USDC N.D. California, January 8, 2010

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  • Court grants motion picture studios’ motion to dismiss plaintiff’s antitrust claims arising from studios’ refusal to license plaintiff’s product; court holds plaintiff lacks standing to plead an antitrust claim because it failed to prove that it suffered an anticompetitive injury and failed to plead a plausible antitrust conspiracy.

The DVD Copy Control Association (DVD CCA) is a non-profit corporation made up of motion picture studios, consumer electronics companies and computer companies. DVD CCA licenses Content Scramble System (CSS) technology to manufacturers of DVD devices and software. A CSS license is required to play back CSS-protected DVDs; CSS licensees are prohibited from producing or selling devices that circumvent CSS technology.

RealNetworks developed a product that allows users to copy CSS-protected DVDs to a hard drive. RealNetworks obtained a CSS license from DVD CCA and planned on launching its product on Sept. 8, 2008, but delayed the launch until Sept. 30, 2008. On the same day, RealNetworks filed a declaratory action against DVD CCA and several motion picture studios seeking a judgment that it had not violated the DMCA or breached the CSS license. Several days later, the court granted defendants’ request for a TRO, preventing the distribution or sale of the RealNetworks’ product. In May 2009, RealNetworks amended its complaint to allege that the defendants violated federal and state antitrust laws. In August 2009, the court entered a preliminary injunction barring RealNetworks from selling its product.

The defendants moved to dismiss the antitrust claims, arguing that (1) RealNetworks failed to allege any anticompetitive conduct that is the cause-in-fact of any injury to RealNetworks and (2) RealNetworks’ allegations of an antitrust conspiracy fail to meet the pleading requirements of Fed. Rule Civil Proc. 8. The court agreed with both of defendants’ arguments. According to the court, the only harm alleged by RealNetworks is the delay of its product launch from Sept. 8 to Sept. 30, 2008, during which time it “attempted to address the Studio Defendants’ concerns regarding the product.” Sale of RealNetworks’ product was enjoined a few days later by the court’s TRO.

According to the court, “[a]ny assertion by Real that the Studios’ refusal to license the copying of DVDs caused an antitrust injury apart from the delay resulting from the injunctive relief is contradicted by Real’s assertions that it believed no license was necessary. . . . Indeed, having failed to come to any arrangement with the Studios, on September 30, 2008, Real simply began selling RealDVD. . . . To the extent the Studios cooperated with one another and the DVD CCA to petition this court for relief, such cooperation unambiguously falls within the Noerr-Pennington exception to liability under the antitrust statutes.”

Even if RealNetworks had antitrust standing, the court also held that it failed to meet the Rule 8 notice pleading standards. The court explained that a necessary element of a “restraint of trade” claim under Section 1 of the Sherman Act is the existence of a contract, combination or conspiracy. “The Studios trade in movies, not encryption software. Where there is no allegation that the Studios have entered into an exclusive agreement to distribute their movies only on CSS-encrypted DVDs, the CSS license cannot plausibly be an illegal restraint of trade.” Furthermore, according to the court, RealNetworks’ complaint does not allege enough specific facts to state a claim for a Section 1 violation under a group boycott theory; “[t]he complaint’s antitrust allegations consist largely of conclusory assertions and legal conclusions. Offering a conclusory assertion that a conspiracy existed is insufficient; a party must allege enough facts to nudge its claim across the line from conceivable to plausible.” The court denied leave to amend to replead the antitrust claims, on the basis that such amendment would be futile because no antitrust injury could be alleged.