Internet Price Fixing Suit Against Recording Companies Reinstated

paragraph seventy-one of the original complaint. decision in twombley v. bell atlantic, 550 u.s. 544 (2007). as is here. second, even if we were to presume that musicnet and pressplay were lawful, which we5 defendants' motion to dismiss, holding that the complaint did not state a claim under bell liability is reserved "for only those agreements that are so plainly anticompetitive that no _______________ defendants' arguments that plaintiffs have failed to state a claim are without merit. i believe it would be a serious mistake to think that the court investigations into whether defendants engaged in collusion and price fixing and whether not entitled to a directed verdict." twombley, 550 u.s. at 554 agreement," it falls short of "conclusively establish[ing] a service called musicnet. defendants umg and sony corporation ("sony") agreed to launch a be good evidence of the initiation of a price-fixing scheme."). would not be in each individual defendant's self-interest to sell internet music at prices, and with price fixing itself is not related to the purpose of the joint venture or the joint venture does not no. 104-104, 110 stat. 56 (feb. 8, 1996), to enter the long-distance firms account for some 50 to 80 percent of the market."). second, one industry commentator launch musicnet and pressplay, both of which charged unreasonably high prices and contained need only "enough factual matter (taken as true) to suggest that an agreement was made," id. at commentator observed that musicnet and pressplay did not offer reasonable prices, and one following non-conclusory factual allegations of parallel conduct. first, defendants agreed to online via the internet ("internet music") and on compact discs ("cds"). together, defendants requirement at the pleading stage; it simply calls for enough fact to raise a reasonable demonstrated, the context in which the defendants' alleged parallel alleged only that defendant conspired with "numerous" banks to fix the price of credit and debit based on all of these factual allegations, plaintiffs allege that defendants engaged in a often "expire" unless repurchased: a musicnet consumer would need to repurchase music each united states court of appeals described in the complaint, "we doubt that the . . . references to an agreement among the [baby would be irrational assuming that the defendant operated in a competitive market. in a district of new york, before judge loretta preska. in april 2007, plaintiffs filed a first not suffice," twombley, 550 u.s. at 556, apparently meaning will not that a civil antitrust complaint must be dismissed because a criminal investigation undertaken by improvements (including increased computer processing power) had reduced the remaining costs motion to dismiss depends on the context in which the allegation is omitted) (alteration in original) (citations omitted). instead, "[f]actual allegations must be second consolidated amended complaint ("scac") for failure to state a claim upon which moreover, the pricing of cds accounted for costs such as copying the compact discs; consolidated amended complaint. pursuant to the district court's orders, defendants then -3- conspiracy, not if history teaches anything. in a unreasonable." id. at 443. the district court went on to hold that other circumstances alleged by knew they would attract antitrust scrutiny. for example, emi and musicnet had a "side letter" and pressplay "mere puppets of [the] [d]efendants." see id. at 11. the district court implicitly challenged agreement seems to be reasonably necessary to the purpose of the venture). in this insufficient to require a directed verdict in the plaintiff's favor is (where plaintiffs alleged no facts to support their theory that defendant banks conspired or agreed while for purposes of a summary judgment motion, a section 1 plaintiff must offer music if they contracted with musicnet to provide internet music for the same prices and with itself [gave] reasons to believe that the [baby bells] would see their best interests in keeping to when the joint venture seems to be productive or reasonable on its face and the particular thing. proposition that parallel conduct alone is not conclusive evidence of 81-83, 85. in the legal memorandum relied upon by the district court for the proposition that state regulators and plaintiffs did not argue that it was a sham, 547 u.s. at 6 n.1, is not applicable use" these services. scac � 77. therefore states a claim for violation of section 1 of the sherman act. we therefore vacate the licenses. in addition, each defendant was paid shares of the total revenue generated by a joint including making unfair agreements with the clecs for access to baby bell networks, providing at&t's local telephone service, resulting in the creation of seven card processing fees and received kickbacks from "numerous" banks as consideration for its 13 discussion starr v. sony bmg cast a jaundiced eye on the claim that the parallel conduct of these dismissing the complaint. the case is remanded for further proceedings consistent with this congress withdrew approval for the regional baby bell monopolies in enacting the 4 s.ct. 1937, 1949-50 (may 18, 2009). we accept that invitation here, and do not include those market. id. not surprisingly, the baby bells vigorously litigated their "sharing" obligations state common law claims for unjust enrichment. on july 30, 2007 defendants moved to dismiss motion to dismiss. the answer is surely not supplied by the remainder enters., inc. v. paramount film distrib. corp., 346 u.s. 537, 540 (1954). although parallel agreements. a january 12, 2006 article in the wall street journal confirmed that defendants enough to raise a right to relief above the speculative level, on the assumption that all the 54 (internal quotation marks omitted). ("umg"), and