BACKGROUND

16 PayPal is the dominant eCommerce payments platform in the United States, handling 17 billions of transactions annually. (CAC ¶ 22.) To accept PayPal, eCommerce merchants in the 18 United States enter form contracts with PayPal that prohibit offering price discounts when 19 consumers use non-PayPal means of payment. (Id. ¶ 3.) Framed as a prohibition on 20 “surcharges,” PayPal’s anti-discrimination (“ADP”) provisions forbid any PayPal-accepting 21 merchant from offering discounts on goods purchased with non-PayPal means of payment. (Id. ¶¶ 22 33–36.) The rules state that merchants shall not impose “a surcharge or any other fee for 23 accepting PayPal as a payment method” and that any fees charged on PayPal transactions may not 24 be higher than fees charged “for non-PayPal transactions.” (Id. ¶ 34.) Under these provisions, 25 merchants cannot “steer” consumers to more cost-effective payment methods other than Paypal by 26 offering discounts to Paypal’s rivals. Any such attempt would be treated as a “surcharge” on 27 1 2 Plaintiffs allege that PayPal’s ADPs generate higher eCommerce prices along with other 3 anticompetitive effects. Without these restraints, Plaintiffs allege, eCommerce merchants would 4 naturally offer consumers discounts to use cheaper payment methods, steering them away from 5 Paypal’s industry high fees. (Id. ¶¶ 39–45.) In effect, PayPal and its co-conspiring merchants 6 have eliminated this natural form of price competition and replaced it with a price floor below 7 which the merchants have agreed they will not discount prices. (Id. ¶ 44.) With this price floor in 8 place, Paypal’s rivals see little to gain by undercutting PayPal’s fees. (Id. ¶¶ 50–51.) 9 Plaintiffs further allege that PayPal’s ADPs prevent non-price forms of steering by 10 preventing PayPal merchants from exhibiting any “preference for other payment methods” or 11 encouraging consumers to “use an alternate payment method.” (Id.¶ 36.) These restrictions 12 prevent merchants from providing consumers with basic pricing information to influence their 13 selection of payment methods. For example, a PayPal merchant cannot tell its customers that 14 PayPal charges industry-high fees, or that selecting cheaper methods of payment would assist the 15 merchant in keeping its retail prices competitive. (Id. ¶ 37.) 16 Plaintiffs allege that Paypal’s implementation of the ADPs injured Plaintiffs and the 17 proposed Class because they purchased goods in eCommerce using alternatives to PayPal and 18 were thus deprived of discounts they could have otherwise secured. (Id. ¶¶ 16–19, 45, 82.) 19 Plaintiffs assert a claim under Section 1 of the Sherman Act, as well as claims under California’s 20 Cartwright Act and Unfair Competition law (“UCL”). (Id. ¶¶ 94–116.) Plaintiffs also seek an 21 injunction against Paypal’s further use of the ADPs. (Id. ¶ 82.) 22 I. LEGAL STANDARD 23 A. Rule 12(b)(1) 24 Under Rule 12(b)(1), a district court should dismiss a case when it “lacks statutory or 25 constitutional power to adjudicate it.” Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 26 2000). In reviewing a motion to dismiss under Rule 12(b)(1), the court must accept all material 27 factual allegations in the complaint as true, but should not draw “argumentative inferences 1 F.2d 196, 198 (2d Cir. 1992) (citing Norton v. Larney, 266 U.S. 511, 515 (1925)). The plaintiff 2 bears the burden of showing, by a preponderance of the evidence, that the court has subject matter 3 jurisdiction over its claims. See id. 4 B. Rule 12(b)(6) 5 A complaint must contain a “short and plain statement of the claim showing that the 6 pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “[D]etailed factual allegations are not 7 required” to survive a motion to dismiss if the complaint contains sufficient factual allegations to 8 “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 9 (2009) (citing Bell Atl. v. Twombly, 550 U.S. 544, 570 (2007)). “Labels and conclusions[ ] and a 10 formulaic recitation of the elements of a cause of action will not do.” Twombly, 50 U.S. at 555. 11 When evaluating a Rule 12(b)(6) motion to dismiss, a district court accepts as true all 12 material facts alleged in the complaint and draws all reasonable inferences in favor of the 13 plaintiff. Faulkner v. ADT Servs., Inc., 706 F.3d 1017, 1019 (9th Cir. 2013). A district court 14 should grant leave to amend unless the court determines the pleading could not “possibly be cured 15 by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000). 16 II. SHERMAN ACT CLAIM 17 A. Antitrust Standing 18 It is “mandatory” for the plaintiff to “demonstrate that the harm the plaintiff has suffered or 19 might suffer from the [alleged] practice” constitutes “an ‘injury of the type the antitrust laws were 20 intended to prevent and that flows from that which makes defendants’ acts unlawful.’” City of 21 Oakland v. Oakland Raiders, 20 F.4th 441, 456 (9th Cir. 2021). Am. Ad Mgmt., Inc. v. Gen. Tel. 22 Co. sets forth the relevant factors (the “American Ad factors”) to analyze standing: (1) “nature of 23 the plaintiff’s injury; that is, whether it was the type the antitrust laws were intended to forestall,” 24 (2) “directness of the injury,” (3) “speculative measure of the harm,” (4) “risk of duplicative 25 recovery,” and (5) “complexity of apportioning damages.” 190 F.3d 1051, 1054–55 (9th Cir. 26 1999) (citing Associated Gen. Contractors of Cal. v. Cal. State Council of Carpenters, 459 U.S. 27 519, 535 (1983)). 1 1. Nature of Plaintiffs’ Injury 2 Courts have identified “four requirements for antitrust injury: (1) unlawful conduct, (2) 3 causing an injury to the plaintiff, (3) that flows from that which makes the conduct unlawful, and 4 (4) that is of the type the antitrust laws were intended to prevent.” Am. Ad Mgmt., 190 F.3d at 5 1055. Plaintiffs do not adequately allege that the injury described flows from the allegedly 6 unlawful conduct for reasons described in the section analyzing the directness and the speculative 7 nature of injury. 