Dark Catt Studios Holdings Inc et al v. Valve Corporation, No. 2:2021cv00872 - Document 56 (W.D. Wash. 2021)
Court Description: ORDER granting in part and denying in part Defendant's 42 Motion to Dismiss Plaintiffs' Class Action Complaint for Damages and Injunctive Relief. Plaintiffs' complaint is DISMISSED without prejudice and with leave to amend. An amended complaint, addressing the infirmities described above, as well as any other changes it elects to make, may be filed within thirty (30) days of this order. If no such amendment is filed, the Clerk is DIRECTED to close this case. Signed by U.S. District Judge John C. Coughenour. (SR)
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Dark Catt Studios Holdings Inc et al v. Valve Corporation Doc. 56 THE HONORABLE JOHN C. COUGHENOUR 1 2 3 4 5 6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 7 8 9 10 11 DARK CATT STUDIOS HOLDINGS, INC. and DARK CATT STUDIOS INTERACTIVE LLC, on behalf of themselves and all others similarly situated. CASE NO. C21-0872-JCC ORDER Plaintiffs, 12 v. 13 14 VALVE CORPORATION, Defendant. 15 16 This matter comes before the Court on Defendant’s motion to dismiss (Dkt. Nos. 38, 42). 17 18 19 20 21 22 23 24 25 26 Having thoroughly considered the parties’ briefing and the relevant record, the Court finds oral argument unnecessary and hereby GRANTS in part and DENIES in part the motion for the reasons explained below. I. BACKGROUND Plaintiffs Dark Catt Studios Holdings, Inc. and Dark Catt Studios Interactive LLC (collectively “Dark Catt”) develop and publish personal computer (“PC”) games. (Dkt. No. 1 at 9.) Defendant is the creator of the Steam gaming website, the world’s largest PC game distributor. (Id. at 10.) Dark Catt alleges in a class action complaint that Defendant utilizes its market power to impose anticompetitive pricing and marketing restrictions on Dark Catt and ORDER C21-0872-JCC PAGE - 1 Dockets.Justia.com 1 similarly situated PC game developers and publishers (collectively “publishers”). (Id. at 8–9.) 2 The resulting alleged injuries include, inter alia, the payment of supracompetitive fees. (Id. at 3 19.) Dark Catt asserts these practices violate Section 2 of the Sherman Act, along with the 4 Washington Consumer Protection Act (“CPA”). (Id. at 44–47.) Defendant moves to dismiss 5 pursuant to Federal Rule of Civil Procedure 12(b)(6). (Dkt. No. 42.) It argues that Dark Catt fails 6 to allege facts plausibly supporting an antitrust injury, fails to plausibly allege Defendant’s 7 market power, and fails to provide facts supporting unlawful antitrust conduct. (Id. at 11–29.) 8 II. 9 DISCUSSION A. Legal Standard 10 A motion to dismiss pursuant to Rule 12(b)(6) “tests the legal sufficiency of a claim.” 11 Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2011), see Fed. R. Civ. P. 12(b)(6). To survive 12 such a motion, “a complaint must contain sufficient factual matter, accepted as true, to state a 13 claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009) (internal 14 quotation marks and citation omitted); see Shroyer v. New Cingular Wireless Serv., Inc., 622 15 F.3d 1035, 1041 (9th Cir. 2010). In reviewing the motion, the Court must accept the truth of the 16 facts alleged and draw all reasonable inferences from those facts in a plaintiff’s favor. Al-Kidd v. 17 Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009). However, allegations must cross “the line between 18 possibility and plausibility of entitlement to relief.” Iqbal, 556 U.S. at 677. To do so, the 19 complaint must “plead[] factual content that allows the court to draw the reasonable inference 20 that the defendant is liable for the misconduct alleged.” Id. As a result, a “pleading that offers 21 ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not 22 do.’” Id. at 678 (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). 23 B. 24 To support an antitrust claim, a plaintiff must allege “(1) unlawful conduct, (2) causing Injury 25 an injury to the plaintiff, (3) that flows from that which makes the conduct unlawful, and (4) that 26 is of the type the antitrust laws were intended to prevent.” Am. Ad Mgt., Inc. v. Gen. Tel. Co. of ORDER C21-0872-JCC PAGE - 2 1 California, 190 F.3d 1051, 1055 (9th Cir. 1999). A key consideration here, then, is whether Dark 2 Catt’s complaint plausibly alleges injury. (See Dkt. No. 42 at 11–18.) As the Court indicates in a 3 similar putative class action, an injury based on the payment of supracompetitive fees cannot be 4 plausibly alleged if the fee charged remains the same when a defendant allegedly controlled the 5 market and when it did not. See Wolfire Games, LLC, et. al., v. Valve Corporation, Case No. 6 C21-0563-JCC, Dkt. No. 67 at 6 (W.D. Wash. 2021) (citing Somers v. Apple, Inc., 729 F3d. 953, 7 964–65 (9th Cir. 2013). 