United States District Court, C.D. California
ORDER RE: DEFENDANTS' MOTION TO DISMISS [DKT
D. PREGERSON, UNITED STATES DISTRICT JUDGE.
before the court is Defendants Buena Vista Home
Entertainment, Inc., Disney Enterprises, Inc., Lucasfilm Ltd.
LLC, MVL Film Finance LLC, and Movies Anywhere, LLC
(collectively, “Disney”)'s Motion to Dismiss
Plaintiff's First Amended Complaint (“FAC”).
Having considered the submissions of the parties and heard
oral argument, the court grants the motion in part, denies
the motion in part, and adopts the following Order.
is a major movie production studio. (FAC ¶ 34.)
Disney's market share of movies rented or sold for home
entertainment is greater than 50%. (Id. at
¶¶ 34-35.) Plaintiff Redbox Automated Retail, LLC
(“Redbox”) rents and sells movies on DVD and
Blu-Ray discs via automated self-service kiosks, which are
located in grocery stores, fast-food restaurants, and other
locations throughout the country. (Id. at
¶¶ 25-29.) Redbox generally acquires its stock of
Disney movies by purchasing them at retail outlets such as
big-box stores and grocery stores. (Id. at ¶
45.) Redbox often bought Disney movies as part of a
“Combo Pack, ” which includes a DVD, a Blu-ray
disc, and a digital movie that can be accessed with a code
contained within the Combo Pack. (Id. at ¶ 46.)
Each digital movie code can only be redeemed once, through
one of two Disney websites (the “redemption
websites”). (Id. at ¶ 47.)
summer 2017, Redbox began selling the digital movie codes
from its kiosks. (Id.) Soon after, Redbox alleges,
Disney began pressuring distributors into refusing to sell
retail copies of Disney titles to Redbox. (Id. at
¶¶ 49-56.) Disney also includes statements on Combo
Pack packaging and on the digital movie codes representing
that the components of Combo Packs cannot be rented or
transferred separately. (Id. at ¶ 60.) The
redemption websites also represent that Disney owns
“[a]ll digital movie codes, ” which can only be
redeemed by a person (or family member) who obtains the code
as part of a Combo Pack, and that the codes may not be sold
separately. (Id. at ¶¶ 61-62.) Redbox
alleges that these representations are false because, as a
purchaser of a Disney Combo Pack, Redbox has an unfettered
right to dispose of the DVDs, Blu-rays, and digital movie
codes contained within the Combo Packs. (Id. at
alleges that Disney's actions and misrepresentations have
stifled competition and dissuade consumers from purchasing
digital movies from Redbox. (FAC ¶¶ 92, 94.) The
FAC alleges causes of action for declaratory relief,
copyright misuse, tortious interference with prospective
economic advantage, false advertising under both state and
federal law, unfair competition, and state and federal
antitrust violations. Disney now moves to dismiss all claims.
complaint will survive a motion to dismiss when it
“contain[s] sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its
face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)(quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)). When considering a Rule 12(b)(6) motion, a
court must “accept as true all allegations of material
fact and must construe those facts in the light most
favorable to the plaintiff.” Resnick v. Hayes,
213 F.3d 443, 447 (9th Cir. 2000). Although a complaint need
not include “detailed factual allegations, ” it
must offer “more than an unadorned,
Iqbal, 556 U.S. at 678. Conclusory allegations or
allegations that are no more than a statement of a legal
conclusion “are not entitled to the assumption of
truth.” Id. at 679. In other words, a pleading
that merely offers “labels and conclusions, ” a
“formulaic recitation of the elements, ” or
“naked assertions” will not be sufficient to
state a claim upon which relief can be granted. Id.
at 678 (citations and internal quotation marks omitted).
there are well-pleaded factual allegations, a court should
assume their veracity and then determine whether they
plausibly give rise to an entitlement of relief.”
Id. at 1950. Plaintiffs must allege “plausible
grounds to infer” that their claims rise “above
the speculative level.” Twombly, 550 U.S. at
555-56. “Determining whether a complaint states a
plausible claim for relief” is “a
context-specific task that requires the reviewing court to
draw on its judicial experience and common sense.”
Iqbal, 556 U.S. at 679.
argues that Redbox has not adequately alleged an antitrust
violation. Section 1 of the Sherman Antitrust Act prohibits
contracts, combinations, and conspiracies that unreasonably
restrain trade. 15 U.S.C. § 1; Brantley v. NBC
Universal, Inc., 675 F.3d 1192, 1197 (9th Cir. 2012).
Some restraints, typically horizontal agreements between
competitors, are unreasonable per se. Ohio v.
Am. Express Co., 138 S.Ct. 2274, 2284 (2018). All other
restraints must be analyzed under the “rule of
reason.” Id.; Brantley, 675 F.3d at
1197. “In its design and function the rule
distinguishes between restraints with anticompetitive effect
that are harmful to the consumer and restraints stimulating
competition that are in the consumer's best
interest.” Leegin Creative Leather Prod., Inc. v.
PSKS, Inc., 551 U.S. 877, 886 (2007). To state a Section
1 claim under the rule of reason, a plaintiff must allege (1)
an agreement, conspiracy, or combination between two or more
entities that (2) the entities intend to harm or restrain
trade and (3) actually injures competition with (4) resulting
“antitrust injury” to the plaintiff.
Brantley, 675 F.3d at 1197.; Auto. Sound Inc. v.
Audiovox Elec. Corp., No. 12-762, 2012 WL 12892938, at
*3 (C.D. Cal. Dec. 3, 2012).
to demonstrate injury to competition, a plaintiff “must
delineate a relevant market and show that the defendant plays
enough of a role in that market to impair competition
significantly.” Bhan v. NME Hosps., Inc., 929
F.2d 1404, 1413 (9th Cir. 1991). “Without a definition
of the market, there is no way to measure the defendant's
ability to lessen or destroy competition.” Am.