8 Plaintiffs also allege injury insofar as the Anti-Steering Rules prevent merchants from 9 conveying the information consumers need to make an informed choice between payment 10 methods. (CAC ¶¶ 9, 57–58). Plaintiffs do not explain how this theory of harm does not 11 ultimately rely on the same assumptions as the other flawed theories of harm. 12 2. Directness of the Injury and Speculative Nature of the Injury 13 The “directness” American Ad factor “looks to whether [the plaintiff’s] alleged injury was 14 the direct result of [the defendant’s] allegedly anticompetitive conduct” and focuses on “the chain 15 of causation between [the plaintiff’s] injury and the alleged restraint” of trade. Am. Ad Mgmt., 190 16 F.3d at 1058. To support a finding of standing, “[t]he harm may not be derivative and indirect or 17 secondary, consequential, or remote.” Theme Promotions, Inc. v. News Am. Mktg. FSI, 546 F.3d 18 991, 1004 (9th Cir. 2008). Alleged injuries that are “derivative and indirect or secondary, 19 consequential, or remote” do not support antitrust standing. Theme Promotions, Inc. v. News Am. 20 Mktg. FSI, 546 F.3d 991, 1004 (9th Cir. 2008). Similarly, the “speculative” American Ad factor 21 focuses on the “links in the chain of causation” between the alleged antitrust violation and the 22 injury. City of Oakland, 20 F.4th at 460. 23 Plaintiffs do not allege that they have a relationship with PayPal. Nor do they seek 24 damages for purchases made using PayPal or for fees paid to Paypal. Instead, Plaintiffs put 25 forward two allegedly distinct theories of harm. 26 First, Plaintiffs contend that Paypal’s ADP’s create a price “floor” by prohibiting 27 discounting based on payment method. Because Paypal’s fees are higher than its competitors, 1 Paypal’s cheaper rivals. In other words, regardless of the payment method the consumer selects, 2 and regardless of the cost advantages it may have over PayPal, the co-conspiring merchants agree 3 not to compete with discounts below the price they charge whenever PayPal is selected. 4 Defendant contends that the first theory of harm is too attenuated because it necessarily 5 depends on the independent actions of millions of merchants choosing to provide discounts for 6 customers that do not use Paypal. The Court agrees. It does not necessarily follow that absent the 7 ADPs, millions of merchants would naturally decide to offer specific discounts for customers who 8 choose not to use Paypal either at the point of sale or at some other stage in the transaction 9 process. Plaintiffs provide no direct support for the contention that they can maintain standing 10 given this high degree of attenuation. Accordingly, the Court is not convinced that the first theory 11 of harm allows Plaintiffs to maintain standing. 12 Under Plaintiffs’ second theory of harm, Plaintiffs contend that they would have paid 13 lower prices but for PayPal’s ADPs even without considering potential discounts for non-PayPal 14 transactions. Plaintiffs allege that without the ADPs, if PayPal raised its gateway fees, merchants 15 could then fold those increased into prices only for transactions involving PayPal. Unable to bake 16 PayPal’s fees only into transactions using Paypal, merchants are forced to increase prices across 17 the board. Accordingly, Plaintiffs allege, the ADPs assure Paypal that if it raises its fees above a 18 competitive rate, at least part of the increase will be paid not by customers using Paypal, but by 19 customers using rival gateways. Plaintiffs further allege that if steering were permitted, payment 20 gateways could “win” transactions by reducing their gateway fees below competitors’ fees, thus 21 encouraging merchants to steer transactions toward their platforms. Unable to steer consumers 22 away from PayPal, however, rival gateways stand to gain little by undercutting PayPal on price. 23 Plaintiffs’ second theory of harm is more attenuated than the first. In the first instance, it 24 relies on a similar assumption as in the first theory: that absent the ADPs, millions of merchants 25 would charge consumers higher prices to use Paypal. Plaintiffs’ second theory further relies on 26 the assumption that absent the ADPs, rival payment processors would lower their prices to benefit 27 from merchant steering. However, Plaintiffs fail to allege facts that explain the significance of the 1 services Plaintiffs allegedly purchased. See Jones v. Micron Tech., Inc., 400 F. Supp. 3d 897, 913 2 (N.D. Cal. 2019) (the price of a good reflects “numerous other components, all of which 3 collectively determine the final price actually paid by [P]laintiffs for the final product”); see also 4 Oliver v. Am. Express Co., 2020 WL 2079510, at *8–10 (E.D.N.Y. Apr. 30, 2020) (holding that 5 even if plaintiffs adequately alleged that American Express’s anti-steering provisions caused other 6 credit card networks to raise their own transaction fees, which merchants then passed on to 7 consumers, that effect was “incidental to”—not proximately caused by—the ADPs at issue).1 8 Although Plaintiffs need not plead facts to entirely isolate such a pass-through effect, the 9 Complaint falls short in this regard. As such, Plaintiffs’ second theory of harm similarly fails to 10 convince. 11 3. Duplicative Recoveries 12 Defendant points to the risk of duplicative recoveries if PayPal’s co-conspiring merchants 13 assert antitrust claims on similar facts. The Court notes that the merchants’ cause of action would 14 be for lost profits rather overcharges, as Plaintiffs allege here. Lost profits and overcharges, 15 however, are “fundamentally different theories of harm” that can coexist without duplicative 16 recovery. See 8 P. Areeda & H. Hovenkamp, ANTITRUST LAW (4th ed. 2013) at 346 (when 17 courts “award lost profits to intermediaries and an overcharge only to consumers, no overcharge 18 need be allocated”); Apple Inc. v. Pepper, 139 S. Ct. 1514, 1525 (2019) (lost profits and 19 overcharges are “fundamentally different theories of harm”). Accordingly, this case does not 20 appear to present a risk of duplicative recoveries. 21