warner music group corp. ("wmg"), control over 80% of digital music sold to musicnet or pressplay and sold music directly to consumers over the internet through these frankly, is because we are concerned that the continuing devaluation of music will effort to stop the "continuing devaluation of music." hold that the scac states a claim under twombly.6 task that requires the reviewing court to draw on its judicial place, or person related to each conspiracy allegation. this is also incorrect. the twombly court 10 these parallel, highly unusual increases in prices when direct costs had substantially operations in the western united states. the joint venture, equilon, produced significant cost were later permitted by the telecommunications act of 1996, pub. l. per song. whereas emusic, the most popular online music service selling internet music owned with competitors (called "clecs"), in exchange for authority to enter the long-distance service hardly a basis for ruling that such an allegation is insufficient to doing business as emi music north america, john does 1-100, bertelsmann music group, fact that the complaint alleges that the department of justice has, since 2003, launched two new gary s. jacobson (christopher lovell, imtiaz a. siddiqui, of counsel), (2009). _______________ antitrust litig., 502 f.3d 47, 50 (2d cir. 2007) (per curiam) (quoting twombly for the same 97. itself can be shown to be essential to these social gains."); 11 areeda & hovenkamp � 1912c (2d the competition from the clecs that the 1996 act mandated, and "nothing in the complaint inference that the defendant is liable for the misconduct alleged." ashcroft v. iqbal, -- u.s. --, purchase the music, unless the defendant's rivals were doing the same. for these reasons we cites theatre enterprises. but that case was an appeal by an of the court's sentence. that portion states the unexceptional an agreement to fix prices. to support that proposition, the court impact of the supreme court's decision in texaco inc. v. dagher, 547 u.s. 1 (2006). that case starr v. sony bmg bells] would have given the notice required by rule 8 . . . [because] the pleadings mentioned no (emphasis added). the allegation that defendants agreed to this price floor is obviously conclusory, and is2 this complaint does not resemble those our sister circuits have held fail to state a claim consistent with independent, though parallel, action." appellee's br. 20. under twombly, on parallel conduct. that reason is not difficult to find. it is the august term, 2009 not result from chance, coincidence, independent responses to common stimuli, or mere but "giving no effect to legal conclusions couched as factual allegations." port dock & stone acknowledged that plaintiffs did challenge the joint ventures when it held that plaintiffs' music he or she had purchased. musicnet and pressplay also did not allow consumers to transfer 97. allegation that the joint ventures were shams was conclusory and implausible. plaintiffs continue the fact that an allegation of parallel conduct was held in restraint of trade or commerce among the several states, or with foreign nations, is . . . illegal." the only one of defendants' contentions that merits more than a brief discussion is the id. at 445 n.14. this appeal followed. digitizing new releases, the return and store credit and other costs alleged in � 71 129 s.ct. 1937, 1949 (2009). "[w]here the well-pleaded facts do not permit the court to infer agreement," it does not itself constitute a violation of the sherman act, because it is "consistent plaintiffs were "equivocal" and did not justify the inference of agreement, and the imposition of interdependence unaided by an advance understanding among the parties." id. at 556 n.4 allegations contained in a complaint is inapplicable to legal conclusions. . . . [therefore,] a court the second consolidated amendment complaint contains "plausible grounds to infer an defendants' parallel behavior." appellee's br. 15-17. this is incorrect. although the twombly 556; see also 2 areeda & hovenkamp � 307d1 (3d ed. 2007) ("[t]he supreme court did not hold entry, sparse competition among large firms dominating policy was not a price-fixing agreement between competitors, because texaco and shell oil did and wmg's. "emi ceo rob glaser decided to put the mfn in a secret side letter because application of the per se rule against price-fixing in the case of a lawful joint venture where the inhibit the growth of clecs and prevent them from competing effectively with the baby bells. consider this evidence on a motion to dismiss, defendants cite no case to support the proposition opinion. applying the language and reasoning of twombly to the facts of this case leads us to sense that it does not accompany any significant integration of research and development, refuse to do business with emusic, the #2 internet music retailer behind only the itunes store. dismiss the first consolidated amended complaint. plaintiffs filed a second consolidated plaintiffs did not challenge the joint ventures, plaintiffs wrote that while "it is not the existence or completion of the initial digital cataloging of all internet music and technological improvements and herbert hovenkamp, antitrust law (hereinafter "areeda & hovenkamp") � 1431a (2d ed. through entities they did not own or control. however, the entities could only sell defendants' clecs inferior connections to those networks, and overcharging the clecs, all in order to 12 fixed costs of each of these defendants' digital business per unit of sales volume had defendants then argue that inferring a conspiracy from the facts alleged is unreasonable elaborate study of the industry is needed to establish their illegality." dagher, 547 u.s. at 5 defendants next argue that twombly requires that a plaintiff identify the specific time, defendants also used most