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Redbox Automated Retail, LLC v. Buena Vista Home Entertainment, Inc.

United States District Court, C.D. California

July 17, 2019

REDBOX AUTOMATED RETAIL, LLC, Plaintiff,
v.
BUENA VISTA HOMEENERTAINMENT, INC., DISNEY ENTERPRISES, INC., LUCASFILM LTD, LLC, MVL FILM FINANCE LLC, AND MOVIES ANYWHERE LLC, Defendants.

          ORDER RE: DEFENDANTS' MOTION TO DISMISS [DKT 58]

          DEAN D. PREGERSON, UNITED STATES DISTRICT JUDGE.

         Presently 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.

         I. Background [1]

         Disney 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.)

         In 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 ¶¶ 64-65.)

         Redbox 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.

         II. Legal Standard

         A 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, the-defendant-unlawfully-harmed-me accusation.” 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).

         “When 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.

         III. Discussion

         A. Antitrust Claims

         Disney 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.[2] 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).

         1. Relevant Market

         Generally, 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.

         The 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. (Id.)

         Although 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.[3] 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.[4]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.

         2. Market Power

         Disney 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).[5]

         Market 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).[6] 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.[7]Although brand strength may be relevant in ...


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