Dreamstime.com, LLC v. Google LLCDreamstime.com, LLC v. Google LLC
- Reporters:
- ,
- Before:
- Ronald M. Gould, Johnnie B. Rawlinson, Jennifer G. Zipps
Antitrust
The panel affirmed the district court‘s dismissal of an antitrust claim brought by Dreamstime.com, LLC, an online supplier of stock images, against Google LLC.
Dreamstime alleged that Google violated
A § 2 claim includes two elements: (1) the defendant has monopoly power in the relevant market, and (2) the defendant has willfully acquired or maintained monopoly power in that market. To meet the first element, a plaintiff generally must (1) define the relevant market, (2) establish that the defendant possesses market share in that market sufficient to constitute monopoly power, and (3) show that there are significant barriers to entering that market. The second element requires that the defendant engaged in willful acts to acquire or maintain a monopoly in the relevant market. This element requires a showing that a defendant possessing monopoly power undertook anticompetitive conduct and did so with an intent to control process or exclude competition in the relevant market.
The panel held that the record did not support Dreamstime‘s contention that it defined the relevant market to include the online, organic search market (in addition to the online search advertising market). Rather, by its course of conduct before the district court, Dreamstime waived any § 2 claim arising from the online search market.
The panel affirmed the district court‘s conclusion that Dreamstime failed to allege anticompetitive conduct in the online sеarch advertising market. The panel
Finally, the panel held that the district court properly dismissed Dreamstime‘s § 2 claim with рrejudice and without leave to amend.
The panel addressed additional issues in a separate memorandum disposition filed simultaneously with this opinion.
GOULD, Circuit Judge:
This appeal arises from an antitrust action brought by Dreamstime.com, LLC (“Dreamstime”), an online supplier of stock images, against Google LLC. In short, Dreamstime alleged that Google violated
FACTUAL BACKGROUND
I
Google operates the most used search engine in the world. Google‘s search engine connects users to websites based on the search query that a user enters into the search bar on Google. Google uses proprietary algorithms to interpret user search queries, cross-reference Google‘s index of webpages, and display a ranked list of webpages to users. Google‘s algorithms take into account, among other things, the page‘s relevance, usability, and age, as well as the user‘s past behavior and browser settings, to identify and rank relevant webpages. Google also operates
Instead, Google‘s search services are monetized, in part, by advertising revenues. Google‘s online advertising service is called “Google Ads.”1 Google Ads charges companies to display their ads next to the search results generated by Google‘s search engines as well as on other websites. When displayed next to Google‘s search results, these advertisements are referred to as “sponsored” or “paid” search results. By contrast, the search results generated by Google‘s search engines—and displayed alongside these advertisements—are referred to as “organic” or “free” search results.
II
Dreamstime, a supplier of online stock images, is based in Romania. Dreamstime offers a searchable repository of tens of millions of stock photos for purchase as well as millions of free images. Dreamstime, for its business model, relies heavily on user traffic directed to it from search engines like Google. About two-thirds of Dreamstime‘s customers come to its website from seаrch results generated by such search engines.
III
In 2015, Google revised the algorithm powering its search engine. This revision altered the “salient terms signal,” a part of Google‘s search algorithm that helps generate terms associated with a webpage so that Google‘s search engine can find and list webpages responsive to a user‘s search query. The salient terms revision gave more weight to “certain words based on how the webpage displayed them.”
After Google revised its algorithm, Dreamstime‘s organic search ranking began to fall. Dreamstime allegеs that this drop in search ranking caused its number of new customers to fall 30% by April 2016. During this time,
In response, Google‘s advertising support team recommended an external Search Engine Optimization (SEO) expert to help Dreamstime address its search rankings. The SEO expert concluded, in a free analysis sent to Dreamstime, that the reason behind Dreamstime‘s flagging search ranking was “the weak content of [its] site.” Dreamstime then invested millions of dollars in an attempt to improve its search ranking. Despite these efforts, Dreamstime‘s organic search ranking on Google continued to decline. Dreamstime‘s organic search ranking on other search engines did not decline during this time.
The parties dispute whether the revision to Google‘s algorithm caused Dreamstime‘s organic search ranking to decline. Dreamstime contends that it did, but Google has denied this claim. Both sides point to experiments that Google conducted to test the algorithmic update. One experiment found the proposed algorithmic revision improved the overall customer experience using Google‘s search engine. A second side-by-side experiment compared salient terms generated for a sample of 2,300 websites before and after the proposed algorithmic change. One of the samplе webpages in that experiment was a Dreamstime webpage, and it was rated as a “loss,” meaning that the algorithm was worse at identifying that webpage‘s salient terms because of the change to the algorithm.