favored nation clauses ("mfns") in their licenses that had do not, plaintiffs would still be free to challenge their activities pursuant to the rule of reason. verdict in the plaintiff's favor. see theatre enterprises, 346 u.s. at declined by approximately two-thirds. nonetheless, these defendants then engaged in or presumption that equilon was lawful because its formation had been approved by federal and license music from another company, defendants forced them to pay penalties or terminated their the digitization costs of the initial internet cataloging had been completed and technological 42. in twombley, the court noted the extraordinary claim that the district court below stated that plaintiffs did not challenge the joint ventures here, the complaint sony bmg music entertainment, sony corporation of america, bertelsmann, inc., placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct to challenge the joint ventures on appeal, and defendants do not contend that musicnet or dagher does not support the dismissal of the complaint in this case. first, although the agreement." twombly, 550 u.s. at 556. we therefore hold that the district court erred in association, "seller-side mfns are inherently price-increasing and anticompetitive." scac � internet states a claim for violation of section 1 of the sherman act under bell atlantic corp. v. rule against price fixing did not apply. id. at 5-6. in its holding, the supreme court presumed agreement or . . . itself constitut[ing] a sherman act joint venture to the total sales of all labels rather than to its own market share. ventures (the "joint ventures"). both the joint ventures and the recording industry association must demonstrate that a particular contract or combination is in fact unreasonable and sweeney, of counsel, coughlin stoia geller rudman & robbins llp, san relief will, as the court of appeals observed, be a context-specific the scac, pursuant to federal rule of civil procedure 12(b)(6). 2001. as can be seen above, paragraph seventy-one of the original complaint alleged that initial baby bells' failure to encroach on each others' territory, given that prior to the judgment of the district court and remand for further proceedings consistent with this opinion. inference "of subsequent agreement based on prior, unchallenged explicit agreement is allegations in the complaint are true (even if doubtful in fact)." id. (citations omitted). what is in that world, doubtless liked the world the way it was, and antitrust plaintiff whose complaint had survived a motion to dismiss. dagher, 547 u.s. at 6 n.1. the complaint alleges that the activities of the joint ventures actually costs of distributing internet music fell because the price of distributing cds accounted for costs new york, ny, for defendants-appellees. -2- the district court denied plaintiffs' motion to amend paragraph ninety-nine of the scac as futile. inc., bmg music, bmg music publishing, doing business as the rca record label, service called duet, later renamed pressplay. all defendants signed distribution agreements with 9 telecommunications act of 1996 monopoly was the norm, rather than the exception, "a natural an agreement, the reason for the rejection of the complaint in may wonder why a complaint alleging such conduct does not survive a initially, defendants bertelsmann, inc. ("bertelsmann"), wmg, and emi agreed to launch complaint had relied primarily on an allegation of the defendants' profitable. see id. � 1415b ("some acts, or failures to act, cannot be profitably continued unless relief can be granted. we hold that the scac contains "enough factual matter (taken as true) to by dagher. for all of these reasons, dagher does not support dismissal of the scac. consent decree by the federal trade commission, as well as by state attorneys general in by independent labels, currently charges $0.25 per song and places no restrictions on how services required consumers to agree to unpopular digital rights management terms ("drms"). not compete with one another in the relevant market (the sale of gasoline). therefore, the per se in twombly, plaintiffs brought a section 1 claim centered around the market for local conclude respectfully that the district court erred in dismissing the complaint for failure to state a price-fixing is the subject of a pending investigation by the new york state attorney general scac � 126. they also allege that they were injured by paying more for internet music and cds whether a bare allegation of illegality would suffice to withstand a id. at 550-51. the complaint also alleged that the baby bells' failure to compete with one telephone service. in 1984, a system of seven regional local-telephone-service monopolies, edgar bronfman, jr., the current ceo of wmg, explained pressplay's pricing scheme as atlantic corp. v. twombly. the district court first found that plaintiffs did not challenge the as the supreme court clarified in twombly: specific time, place, or person involved in the alleged conspiracies." 550 at 565 n.10. in this by major record labels to fix the prices and terms under which their music would be sold over the perhaps leaving the issue for later resolution on a motion for summary 2 defendants-appellees.* than the terms offered to other licensors. defendants attempted to hide the mfns because they in view of the court's initial observation in twombley that 2003) ("[e]mpirical studies considering many industries have suggested that noncompetitive in the pending case, as judge katzmann has carefully inc., warner music group corp., emi music north america, capitol records inc., had to subscribe to both musicnet and pressplay, at a cost of approximately $240 per year. both internet music, as would be expected in a competitive market. offense. on behalf of himself and all others similarly situated, lisa owens, richard benham, on behalf district court, plaintiffs did not challenge the joint ventures' "explicit agreement," and any certainly all, of these agreements.'" scac � 95. umg also used mfn clauses in its license eliminated in distributing internet music. in contrast, the proposed amendment to paragraph under twombly. see, e.g., rick-mik enters., inc. v. equilon enters. llc, 532 f.3d 963, 975-976 id. at 556 (footnote and internal quotation marks omitted). (internal quotation marks omitted). these agreements." scac � 95. according to the executive director of the digital music defendants produce, license and distribute music sold as digital files ("digital music") --v.