Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: PayPal steering rules suit dismissed again for lack of standing, (Nov 7, 2025)

By Justin Marcus Smith, J.D.

The court essentially faulted the consumer plaintiffs a second time for failing to show a direct link between alleged PayPal anti-steering rules and retail prices; however, the court also granted leave to amend a second time.

Consumers who brought a putative class action against PayPal Holdings, Inc. and PayPal, Inc. (collectively, PayPal) again failed to state a claim for violation of Section 1 of the Sherman Act, held the federal district court in Oakland, California. Although the consumers proposed a facially sustainable eCommerce retail product market, PayPal is not a competitor in that market, so the consumers failed to allege market power resulting from the alleged PayPal anti-steering rules. The consumers also did not refer to rival payment platforms. The court also found the consumers’ overcharge allegations about processing fees “baked-in” into prevailing retail prices were too attenuated to show facial injury for antitrust standing. The consumers failed to compare numerous other pricing factors for any of the goods the consumers here allegedly bought. The court declined to infer conspiracy from PayPal’s standard form contract with online merchants. Ultimately, the consumers did not show a direct link between the anti-steering rules and retail prices. For these several reasons, and having denied dismissal with respect to the proposed market, the court said it was granting PayPal’s motion to dismiss in part; however, the procedural outcome was a full dismissal of the complaint. Dismissal of the Sherman Act claim was without prejudice and express leave for one final opportunity to amend. The court also rejected Class Action Fairness Act (CAFA) jurisdiction with respect to state law claims and dismissed those without prejudice and with express leave to amend (Sabol v. PayPal Holdings, Inc., No. 4:23-cv-05100-JSW (N.D. Cal. Nov. 5, 2025)).

Background. In 2023, two consumers brought a putative class action complaint against PayPal, a consumer electronic payment platform in the United States, for alleged violation of Section 1 of the Sherman Act, California Cartwright Act, and California Unfair Competition Law (UCL). The consumers alleged that PayPal anti-discrimination provisions (ADPs) injured them and the proposed class to the extent they bought goods online using PayPal alternatives, credit and debit cards, and were thereby “deprived of discounts” they could have otherwise enjoyed.

In 2024, the court granted an initial PayPal motion to dismiss for failure to allege antitrust standing. The court reasoned that harm could not be derivative or indirect, and the consumers here did not allege any direct relationship with PayPal or seek damages related to PayPal transactions.

In the first amended complaint (FAC) at issue now, a total of six consumers reasserted the Sherman Act, Cartwright Act, and UCL claims, and they also added claims for alleged violations of the antitrust and consumer protection statutes of Florida, Minnesota, North Carolina, and Oregon.

Anti-steering allegations. The consumers said they shop with online merchants that accept PayPal but they usually pay with credit or debit cards. The consumers alleged that PayPal requires merchants to enter a User Agreement containing two ADP provisions forming the basis of their claims, i.e., anti-steering rules economists sometimes refer to as a “platform most-favored nation” restraint or PMFN.

First, merchants may not impose a surcharge or any other fee for accepting PayPal as a payment method. Second, merchants cannot show a preference for other payment methods or discourage consumers from using PayPal. The court cited economic literature and modeling contending that these kind of PMFNs typically raise platform fees and retail prices. The consumers said retailers could and would offer discounts to customers using less expensive forms of payment in the absence of these anti-steering rules. The consumers accused PayPal of using the anti-steering rules in a conspiracy with merchants to eliminate natural price competition and replace it with minimum retail prices. The consumers also contended the anti-steering rules inflate transaction fees across the industry, raising overall retail prices.

PayPal’s primary argument for dismissal of the FAC was that the consumers filed to plead antitrust standing.

Proposed market. The court concluded the consumers’ proposed product market was facially sustainable. PayPal resisted on the ground that the consumers failed to account for the principles of reasonable interchangeability of use or the cross-elasticity of demand for substitutes.

The court said the threshold step in the analysis is to define the product market affected by the alleged restraint. The consumers alleged the anti-steering rules cause anticompetitive effects in the retail eCommerce market by restraining and dictating the prices charged in that market. Their allegations were product-independent. Their theory of liability would turn instead on the retail market used to buy products, brick-and-mortar or eCommerce. Courts have upheld the eCommerce retail market as a relevant product market distinguishable from physical retail. PayPal countered the proper product market was not eCommerce but the market for on-line payment platforms.

