Antitrust Law Daily Wrap Up, ANTITRUST—NDCal: Suit Raising California State Law Claims Remanded Because Alleged “Unfair Acts” Were Not Necessarily Based on Federal Antitrust Law, (Mar 7, 2013)

By E. Darius Sturmer, J.D.

An analytics firm in the business of using data mining techniques to derive insights from the flow of information generated on online communications platform Twitter was entitled to remand of California state law claims it brought against Twitter after the company had allegedly anticompetitively cut off its access to that information (“tweets”), the federal district court in San Francisco has ruled (Peoplebrowsr, Inc. v. Twitter, Inc., March 6, 2013, Chen, E.).

Twitter had removed the case to the federal court on the grounds that one prong of the California Unfair Competition Law (CUCL) claim asserted as part of the suit by the complaining firm—PeopleBrowsr, Inc.—rested on Sec. 2 of the Sherman Act. Because that sub-claim was not necessarily based on the federal law, however, there was no exclusive federal jurisdiction over the claim, the court held. Thus, removal was improper.

In the suit, PeopleBrowsr asserted that after years of Twitter giving it access to every tweet posted on the site through what is referred to as the Twitter “Firehose,” the company sought to deny that access while continuing to permit certain favored companies Firehose access. This gave Twitter greater control over the Twitter Big Data Analytics market, but denied PeopleBrowsr the essential access to Firehose upon which its business depended—acts that, according to PeopleBrowsr’s CUCL claim, constituted “acts of unfair competition that significantly threaten or harm competition.”

The court held that the claim did not fall under the “artful pleading” doctrine, whereby it would have been considered “necessarily federal in nature,” under the two-part test established by the California Supreme Court in Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163 (1999), 1999-1 Trade Cases ¶72,495, for determining if an unfair acts claim could proceed.

Under the Cel-Tech test, a court considers first whether specific legislation provides a “safe harbor.” Such safe harbor legislation “must actually ‘bar’ the action or clearly permit the conduct,” the court noted. If no statute provides such a safe harbor, a court must then determine if the conduct is “unfair,” defined as conduct that either (1) “threatens an incipient violation of an antitrust law;” (2) “violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law;” or (3) “otherwise significantly threatens or harms competition.”

Even assuming that the Sherman Act provided a “safe harbor” for the conduct alleged in the complaint, the federal court decided, such a “safe harbor” operates, in essence, as a federal defense to the “unfair act” claim. Thus, this part of the test did not provide a basis for federal question jurisdiction.

As for the second part of the test, the court found that the Cel-Tech analysis clearly permitted a plaintiff to state a claim for violation of the unfair acts prong of the CUCL entirely independent of any statutory basis—including any federal statutory bases. A violation of the unfair prong could be based on conduct that “significantly threatens or harms competition,” regardless of whether it represented an actual or incipient violation of an antitrust law. It could also be based on a violation of the policy or spirit of one of those laws. Thus, a violation of the unfair prong of the UCL does not necessarily require establishing a violation of the Sherman Act, the court concluded.

The court additionally granted a request by PeopleBrowsr for Twitter to pay its reasonable costs and expenses, including attorney fees, incurred as a result of the improper removal of the case.

The case is No. C-12-6120 EMC.

Attorneys: Beatrice B. Nguyen (Crowell & Moring LLP) for Peoplebrowsr, Inc. Jonathan M. Jacobson (Wilson Sonsini Goodrich & Rosati) for Twitter, Inc.

Companies: Peoplebrowsr, Inc.; Peoplebrowsr Pty., Ltd.; Twitter, Inc.

Cases: Antitrust CaliforniaNews