`Where a dominant firm’s willingness to deal is contingent on the other firm
`
`accepting terms rather than exiting, the “proper focus” is on “the anticompetitive
`
`conduct that a willingness to deal may be inducing others to engage in.” Dennis
`
`W. Carlton & Ken Heyer, Appropriate Antitrust Policy Toward Single-Firm Con-
`
`duct 15, Economic Analysis Group, Antitrust Div., U.S. Dep’t of Just. (Discussion
`
`Paper No. 08-2, March 2008). “[T]he appropriate antitrust analysis should be no
`
`different if the objectionable conduct is induced by a willingness to deal than if it is
`
`induced by the offer of a cash payment or any other form of consideration.” Id.
`
`Focusing on the monopolist’s anticompetitive terms of dealing matters because the
`
`terms can serve to inhibit the monopolist’s rivals.
`
`Here, even the district court’s own characterization of the complaint demon-
`
`strates that the States allege Facebook conditioned API access to induce developers
`
`to inhibit rivals, not to induce developers to exit. See, e.g., Slip op. at 38 (“The
`
`precise allegation here” is that Facebook aimed at withholding API access if apps
`
`‘linked or integrated with’ other social networking services” and “condition[ed]
`
`API access on refraining from such dealings.”); id. at 14 (Facebook allegedly
`
`“limited what apps hosted and used on Facebook’s own site could do.”) (emphasis
`
`
`
`10
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 19 of 39
`
`
`added); id. at 13 (broader 2013 policy withheld API access from “apps that com-
`
`peted by ‘replicat[ing] [Facebook’s] core functionality’”) (alterations in original;
`
`emphasis added).
`
`Fairly read, the States allege that Facebook is inducing anticompetitive con-
`
`duct by implicitly “paying” developers and complementors not to compete, using
`
`interoperability as currency. Third parties are being told that they may interoperate
`
`with the Facebook platform in exchange for agreeing not to partner with Face-
`
`book’s social-networking rivals and foregoing social-networking entry themselves.
`
`That is an inducement of conduct, not an inducement of exit. Indeed, Facebook
`
`cannot afford to induce developer exit because it depends on the very same devel-
`
`opers to provide content to its users. See Facebook, Inc., Annual Report 14 (Form
`
`10-K) (Jan. 27, 2021) [hereinafter “Facebook 10-K”] (It would have a material and
`
`adverse business impact if the company is “unable to obtain or attract engaging
`
`third-party content” and “we fail to provide adequate customer service to … devel-
`
`opers…”).
`
`Because the district court mistook conditional-dealing allegations for re-
`
`fusal-to-deal allegations, it relied heavily on Verizon Commc’ns., Inc. v. Law
`
`Offices of Curtis V. Trinko, LLP, which limits Section 2 liability for “a refusal to
`
`cooperate with rivals.” 540 U.S. 398, 408 (2004). Trinko is inapposite. That case
`
`addresses “exceptions from the proposition that there is no duty to aid
`
`
`
`11
`
`

`

`USCA Case #21-7078 Document #1932869 Filed: 01/28/2022 Page 20 of 39
`
`
`competitors.” Id. at 411. This case alleges inducements of conduct that interfere
`
`with rivals by distorting entry incentives—conduct that is