-- 17 delicatessen inc., 496 f.3d 229, 244 (2d cir. 2007). therefore, we include the allegations court acknowledged that for purposes of summary judgment a plaintiff must present evidence that (arguing that if general motors and toyota were to form a joint venture for the production of barbur and rachel g. skaistis, of counsel, cravath, swaine & moore llp, could just as well be independent action." twombly, 550 u.s. at 557. first, defendants control complaint. therefore, plaintiffs were not required to mention a specific time, place or person out the possibility' standard for summary judgment."). experience and common sense." ashcroft v. iqbal, 129 s. ct. 1937, 1950 new york (loretta preska, judge), entered october 21, 2008, dismissing plaintiffs-appellants' under federal rules of civil procedure rule 12(b)(6), accepting all factual allegations as true, creation of these joint ventures that form the basis of the [p]laintiffs' allegations," defendants under the act. id. not satisfied with the baby bells' efforts at sharing, the plaintiffs in twombly the department of justice found no evidence of conspiracy. second, this argument neglects the production or distribution. . . . as a general matter, price fixing is tolerated only in the case of the those facts is improbable, and that a recovery is very remote and unlikely. parallel conduct is sufficient to support a permissible inference of conduct occurred, amplified by specific factual allegations making of america ("riaa") provided a forum and means through which defendants could sherman act and state antitrust and unfair and deceptive trade practices statutes. it also brought some form of agreement among defendants would have been needed to render the enterprises div. of military and naval affairs, 166 f.3d 45, 49 (2d cir. 1999). 7 per song. see 7 areeda & hovenkamp � 1415b ("[o]ne cannot profitably increase its price need detailed factual allegations, a plaintiff's obligation to provide the grounds of his appeal from a judgment of the united states district court for the southern district of venture licensee, rather than on a per song basis, linking each defendant's financial interest in the concerned a joint venture formed by texaco and shell oil to completely consolidate their allegations of parallel conduct that could "just as well be independent action" are not sufficient to 18 another, coupled with a statement from one baby bell's ceo that competing in the territory of that in allowing equilon to determine the price of gasoline, texaco and shell oil violated the per regional bell operating companies, the so-called "baby bells" or the perplexing aspect of the court's opinion is contained in the in violation of section 1 of the sherman act, 15 u.s.c. � 1. the for example, pressplay prohibited consumers from copying more than two songs from any defendants' wholesale price is more than double, about $0.70 per song. moreover, all defendants situated, david paschkett, on behalf of all others similarly situated, christopher michaud, such as copying the compact discs, producing the cd case, and labor, all of which were songs from their computers to portable digital music players like the ipod. one industry agreed upon. id; see also 7 areeda & hovenkamp � 1509a (2d ed. 2003). in contrast, under the called baby bells, was created, along with a separate, competitive market for long-distance thus, an allegation of parallel conduct coupled with only a bare assertion of conspiracy is altogether in the domestic refining and selling of gasoline. because texaco and shell oil's market upon compliance with conditions concerning the opportunity for of a section 1 violation sufficient to withstand a motion to dismiss. se rule against price fixing under � 1 of the sherman act. the district court granted summary twombly, 550 u.s. 544 (2007). we hold that plaintiffs-appellants' second consolidated noted, in dicta, that had the claim of agreement in that case not rested on the parallel conduct (argued: september 21, 2009 decided: january 13, 2010) appropriate as a matter of law. id. the supreme court agreed, holding that equilon's pricing4 the clerk of the court is directed to amend the official caption as set forth above.* pending investigation by the office of the new york state attorney general regarding wholesale the #2 internet music retailer. seventh, in or about may 2005, all defendants raised wholesale surely knew the adage about him who lives by the sword. in opp'n to defs.' supplemental mem. of law 10-11. the memorandum also called musicnet licensing agreements with musicnet. fifth, defendants used the mfns to enforce a wholesale 8 that the joint ventures had harmed competition or consumers of digital music. even if we could ed. 2005) (explaining that the rule of reason is applied to a joint venture's horizontal restraint originally restricted to providing local telephone service, the ilecs "emi ceo rob glaser decided to put the mfn in a secret side letter because `there are veil. because the district court did not reach this question and the parties devote three total pages association, seller-side mfns are "inherently price-increasing and anticompetitive." scac � costs of the initial cataloging had been completed, technological improvements (including governed the claim, and because plaintiffs eschewed the rule of reason analysis, judgment was america, and time warner inc., argue that even if the scac states a claim under twombly, it agreement was made," id. at 555, and therefore states a claim. we vacate the judgment of the amended complaint ("scac") in june 2007. the scac brought claims under section 1 of the are no more than conclusions, are not entitled to the assumption of truth." ashcroft v. iqbal, 129 suggesting' threshold for a conspiracy complaint remains considerably less than the `tends to rule b e f o r e : defendants misled the department about the formation and operation of musicnet and pressplay. accept as true.1 to obtain internet music from all major record labels, a consumer initially would have at oral argument, plaintiffs requested leave to amend paragraph ninety-nine of the scac judgment to texaco and shell oil, holding that the rule of reason, rather than a per se rule, to it in their briefs, we remand to allow the district court to consider it in the first instance. eventually, defendants and the joint ventures began to sell internet music to consumers case, as in twombly, the claim of agreement rests on the parallel conduct described in the wholesale prices from about $0.65 per song to $0.70 per song in or about may 2005, even though prices charged for internet music; 2) a department of justice ("doj") investigation into fifth, whereas emusic charges $0.25 per song, defendants' wholesale price is about $0.70 allegations of conduct that took place outside of the joint ventures, and are therefore not affected [the parallel conduct of the ilecs] was not suggestive of there stated: 15 makes clear that plaintiffs do challenge the joint ventures. see, e.g., scac �� 67, 72-73, 76, 78, 3 existence or creation of the joint ventures, and the operation of the joint ventures therefore did as the court observed: jon o. newman, circuit judge, concurring: fails to state a claim against them because plaintiffs allege no basis for piercing the corporate not yield an inference of illegal agreement. at the same time, the district court held that through entities they did not own or control, they maintained the same unreasonably high prices pressplay has what we call an affiliate model where we determine the price, and we offer the supreme court held that the ultimate conspiracy allegation was merely a "legal for the second circuit not sufficient to state a section 1 claim. id. instead, allegations of parallel conduct "must be continuing conspiracy to "restrain the availability and distribution of internet music, fix and is that the former government-sanctioned monopolists were particular artist onto a cd each month. music purchased from musicnet and pressplay would docket no. 08-5637 allegation of parallel conduct and a bare assertion of conspiracy will _______________ newman, walker, and katzmann, circuit judges. end purchasers in the united states. were anticompetitive and unreasonable, scac � 126, and, unlike in dagher, plaintiffs in this under section 1 of the sherman act, "[e]very contract, combination . . . , or conspiracy, efficient in integrating research, development, production, or distribution or that price fixing was discovery will reveal evidence of illegal agreement," twombly, 555 u.s. at 556, the district court unlawful section 1 agreement from parallel conduct. even in those during 2002 to 2003 to unreasonably high levels despite substantial reductions in the noted that "nobody in their right mind" would want to use musicnet or pressplay, suggesting that telecommunications act of 1996, which required the baby bells to share their local networks diego, ca, for plaintiffs-appellants. interest when viewed against the backdrop of widespread music piracy. id. at 444-45. finally, entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the two years after twombley, the court emphasized its view that contained in proposed paragraph ninety-nine within our discussion of the scac as a whole. in amended complaint ("scac") contains "enough factual matter (taken as true) to suggest that an to take an antitrust plaintiff's case to the jury, it will sometimes suffice to defeat a motion to dismiss a complaint. others similarly situated, sheri clark, rachael hall and mitchell horton, traditionally unregulated industry with low barriers to of digitizing new releases. these are not the same costs that are alleged to have decreased in rejected by the antitrust division of the department of justice," appellee's br. 17-18, which in that context, it was entirely understandable for the court to kevin starr, matt putman, cindy seley, on behalf of herself and all others similarly 75, the joint ventures, via mfns and other means, to increase the prices of internet music 15 u.s.c. � 1. the crucial question in a section 1 case is therefore whether the challenged v. paramount film distributing corp., 346 u.s. 537, 540-41 (1954)) allegations in the scac that "are no more than conclusions." finally, defendants claim that the conduct alleged in the complaint "would be entirely plaintiffs' "bald allegation that the joint ventures were shams is conclusory and implausible." in direct costs of internet music relative to cds. about may 2005 in the parallel, highly unusual behavior of each raising prices from the sitting tight, expecting their neighbors to do the same twombley must arise from something other than the plaintiff's reliance and two separate investigations by the department of justice. finally, defendants raised collusion and price fixing begun in march 2006; and 3) a doj investigation into whether ed. 2001) ("simultaneous price increases . . . unexplained by any increases in cost may therefore tends to exclude the possibility of independent action, 550 u.s. at 554, and that the district court than they would have in the absence of an illegal agreement. federal courts, alleging defendants had agreed to fix the price of digital music. the judicial state a claim. 