22 1 Plaintiffs rely heavily on the Illinois Brick co-conspirator exception, which precludes “indirect purchasers in a chain of distribution . . . from suing for damages based on unlawful 23 overcharges passed on to them by intermediates in the distribution chain who purchased directly from the alleged antitrust violator.” State of Ariz. v. Shamrock Foods Co., 729 F.2d 1208, 1211– 24 12 (9th Cir. 1984) (citing Illinois Brick Co. v. Illinois, 431 U.S. 720, 746); see also Associated 25 Gen. Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 545, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) (applying the Illinois Brick rule based on “the problems of 26 identifying damages and apportioning them among directly victimized contractors and subcontractors and indirectly affected employees and union entities”). However, it is not clear that 27 this exception could apply in a case in which the plaintiffs did not purchase anything from the 1 4. Apportionment of Damages 2 Defendant contends that Plaintiffs’ theory will require the Court to determine the degree to 3 which any injury caused by PayPal’s ADPs affected consumers relative to the eCommerce 4 merchants. Although such apportionment of damages appears complex, the complexity of 5 apportionment alone does not factor strongly against standing. 6 * * * 7 Weighing each of the factors analyzed above, the Court holds that Plaintiffs’ claims are too 8 indirect and speculative to maintain antitrust standing. See City of Oakland, 20 F.4th at 461. 9