The court found PayPal’s role in the eCommerce market did not distinguish the case from others, like Frame-Wilson, that found allegations of an online retail marketplace market plausible. See Frame-Wilson v. Amazon, Inc., 591 F. Supp. 3d 975, 990 (W.D. Wash. 2022). However, the court acknowledged that PayPal’s argument, essentially, that it was not a competitor in the market, had some bearing on the consumers’ allegations of market power.

Market power. The court agreed with PayPal that the consumers’ allegations of market power were insufficient because the consumers did not refer to PayPal competitors. The consumers cited how they alleged market power through specific direct allegations in the complaint. They also said they alleged market power indirectly to the extent the anti-steering foreclose up to 82% of the market based on 82% acceptance of PayPal among the top 1000 eCommerce merchants.

The court acknowledged that 82% market foreclosure would ordinarily make a prima facie case for market power. However, either way, the consumers relied on the effect of anti-steering in the aggregate by imputing market power to all PayPal agreements with eCommerce merchants, something the Ninth Circuit has ruled against doing in several cases, including Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1302 (9th Cir. 1982).

In any event, the instant court concluded aggregation was not the problem in this case. The flaw instead was that the consumers tied PayPal’s power to impose anti-steering rules to its dominance as a payment platform without including any allegations about rival platforms. The court said it could not reasonably infer anything from the face of the complaint that PayPal is the dominant payment platform in the eCommerce retail market. The court accordingly granted PayPal’s motion to dismiss, in part, the Sherman Act claim on this basis.

Discount theory. The court previously ruled that the consumers’ allegations about their discount theory were insufficient, but they did not amend them. Accordingly, the court granted, in part, PayPal’s motion for the reasons already set forth earlier.

Antitrust standing. The court continued that the consumers also failed to establish injury, the most critical element of antitrust standing. The court found their alleged overcharge injuries were too attenuated and speculative to satisfy Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters (AGC), 459 U.S. 519, 535 (1983)).

The consumers relied on City of Vernon for the proposition that their injuries were the direct result of agreements between PayPal and alleged co-conspirator online retailers participating in the conspiracy involuntarily or under coercion. See City of Vernon v. Southern California, 955 F.2d 1361 (9th Cir. 1992). The court noted Frame-Wilson relied on similar allegations to find antitrust standing under the “co-conspirator” exception to Illinois Brick. See Illinois Brick Co. v Illinois, 431 U.S. 720, 729 (1977). 591 F. Supp. 3d at 983-84. However, the court said it did not read City of Vernon to permit an inference of conspiracy whenever parties enter into a uniform contract, at least not without allegations of adhesion. The instant consumers did not allege that PayPal had the power to impose contract terms. The court footnoted the consumers also did not rely on a hub-and-spoke conspiracy under the Sherman Act, but even if they had, the allegations were insufficient to allege a horizontal agreement among eCommerce merchants.

The court also found Frame-Wilson distinguishable on the facts because Amazon is a competitor and the agreements in question bore directly on the prices other eCommerce retailers charged.

At bottom, the consumers did not show a direct link between the anti-steering rules and retail prices. They previously relied on various statements by PayPal, merchants, and regulators, to allege that transaction fees are baked into retail prices. Such allegations were not new. The consumers’ amendments provided additional support, and the court did not take issue with that general proposition. However, the consumers failed to compare numerous other pricing factors for any of the goods the consumers here allegedly bought, and amendments did not cure that pleading defect. The court accordingly granted PayPal’s motion to dismiss on this basis as well.

State claims. The court said it was not persuaded that the amount in controversy allegations perfected CAFA jurisdiction. Having dismissed the Sherman Act claim, the court dismissed the state law claims without prejudice for lack of jurisdiction.

Leave to amend. The court said it would give the consumers one final opportunity to amend the Sherman Act claim. It also said the consumers would have to say more to support CAFA jurisdiction on the state law claims.

The Case is No. 4:23-cv-05100-JSW.

Judge: White, J.

Attorneys: Ben M. Harrington (Hagens Berman Sobol Shapiro LLP) for Christian Sabol. Adam S. Hakki (Allen Overy Shearman Sterling US LLP) for PayPal Holdings, Inc.

Companies: PayPal Holdings, Inc.

Cases: Antitrust CaliforniaNews