550 u.s. at 557. however, in this case plaintiffs have alleged behavior that would bartlett llp, new york, ny; alan m. wiseman, mark c. schechter, and network. see twombley, 550 u.s. at 549. on appeal, three parent-company defendants, bertelsmann, inc., sony corporation of6 result of an agreement among the defendants. as discussed above, the complaint contains the panel on multidistrict litigation transferred and centralized twenty-eight actions to the southern we note that some commentators continue to believe that dagher does not foreclose the5 interpretation of law, in which case the legal conclusion is reviewed de novo. jones v. n.y. state asking for plausible grounds to infer an agreement does not impose a probability parallel conduct. if, as the court states in the first part of this sentence, a judgment. emi, sony bmg music entertainment ("sony bmg"), universal music group recordings, inc. signify illegal agreement, but here we have an obvious terms offered to other licensors. for example, both emi and umg used mfn clauses in their a percentage of that price to the retailing partner . . . . the reason we've chosen that, market share if its competitors were setting prices above marginal costs."). third, the quote from more importantly, the following allegations, taken together, place the parallel conduct "in explanation for the noncompetition alleged is that the former government-sanctioned follows: pressplay were explicitly approved by state or federal regulators. therefore, the dagher court's supreme court would not permit them to fix the prices of the finished cars as part of the lawful more than the mere possibility of misconduct," however, dismissal is appropriate. id. at 1950. closed its inquiry in december 2003 and publicly announced that it had uncovered no evidence 2004) ("evidence that the defendant acted contrary to its interests means evidence of conduct that involved in each conspiracy allegation. 7 areeda & hovenkamp � 1415a (2d ed. 2003); see also posner, supra, at 100. for example, it with conspiracy, but just as much in line with a wide swath of rational and competitive business antitrust scrutiny. for example, emi and musicnet's mfn, which assured that emi's core terms section 1 violation. the plaintiff sought review on the ground that music (as compared to cds), despite the fact that all defendants experienced dramatic cost joint venture producing significant, output-increasing efficiencies, and where the price fixing provided plaintiffs with a letter summarizing the grounds on which they intended to move to scac � 86. suffice to overcome a motion to dismiss and permit some discovery, and unsold inventory. all of these costs were eliminated with internet music. scac � 71. case have not "eschewed" a rule of reason analysis. similarly, the complaint contains many because the proposed amendment to paragraph ninety-nine of the scac contained,3 made. "determining whether a complaint states a plausible claim for act and well before that, monopoly was the norm in and then to record stores; labor, such as shelving cds and staffing cash registers; and damaged telephone service from which the regional baby bells were excluded. id. at 549. in 1996, lovell stewart halebian llp, new york, ny; john stoia and bonny allege facts that "tend[] to exclude independent self-interested conduct as an explanation for rule of reason analysis, which presumptively applies to section 1 claims, "antitrust plaintiffs anticompetitive before it will be found unlawful." daghher, 547 u.s. at 5. another baby bell "might be a good way to turn a quick dollar but that doesn't make it right," id. at 554 (citing matsushita elec. indus. co. v. zenith radio corp., 475 u.s. 574 (1986)), to intimates that the resistance to the [clecs] was anything more than the natural, unilateral market share exceeded twenty-five percent, id., the formation of equilon was approved by edgar bronfman, the current ceo of wmg, suggests that pressplay was formed expressly as an year and a pressplay consumer who unsubscribed would immediately lose access to all of the a short explanation of per se illegality versus the rule of reason is in order. per se4 well known, the court there ruled insufficient to survive a motion to that equilon was a lawful joint venture, because its formation had been approved by federal and used mfns, and, according to jonathan potter, the executive director of the digital music 8(a) pleading standard stresses that "the tenet that a court must accept as true all of the ninety-nine alleged that by may 2005 the costs of distributing internet music had fallen because well be independent action." id. at 557. thomas a. isaacson, of counsel, howrey llp, washington, dc; peter t. plausible an inference of agreement, suffices to render the allegation third consolidated amendment complaint � 99. by memorandum and order dated october 9, 2008, the district court granted the joint venture); see also 12 areeda & hovemkamp � 2004a (2d ed. 2005) (noting that the per se matter (taken as true) to suggest that an agreement was made." id. at 556; see also in re elevator reaction of each [baby bell] intent on keeping its regional dominance." id. at 566. as to the kenneth r. logan (helena almeida, of counsel), simpson thacher & docket no. 08-5637-cv business behavior "is admissible circumstantial evidence from which the fact finder may infer that could just as well be independent action." id. at 557. examples of a parallel conduct because it alleged that prices rose in or about may 2005, but costs declined four years earlier, in direct costs had gone substantially down because each of these defendants' digitization of guaranteeing that the licensor who signed the mfn received terms no less favorable than has categorically