PROCEDURAL BACKGROUND
Dreamstime sued Google in March 2018. It asserted four claims: (1) violation of
Google again moved to dismiss. After further briefing, another motion to dismiss, and an order seeking clarification from both parties, the district court
Dreamstime timely appeals the district court‘s dismissal of its Section 2 claim.3 We have jurisdiction under
STANDARD OF REVIEW
We review de novo the district court‘s dismissal of a claim under
DISCUSSION
Dreamstime argues on appeal that the district court erred in dismissing with prejudice its claim under
I
In the context of a Section 2 claim, monopoly power means the power to “control prices or exclude competition.” Grinell, 384 U.S. at 571 (citation omitted). We have recognized that market share is perhaps the “most important factor to consider” when determining whether a defendant has monopoly power. Movie 1 & 2 v. United Artists Commc‘ns, 909 F.2d 1245, 1254 (9th Cir. 1990). To meet the first element of a Section 2 claim, a plaintiff generally must (1) define the relevant market, (2) establish that the defendant possesses market share in that market sufficient to constitute monopoly power,5 and (3) show that there are significant barriers to entering that market. See Image Tech., 125 F.3d at 1202.
The second element of a Section 2 claim requires that the defendant engaged in “willful” acts to acquire or maintain a monopoly in the relevant market.
The focus of this element is on conduct that harms “the competitive process” as a whole; it is “not on the success or failure of individual competitors.” Id. at 902. We must “ensur[e] that [enforcing] the antitrust laws do[es] not punish economic behavior that benefits consumers and will not cause long-run injury to the competitive process.” Id. at 903. Indeed, anticompetitive conduct does not include “growth or development” that occurs “аs a consequence of a superior product, business acumen, or historic accident.” Grinnell, 384 U.S. at 571. Likewise, Section 2 generally does not require firms that “acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers . . . to share the source of their advantage.” Trinko, 540 U.S. at 407.
II
One important question on appeal lies at the threshold: Did Dreamstime define the relevant market for its Section 2 claim to include the online, organic search market (in addition to the online search advertising market)? Dreamstime maintains that it did, and that the district court erroneously focused solely on the online search advertising market as the sole relevant market. This issue is critical to evaluating Dreamstime‘s claim that the district court erred in concluding that Dreamstime did not allege anticompetitive conduct in the relevant market.
We hold that the record does not support Dreamstime‘s current contention that it included online search in its definition of the relevant market. Tо the contrary, the district court repeatedly offered Dreamstime the opportunity to define the relevant market as including the online search market, and, at every turn,
A
Questions and confusion surrounded the relevant market for Dreamstime‘s Section 2 claim from the outset of this action. In the first paragraph of its original complaint, Dreamstime defined the relevant market as the “online search advertising” market and alleged that Google was carrying out a strategy that “further entrench[ed] Google‘s monopoly of the relevant online search advertising market.” Later, the complaint repeated that “the online search advertising market” was “the relevant antitrust market for purposes of this case.”
This would seem clear enough. However, other sections of Dreamstime‘s original complaint muddied the waters. Other language in Dreamstime‘s original complaint appeared to hint at a second market—the online search market—for its Section 2 claim. Specifically, Dreamstime alleged as follows:
Though the online search market and online search advertising markets are described separately for the sake of precision, and though the online search advertising market is the relevant antitrust market for purposes of this case, they are essentially one and the same, and Google‘s monopoly power exists in both. In essence, Google is monetizing a monopoly position in online search by selling advertising on top of search results.
The confusion was not lost on the district court, which endeavored to nail down the relevant market for Dreamstime‘s Section 2 claim. At the hearing on
After this hearing, the district court granted Dreamstime leave to amend its original comрlaint in response to the arguments raised in Google‘s original motion to dismiss and discussed at the hearing, which Dreamstime elected to do. In its FAC, Dreamstime again asserted that the relevant market for its Section 2 claim was the “online search advertising market.” But, as in the original complaint, the FAC mentioned both the online search and the online stock photo markets in
As a result, at the hearing on Google‘s motion to dismiss the FAC, the district court once again asked Dreamstime to clarify the relevant market for its Section 2 claim. Dreamstime responded, “[t]he relevant market we have defined in the complaint has always been the online search advertising market.” The district court would again ask Dreamstime what the relevant market was for its Section 2 claim. Dreamstime responded that “the restraint is taking place on Google‘s search -- online search advertising website. That‘s the market.” This answer prompted the district court again to ask whether the relevant market included the online search market “for images.” Dreamstime responded again that the market was only “online search advertising.” The district court ended the hearing by seeking to eliminate any doubt whatsoever on the relevant market, asking Dreamstime as follows: “Tell me again – I have to bring it to a close . . . Tell me very specifically what is the market that you allege.” Dreamstime responded, “[t]he online search advertising market.”
The district court gave Dreamstime ample opportunity to clarify the relevant market for its Section 2 claim. The district court issued a “Request to Plaintiff for Clarification” after the hearing. Among other things, the district court explained in
Dreamstime responded “yes” to the district court‘s first request and clarified that “Dreamstime [was] not asserting a separate” two-market leveraging claim. As to whether it had forsworn the second theory, Dreamstime said it was alleging that Google monopolized the “online search advertising relevant market” but Dreamstime clarified that it foreswore the theory that Dreamstime was “a future potential or actual direct competitor” to Google in that market. Finally, Dreamstime affirmed that it “defined the relevant market (or submarket) in this case for antitrust purposes as online search advertising” which included sponsored ads that appear within search results as well as photo ads.