III. STATE LAW CLAIMS

10 A. Cartwright Act 11 Plaintiffs’ Cartwright Act claim is based on the same allegations as their Sherman Act 12 claim. (See CAC ¶¶ 101–06.) “Because the Cartwright Act mirrors the Sherman Act, the claims 13 rise and fall together.” Persian Gulf Inc. BP W. Coast Prods. LLC, 632 F. Supp. 3d 1108, 1175 14 (S.D. Cal. 2022); see also Cnty. of Toulumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1160 (9th 15 Cir. 2001) (affirming dismissal of Cartwright Act claim for same reasons as Sherman Act claim); 16 In re WellPoint, Inc. v. Out-of-Network “UCR” Rates Litig., 2013 WL 12130034, at *11 (C.D. 17 Cal. July 19, 2013) (applying Associated General factors to determine standing under the 18 Cartwright Act). Accordingly, the Court holds that Plaintiffs lack standing under the Cartwright 19 Act. 20

B. UCL

21 Plaintiffs also base their UCL claim on the same allegations as their Sherman Act claim. 22 (See CAC ¶¶ 109–16.) First, Plaintiffs fail to state a claim under the “unlawful” prong as they fail 23 to allege a predicate antitrust violation. See In re Dynamic Random Access Memory 24 Indirect Purchaser Litig., 2020 WL 8459279, at *11 (N.D. Cal. Nov. 24, 2020) (dismissing 25 “unlawful” UCL claim “for lack of a predicate violation of a separate statute.”) Second, Plaintiffs 26 fail to state a claim under the “unfair” prong because a UCL claim sounding in antitrust rises and 27 falls with the antitrust claim, even if it is asserted as an “unfairness” claim. See HomeLight, Inc. v. 1 || Shkipin, 2024 WL 940089, at *4 (N.D. Cal. Mar. 5, 2024) (dismissing UCL claim under the 2 || “unfair” prong because it was “based on the same . . . conduct underlying the dismissed unlawful 3 [claim].” 4 CONCLUSION 5 For the reasons explained above, the Court HEREBY GRANTS motion to dismiss with 6 || leave to amend. Plaintiffs shall file an amended complaint within 45 days of the date of this 7 || Order.

8 IT IS SO ORDERED. f | \ | f 4, 9 Dated: August 23, 2024 \ A / Lu 10 tf ys 11 JEFFREY S. WHITE 12 United States District Judge

2B «14

16

17

Oo

Z 18

19 20 21 22 23 24 25 26 27 28