8 According to this complaint, except for recent volume discounts, Defendant has 9 consistently charged the same 30% supracompetitive fee. (See Dkt. No. 1 at 12, 26). However, 10 unlike the Wolfire complaint, which the Court dismissed without prejudice, see Wolfire Games, 11 LLC, Case No. C21-0563-JCC, Dkt. No. 67 at 8, Dark Catt’s complaint does not contain 12 allegations suggesting that, at any point, Defendant was not the market leader for PC game 13 delivery. (See generally Dkt. No. 1.) While Defendant asks the Court to infer as much, (see Dkt. 14 No. 42 at 13), this would violate the fundamental principle that, at least at this point, reasonable 15 inferences must be drawn in Dark Catt’s favor. Al-Kidd, 580 F.3d at 956. Turning to the 16 substance of Dark Catt’s allegations, the complaint alleges that Defendant’s 30% fee is 17 supracompetitive because it is far above what other storefronts charge. (Dkt. No. 1 at 18–19, 40– 18 41.) This is sufficient to allege injury; therefore, the Court need not address Dark Catt’s 19 arguments regarding whether non-price injury has been adequately plead. 20 C. 21 Defendant next argues that Dark Catt fails to provide sufficient allegations to support its 22 assertions regarding Defendant’s market power, specifically its 75% market share. (Dkt. No. 42 23 at 18–20.) The Court disagrees. According to the complaint, Steam “hold[s] approximately 75% 24 of the global market” which, [i]n 2017 . . . generated over $4 billion worth of sales” and last year 25 “recorded 120 million monthly active players.” (Dkt. No. 1 at 5.) As a result, game publishers 26 consistently list their games for sale on Steam “to be where the players are.” (Id. at 18 (internal ORDER C21-0872-JCC PAGE - 3 Market Power 1 quotation marks and citation omitted).) At this stage in the proceeding, no more is required. See 2 Newcal Industries, Inc. v. Ikon Off. Sol., 513 F.3d 1038, 1045 (9th Cir. 2008) (indicating that the 3 complaint can be dismissed if the relevant market is “facially unsustainable”). 4 D. 5 The final issue for the Court’s consideration is antitrust conduct. According to the Alleged Antitrust Conduct 6 complaint, Defendant engages in the following: (1) uses Steam Keys, which are alphanumeric 7 codes that allow Steam-hosted games to be purchased outside of Steam, to impose anti- 8 competitive terms to game publishers, (2) uses contractual agreements with game publishers 9 whose games are hosted by Steam to impose similar anti-competitive terms to the sale of a 10 publisher’s non-Steam hosted games, and (3) controls the game review system within Steam in 11 such a manner so as to punish game publishers who choose to sell games outside of the Steam 12 environment. (Dkt. No. 1 at 6–9.) In moving to dismiss, Defendant argues that none are 13 adequately plead. (Dkt. No. 15–24.) 14 15 1. Steam Keys Defendant provides game publishers with Steam Keys, which allow for the sale of Steam- 16 hosted versions of games through third-party storefronts. (Dkt. No. 1 at 31.) According to Dark 17 Catt’s complaint, Valve tightly controls to whom, how many, and on what terms it provides 18 Steam Keys and, in doing so, engages in anti-competitive conduct. (Id. at 31–35.) But Defendant 19 has no duty to deal. Aerotec Intl., Inc. v. Honeywell Intl., Inc., 836 F.3d 1171, 1184 (9th Cir. 20 2016). So long as it has a valid business reason for the terms it attaches to its Steam Keys, those 21 terms cannot, as a matter of law, represent unlawful antitrade conduct. Id. (citing Aspen Skiing 22 Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 (1985)). And nothing in Dark Catt’s 23 complaint suggests that Defendant’s Steam Key terms are irrational. (See Dkt. No. 1 at 15–16 24 (insisting that Steam customers get comparable deals to non-Steam customers).) 25 26 2. Contractual Limitations Game publishers often create parallel versions of their games—a version to be hosted on ORDER C21-0872-JCC PAGE - 4 1 Steam and another to be hosted elsewhere. (See Dkt. No. 1 at 12–13.) The Steam version is 2 governed by the Steam Distribution Agreement (“SDA”), 1 which requires publishers to offer the 3 most current version of a game and downloadable content (“DLC”) on Steam. (Id. at 13–19.) The 4 complaint also alleges that the SDA contains (a) anti-competitive exclusivity provisions and (b) 5 price controls, requiring that non-Steam versions of games be sold at the same price as the Steam 6 version. (See Dkt. No. 1 at 28–30.) Dark Catt describes these collective requirements as a most- 7 favored-nation (“MFN”) provision. (Id. at 15.) According to the complaint, the MFN “chills 8 competition between Valve and it rivals by preventing Publishers from offering better deals to 9 consumers through rival distributors.” (Dkt. No. 54 at 28.) 