B
The record is clear: Dreamstime refused expressly and repeatedly to include the online search market within its definition of the relevant market for its Section
III
We now consider whether the district court properly concluded that Dreamstime failed to allege anticompetitive conduct in the online search advertising market. Dreamstime expressly disclaimed any intent to compete with
A
Four of the anticompetitive behaviors alleged by Dreamstime relate to purported mistreatment of Dreamstime as a Google customer: (1) rigging the advertisement auction bidding, (2) selectively enforcing its terms and rules, (3)
Dreamstime counters that Google‘s “rigged” policies and “selective enforcement” of policies on Google Ads “spawns monopoly pricing.” This allegation also misses the mark. Merely possessing monopoly power and chаrging monopoly prices—without accompanying anticompetitive conduct—is not enough to state a claim under Section 2. Trinko, 540 U.S. at 407. This is because the “opportunity to charge monopoly prices” is a feature, not a bug, of the free market system, according to the Supreme Court. Id.
In sum, these allegations have, at most, alleged that Google mistreated Dreamstime as a Google customer. They have not shown, as they must to sustain a Section 2 claim, that this mistreatment harmed competition in the online search advertising market. There was no antitrust injury. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).
B
Next, three of the alleged anticompetitive behaviors relate to Dreamstime‘s performance in Google‘s unpaid, organic search results: (1) demoting Dreamstime‘s organic search results on Google; (2) elevating inferior stock photo
Focusing instead on the online search advertising market, these allegations do not plausibly state a claim for anticompetitive conduct. Dreamstime contends that Google prevented online search advertising companies from accessing Dreamstime‘s stock images for use in advertisements in two different ways. First, by preferencing in Google search results the suppliers of stock images with which Google has a partnership, and second, by thwarting Google users’ ability to access Dreamstime‘s stock images. But Dreamstime has not plausibly alleged that its diminished performance in Google‘s search results has inhibited other online search advertisers from accessing stock images from anyone other than Dreamstime. Nor, as the district court noted, has Dreamstime alleged that Google
C
Dreamstime also contends that Google “unlawfully captur[ed] data from users and advertisers.” This allegation also does not state anticompetitive behavior. Collecting user data, on its own, is not unlawful under the Sherman Act. That is because, standing alone, it is an example of a company using a competitive advantage gained from “establishing an infrastructure that renders them uniquely suited to serve [its] customers,” Trinko, 540 U.S. at 407, or from “a consequence of a superior product,” Grinnell, 384 U.S. at 571, neither of which is anticompetitive. We agree with the district court that Dreamstime did not plausibly allege how Google‘s data collection techniques are improper or unlawful, and its conclusory statements to this effect in its pleadings are inadequate to state a claim. Ashcroft v. Iqbal, 556 U.S. 662, 678–80 (2009).
D
Dreamstime‘s final argument is that the district court erred by not assessing the anticompetitive effect of Google‘s predatory acts taken together as an overall scheme. The Supreme Court has instructed courts to give plaintiffs in antitrust
Dreamstime‘s theory under the “inextricably intertwined” doctrine falls short for a similar reason. This doctrine stems from the Supreme Court‘s decision in Blue Shield v. McCready, 457 U.S. 465 (1982). In McCready, the Court recognized that an antitrust plaintiff that does not compete with a defendant can still recover for injuries that are “inextricably intertwined” with the “injury the conspirators sought to inflict” on competitors in the relevant market. Id. at 484.
Here, Dreamstime insists that the injuries it has suffered are “inextricably intertwined” with Google‘s maintenance of its online search advertising monopoly. But Dreamstime‘s issue is not its failure to properly allege that its business
E
Dreamstime expressly tied its Section 2 claim to the online search advertising market. It did not identify any actions by Google that tended to harm competition in that market. We conclude that the district court properly dismissed its Section 2 claim.
IV
Finally, we address whether the district court erred in dismissing Dreamstime‘s Section 2 claim with prejudice. Dreamstime argues that it did and asks that we remand with instructions to permit amendment.
We review a district court‘s decision to dismiss a claim with prejudice for abuse of discretion. Coal. to Defend Affirmative Action v. Brown, 674 F.3d 1128, 1133 (9th Cir. 2012). “[W]here the plaintiff has previously been granted leave to amend and has subsequently failed to add the requisite particularity to its claims,
We hold that the district court did not abuse its discretion. The district court repeatedly raised the issue of Dreamstime‘s definition of the relevant market from the outset. The district court gave Dreamstime several opportunities to address that issue, including leave to file an amended complaint. In filing its FAC and in its motion to dismiss briefing, Dreamstime expressly chose to maintain its theory of the case and pursue a one-market, monopoly maintenance claim centered on the online search advertising market, foregoing any reliance on the online search or stock image markets. In light of this record, we cannot conclude that the district court abused its “particularly broad” discretion in refusing Dreamstime yet another opportunity to do what it repeatedly had declined to do.
CONCLUSION
For the foregoing reasons, we conclude that the district court did not err in dismissing Dreamtime‘s antitrust claim with prejudice.
AFFIRMED.