rejected the availability of an inference of an 20 the unpopular drms and pricing structure was not against defendants' individual economic self- maintain at artificially high and non-competitive levels the prices at which they sold internet along with the remainder of the complaint, "enough fact to raise a reasonable expectation that earlier that year defendants' costs of providing internet music had decreased substantially due to generally, "[w]hile a complaint attacked by a rule 12(b)(6) motion to dismiss does not capitol-emi music, inc. and virgin records america, inc., prominent computer industry magazine concluded that "nobody in their right mind will want to the same restrictions as musicnet itself or other musicnet licensees. if the licensee attempted to erred in denying the motion to amend on the ground of futility. see kassner v. 2nd ave. the words of the supreme court's most recent iteration of this standard, "[a] claim has facial internet music, defendants "agreed" to a wholesale price floor of about 70 cents per song, which2 leave to amend a complaint for abuse of discretion, unless the denial was based on an claim, they must be placed in a context that raises a suggestion of a that the same standard applies to a complaint and a discovery record . . . . the `plausibly subsequent statement that "[i]t makes sense to say, therefore, that an 14 unlawful agreement); kendall v. visa u.s.a., inc., 518 f.3d 1042, 1048-50 (9th cir. 2008) california, hawaii, oregon, and washington. dagher, 547 u.s. at 4. plaintiffs sued, alleging 16 _______________ expectation that discovery will reveal evidence of illegal agreement. and, of course, a telecommunications, not the exception. the ilecs were born survive a motion to dismiss for failure to state a claim on which increased computer processing power and speed) had reduced the remaining costs of incumbent local exchange carriers ("ilecs"). see id. at 549. (alterations and ellipsis in original).1 sued, alleging that the baby bells engaged in parallel conduct in their respective regions, hence, a natural explanation for the noncompetition alleged the basis for perplexity is not lessened by the court's1 competitive local exchange carriers ("clecs") to make use of an ilec's similar drms. second, none of the defendants dramatically reduced their prices for internet over 80% of digital music sold to end purchasers in the united states. see 7 phillip e. areeda state regulators and plaintiffs did not argue that it was a sham. id. at 6 n.1. finally, the supreme circumstantial evidence from which the fact finder may infer monopolists were sitting tight, expecting their neighbors to do the same . . . . [t]he complaint the effect of guaranteeing that the licensor who signed the clause received terms no less favorable newly created ilecs would suffice to permit an inference of agreement. defendants first argue that a plaintiff seeking damages under section 1 of the sherman act must preceding agreement, not merely parallel conduct that could just as agreement which assured that emi's core terms would be no less favorable than bertelsmann's required are "enough facts to state a claim to relief that is plausible on its face." id. at 570. in well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of drms, that were so unpopular as to ensure that "nobody in their right mind" would want to plaintiff with evidence showing nothing more than parallel conduct is universal music group, time warner inc., formerly known as aol time warner cable, section 1 claim. the present complaint succeeds where twombly's failed because the complaint rule against price fixing "applies virtually without exception when the price fix is `naked' in the (9th cir. 2008) (dismissing section 1 price fixing complaint under twombly where complaint we review de novo a district court's dismissal of a complaint for failure to state a claim would be no less favorable than bertelsmann's or wmg's, was contained in a secret side letter. 11 communicate about pricing, terms, and use restrictions. i concur in judge katzmann's comprehensive opinion, but add these fourth, defendants attempted to hide their mfns because they knew they would attract (9th cir. 2004), rev'd, 547 u.s. 1 (2006), and ended competition between texaco and shell oil _______________ -4- with each other, dismissing section 1 claim because plaintiffs pleaded only legal conclusions, conclusion[] resting on the prior allegations," id. at 564, and the actual factual allegations in the price floor of about 70 cents per song. sixth, all defendants refuse to do business with emusic, conclusion very first paragraph of the court's substantive discussion. the court _______________ legal/antitrust reasons why it would be bad idea to have mfn clauses in any, or certainly all, of 5 relief may be granted. from december 29, 2005 through july 2006, plaintiffs filed actions in various state and producing the cd case, labels and anti-shoplifting packaging; shipping, both to the distributor remained at zero or virtually zero despite substantially higher sales volumes, and the allegation that would suffice under this standard include "parallel behavior that would probably they enforced in part through mfn agreements. the mfn agreements, signed by internet music katzmann, circuit judge: proposition). conduct "stem[s] from independent decision or from an agreement, tacit or express." theatre evidence that "tend[s] to rule out the possibility that the defendants were acting independently," decreased, enforced by mfns, were similar to defendants' causing, as alleged in �� 74- however, these dramatic cost reductions were not accompanied by dramatic price reductions for allegations of parallel conduct are set out in order to make a � 1 `there are legal/antitrust reasons why it would be bad idea to have mfn clauses in any, or proceed unabated unless we do something about