10 First, while the SDA does require game publishers to provide Steam customers with the 11 most current version of their games and DLC, nothing in the SDA requires that they be offered at 12 comparable prices. (See generally Dkt. No. 40.) 2 Therefore, the complaint’s allegations 13 regarding the SDA’s price controls are not plausible. See Steckman v. Hart Brewing Inc., 143 14 F.3d 1293, 1295 (9th Cir.1998) (The court is “not required to accept as true conclusory 15 allegations which are contradicted by documents referred to in the complaint.”) 16 Second, the Court does not read the SDA as containing an exclusivity provision. Instead, 17 it provides that game publishers may “offer special and unique promotional content through 18 other distribution channels, provided that material parity is maintained between Steam Account 19 Owners and users of other distribution channels who make a comparable investment in the 20 Application and the associated DLC.” (Dkt. No. 40 at 4.) And in any case, according to the 21 complaint, exclusive offerings are common in the industry. (See Dkt. No. 1 at 17, 30, 34, 36, 37, 22 39.) Therefore, it would seem implausible that such agreements could constitute anti-competitive 23 1 24 25 While the SDA was not attached to the complaint, it is frequently referenced by it, (see Dkt. No. 1 at 9–14, 19, 27–28, 30–31, 39–42, 44–47), and, therefore, is effectively “incorporated by reference” into the complaint. U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). 2 26 Defendant provided the Court with a copy of the SDA (Dkt. No. 40), which Dark Catt does not challenge the authenticity of. (See Dkt. No. 54 at 27.) ORDER C21-0872-JCC PAGE - 5 1 conduct. 2 Third, the SDA’s requirement that Steam customers receive the most current version of a 3 game and DLC, like any contractual term, is only anti-competitive if not supported by a valid 4 business reason. See Verizon Commun. Inc. v. L. Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 5 411 (2004) (no duty to aid competitors). Here, it stands to reason that Steam would expect its 6 customers to receive a comparable product to that offered through other storefronts. This is a 7 basic business principle. See William O. Gilley Enters. v. Atl. Richfield Co., 588 F.3d 659, 662 8 (9th Cir. 2009) (antitrust claim must be “‘plausible’ in light of basic economic principles.” 9 (quoting Twombly, 550 U.S. at 556).) 10 3. Game Reviews 11 Finally, the complaint alleges that Defendant manages the game review system in a 12 manner so as to further its anticompetitive efforts. (Dkt. No. 1 at 35–40.) According to the 13 complaint, Defendant uses the game review system, which it hosts, to penalize publishers who 14 choose to sell a particular game exclusively through another storefront. (Id.) But it is not clear 15 how the resulting harms would “flow[] from that which makes the conduct unlawful” or 16 represent “the type [of conduct] the antitrust laws [a]re intended to prevent.” Am. Ad Mgt., Inc., 17 190 F.3d at 1055. To summarize: Dark Catt’s complaint plausibly alleges an injury and plausibly alleges 18 19 that Defendant holds market power, but it fails to allege unlawful antitrust conduct. Therefore, it 20 fails to adequately plead a violation of Section 2 of the Sherman Act or a violation of the CPA. 21 III. 22 CONCLUSION For the foregoing reasons, Defendant’s motion to dismiss (Dkt. Nos. 38, 42) is 23 GRANTED in part and DENIED in part. Plaintiffs’ complaint is DISMISSED without prejudice 24 and with leave to amend. 3 An amended complaint, addressing the infirmities described above, as 25 26 3 Plaintiffs did not affirmatively seek leave to amend. (See generally Dkt. No. 54.) Nevertheless, the Court GRANTS Plaintiffs leave to do so pursuant to Federal Rule of Civil ORDER C21-0872-JCC PAGE - 6 1 well as any other changes it elects to make, may be filed within thirty (30) days of this order. If 2 no such amendment is filed, the Clerk is DIRECTED to close this case. 3 4 DATED this 19th day of November 2021. A 5 6 7 John C. Coughenour UNITED STATES DISTRICT JUDGE 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Procedure 15(a)(2) because it is not yet clear that such amendment would be futile. See Thinket Ink Info. Resources, Inc. v. Sun Microsystems, Inc., 368 F.3d 1053, 1061 (9th Cir. 2004). ORDER C21-0872-JCC PAGE - 7
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