Express, 138 S.Ct. at 2285 (internal alteration and
quotation marks omitted). The relevant market is the
“area of effective competition, ” including,
where applicable, different products or services that serve
as substitutes for each other. Id.; Oltz v. St.
Peter's Cmty. Hosp., 861 F.2d 1440, 1446 (9th Cir.
1988) (“The product market includes the pool of goods
or services that enjoy reasonable interchangeability of use
and cross-elasticity of demand.”). The market, which
must include a geographical component, must also be a product
market, and cannot be defined by reference to consumers.
Newcal Indus., Inc. v. Ikon Office Sol., 513 F.3d
1038, 1045 (9th Cir. 2008). Although the validity of an
alleged market may present issues of fact, courts may dismiss
antitrust complaints if the relevant market definition
alleged is “facially unsustainable.”
Newcal, 513 F.3d at 1038.
instant complaint alleges that Disney is restraining trade in
“the nationwide market for rentals and sales of movies
on DVD, Blu-ray and digital platforms for home
entertainment” (the “home movie” market).
(FAC ¶ 29.) Disney argues that this definition is
facially implausible because it fails to include economic
substitutes, including cable television, digital streaming
services such as Netflix, content platforms such as YouTube,
and special events, such as the Olympics. (Motion at 10.)
Disney further argues that the FAC fails to allege why such
alternatives are not adequate substitutes for home movies.
the issue is a close one, this Court concludes that the
alleged market is not so facially implausible as to warrant
dismissal at the pleading stage. Although Disney may, on
summary judgment, be able to demonstrate that cable tv,
streaming services, and the like are reasonably
interchangeable with home movies, in the court's
experience, that is not necessarily so. A DVD, for example,
can be viewed with little more than an inexpensive disc
player and a video screen. The supposed substitutes proposed
by Disney, in contrast, generally require additional
equipment, such as a cable box or receiver, some sort of
internet capability and equipment, such as a modem or router,
or, in the case of broadcast television, a digital
tuner. Furthermore, unlike the products in the
alleged market, the proposed alternatives appear to require
some sort of monthly or ongoing subscription, such as in the
case of Netflix or cable television, or must be viewed at set
times, as in the case of live sports or special events like
the Olympics.Although the FAC does not explain why
specific alternatives such as cable tv and Netflix are not
reasonable substitutes for home movies, it does allege that
DVDs, Blu-rays, and “digital movies generally require
or can be used with equipment different from that needed for
games, books, and other forms of home entertainment, ”
and that there is no cross-elasticity of demand between the
identified products and “games, books, and other forms
of home entertainment.” (FAC ¶ 31.) Compare
UGG Holdings, Inc. v. Severn, No. CV04-1137-JFW FMOX,
2004 WL 5458426, at *4 (C.D. Cal. Oct. 1, 2004) (finding
inadequately pleaded market where plaintiff made no
allegations or arguments as to why potential alternatives
were not substitutes and failed to allege lack of
cross-elasticity of demand). The relevant market allegations
here are sufficient to survive a motion to dismiss.
also argues that Redbox's claims fail because Redbox has
failed to allege that Disney possesses market power in the
market for home movies. A plaintiff can show anticompetitive
effect in a relevant market either through direct proof of
actual adverse effects or indirectly, through “proof of
‘market power' plus some evidence that the
challenged restraint harms competition.” Am.
Express, 138 S.Ct. at 2284; F.T.C. v. Indiana
Fed'n of Dentists, 476 U.S. 447, 460-61 (1986)
(“Since the purpose of the inquiries into market
definition and market power is to determine whether an
arrangement has the potential for genuine adverse effects on
competition, proof of actual detrimental effects, such as a
reduction of output, can obviate the need for an inquiry into
market power, which is but a surrogate for detrimental
effects.”) (internal quotations omitted); Oltz v.
St. Peter's Cmty. Hosp., 861 F.2d 1440, 1448 (9th
Cir. 1988) (“Because market definition and market power
are merely tools designed to uncover competitive harm, proof
of ‘actual detrimental effects, such as a reduction of
output, can obviate the need ... [for] elaborate market
analysis.'”) (quoting Indiana Fed'n of
Dentists, 476 U.S. at 460-61).
share is the starting point for assessing market power.
Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627
F.2d 919, 925 (9th Cir. 1980). The Ninth Circuit has found
that an allegation that a defendant controls sixty five
percent of the relevant market is sufficient to allege market
power. Id.; see also Image Tech. Servs., Inc. v.
Eastman Kodak Co., 125 F.3d 1195, 1206 (9th Cir. 1997)
(“Courts generally require a 65% market share to
establish a prima facie case of market power.”);
Lucas v. Citizens Commc'ns Co., 409 F.Supp.2d
1206, 1220 (D. Haw. 2005). Here, the FAC alleges that Disney's
share of the home movies market is something
“greater” than fifty percent. (FAC ¶¶
34-35.) Even if true, however, that fact is not sufficient to
establish Disney's market power in the home movies
market. Image Tech. Servs., 125 F.3d at 1206. Redbox
nevertheless argues, as the FAC alleges, that Disney has
“a dominant position” in the home movies market
due to the “unique strength of the Disney brand.”
(FAC ¶¶ 36-37.) Such conclusory assertions,
however, are not entitled to a presumption of truth.
Furthermore, Redbox does not cite, and this court is not
aware of, any authority for the proposition that general
brand strength demonstrates market power in a particular
market.Although brand strength may be relevant in