it. and "failed to plead the necessary evidentiary facts to support those conclusions"). result in significant economic benefits. see areeda & hovenkamp 2009 supplement � 2132 -5- fact-finder is entitled to infer agreement from parallel conduct, one theatre enterprise plaintiff had made. "an antitrust conspiracy the supreme court's most recent iteration of the federal rules of civil procedure rule1 with a plausible suggestion of conspiracy." id. at 566. it was natural for each baby bell to resist this case calls upon us to determine whether an antitrust complaint alleging a conspiracy savings in production and marketing, see dagher v. saudi refining, inc., 369 f.3d 1108, 1111 reductions in producing internet music. third, when defendants began to sell internet music supported the allegation that the baby bells entered into a conspiracy to prevent entry into their to allege a parallel price increase. the proposed amendment alleged that: challenge equilon's pricing policy under the rule of reason. id. at 7. music and impose unreasonably restrictive terms in the purchase and use of internet music." elements of a cause of action will not do." twombly, 550 u.s. at 555 (internal quotation marks plaintiffs-appellants, id. at 567-68. hybrid car engines, but then place the engines in cars they designed and produced separately, the while a showing of parallel "business behavior is admissible after services other than defendants' joint ventures began to distribute defendants' of himself and all others similarly situated, keaton landry, individually and on behalf of all reasonably necessary to any social gain the ventures may have produced. below had held that plaintiffs must allege additional facts that tended to exclude independent self- the scac contains the following non-conclusory factual allegations, which we must retailers and defendants, specified that the retailers had to pay each defendant the same amount not accepted as true. background separate geographical segments of the market could very well prices from about $0.65 per song to $0.70 per song. this price increase was enforced by mfns.3 plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable additional words to explore a perplexing aspect of the supreme court's per se unlawful, meaning they are prohibited despite the reasonableness of the particular prices plausibly contravene each defendant's self-interest "in the absence of similar behavior by rivals." finally, the scac alleges that defendants' price fixing is currently the subject of: 1) a complaint were insufficient because they did not "invest[] either the action or inaction alleged twombley, 550 u.s. at 553 (emphasis added) (citing theatre enterprises corp. v. oldcastle northeast, inc., 507 f.3d 117, 121 (2d cir. 2007). we review the denial of context in which the defendants' parallel conduct occurred. "[w]hen above that charged by rivals unless they follow the price-raiser's lead."). sixth, defendants' local markets and agreed to refrain from competing with one another. id. at 551. court noted that despite the lawfulness of the joint venture plaintiffs could have, but did not, 6 a jury, only to have the jury reject on the merits the claim of a alternative explanation. in the decade preceding the 1996 "facilitat[e] anticompetitive . . . horizontal combinations." see pls.' consolidated mem. of law pricing [that may be the result of price coordination] is likely to appear when the four leading considering a motion to dismiss can choose to begin by identifying pleadings that, because they by early 2005, defendants sony bmg's, capitol-emi music's, umg's and wmg's case, the scac obviously does not allege that musicnet or pressplay were economically district court and remand for further proceedings consistent with this opinion. competitive industry, for example, a firm would cut its price with the hope of increasing its the trial court had erred in not granting a motion for a directed that reduced the costs of digitizing new releases. see richard a. posner, antitrust law 88 (2d their old turf." id. at 568. 08-5637-cv 65 cents per song level to at or about 70 cents per song . . . . interested conduct, id. at 552, it specifically held that, to survive a motion to dismiss, plaintiffs used the joint ventures "as a means to implement their anticompetitive agreements" and to suggest that an agreement was made," bell atlantic corp. v. twombly, 550 u.s. 544 (2007), and dismiss a complaint that endeavored to allege a price-fixing agreement a context that raises a suggestion of a preceding agreement, not merely parallel conduct that because plaintiffs' allegations "are the very same claims that were thoroughly investigated and defendants misled doj about the formation and operation of musicnet and pressplay. the context in twombley was the aftermath of the divestiture of 539. the supreme court understandably found no error. see id. at 539- so doing, we reject defendants' argument that the proposed amendment would have been futile re digital music antitrust litig., 592 f. supp. 2d 435, 442 (s.d.n.y. 2008). according to the indeed, that plaintiff had been permitted to present its evidence to purchasers can upload their music to digital music players (like the ipod) or burn to cds, survive a motion to dismiss under rule 12(b)(6), a plaintiff need only allege "enough factual rivals behave in parallel."); in re flat glass antitrust litig., 385 f.3d 350, 360-361 (3d cir. contexts in which an allegation of parallel conduct will not suffice alleges specific facts sufficient to plausibly suggest that the parallel conduct alleged was the strategy unilaterally prompted by common perceptions of the market." twombly, 550 u.s. 553- (internal quotation marks omitted). price-fixing agreements between competitors are generally and drms as musicnet itself. fourth, defendants used mfns in their licenses that had the effect 19