ebay motion to dismiss antitrust case

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Case No. CV12-5869-EJD-PSG

MOTION TO DISMISS

THOMAS P. BROWN (SB# 182916)[email protected] SAMUEL C. ZUN (SB# 264930) [email protected] EMILY DODDS POWELL (SB# 274488) [email protected] PAUL HASTINGS LLP 55 Second Street Twenty-Fourth Floor San Francisco, CA 94105-3441 Telephone: 1(415) 856-7000 Facsimile: 1(415) 856-7100

Attorneys for Defendant eBay Inc.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

UNITED STATES OF AMERICA,

Plaintiff,

v.

EBAY INC.,

Defendant.

CASE NO. CV12-5869-EJD-PSG

DEFENDANT’S NOTICE OF MOTION, MOTION TO DISMISS THE COMPLAINT PURSUANT TO FRCP 12(B)(6), AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF

Date: April 26, 2013 Time: 9:00 a.m. Courtroom: Courtroom 4, 5th Floor Judge: Edward J. Davila

Case5:12-cv-05869-EJD Document15 Filed01/22/13 Page1 of 33

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TABLE OF CONTENTS

Page


-i- MOTION TO DISMISS

I. STATEMENT OF ISSUES TO BE DECIDED ................................................................. 1

II. INTRODUCTION .............................................................................................................. 1

III. FACTUAL BACKGROUND ............................................................................................. 3

IV. LEGAL STANDARD ......................................................................................................... 5

V. THE COMPLAINT FAILS TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED ................................................................................................................... 6

A. The Complaint Fails To State A Claim Because A Section One Conspiracy Cannot Arise Where The Participants Share A Unity Of Purpose.......................... 6

1. A Section One Conspiracy Cannot Arise Among Alleged Conspirators That, Like eBay’s Officers and Directors, Share A Unity Of Purpose ........................................................................................ 7

2. The Complaint Challenges An Alleged Decision Made By A Group Of People Who By Virtue Of Their Roles As Officers And Directors Of eBay Had A Unity Of Purpose ............................................... 8

3. The Complaint Threatens To Create A Conflict Between Section One Of The Sherman Act And Section Eight Of The Clayton Act, The Antitrust Statute That Governs Shared Directors And Senior Officers ...................................................................................................... 11

B. The Complaint Does Not Allege Facts That, Even If Assumed True, Would Support A Conclusion That The Challenged Conduct Harmed Competition ....... 13

1. The DOJ Cannot Avoid Its Obligation To Establish That The Alleged Agreement Unreasonably Restrained Trade Simply By Labeling It Per Se Unlawful ...................................................................... 15

2. No Court Has Found An Antitrust Violation Based On An Agreement Regarding Hiring Practices Without Considering Facts Regarding Market Power And The Effect Of The Alleged Restraint On the Market ........................................................................................... 17

3. A “Quick Look” Analysis Is Inappropriate In This Case ......................... 20

4. The DOJ’s Remedies in Related Consent Decrees Demonstrate The Inconsistencies Created By Presuming Illegality Simply From The Existence Of An Agreement Between Firms Regarding Hiring Practices .................................................................................................... 22

VI. CONCLUSION ................................................................................................................. 25


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-ii- MOTION TO DISMISS

TABLE OF AUTHORITIES

Page(s) CASES

Adaptive Power Solutions, LLC v. Hughes Missile Sys. Co., 141 F.3d 947 (9th Cir. 1998) ................................................................................................... 14

Anderson v. Shipowners Association of the Pacific, 272 U.S. 359 (1926) ................................................................................................................ 20

Aronson v. Lewis, 473 A.2d 805 (Del. 1984) ......................................................................................................... 9

Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................................................ 5, 19

Aydin Corp. v. Loral Corp., 718 F.2d 897 (9th Cir. 1983) ............................................................................................. 19, 20

Bell Atl. Bus. Sys. Servs. v. Hitachi Data Sys. Corp., 849 F. Supp. 702 (N.D. Cal. 1994) ........................................................................................... 8

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .............................................................................................................. 5, 6

Board of Trade of the City of Chicago v. United States, 246 U.S. 231 (1918) ................................................................................................................ 14

Bogan v. Hodgkins, 166 F.3d 509 (2d Cir. 1999) .............................................................................................. 17, 18

Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. (“BMI”), 441 U.S. 1 (1979) .............................................................................................................. 16, 24

Cal. Dental Ass’n v. FTC, 526 U.S. 756 (1999) ................................................................................................................ 21

Century Oil Tool v. Prod. Specialties, 737 F.2d 1316 (5th Cir. 1984) ................................................................................................... 8

Cesnik v. Chrysler Corp., 490 F. Supp. 859 (M.D. Tenn. 1980) ...................................................................................... 24

Coleman v. Gen. Elec. Co., 643 F. Supp. 1229 (E.D. Tenn. 1986) ..................................................................................... 24

Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) ............................................................................................................ 15, 16


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TABLE OF AUTHORITIES (continued)

Page(s)


-iii- MOTION TO DISMISS

Cooper v. Pickett, 137 F.3d 616 (9th Cir. 1997) ..................................................................................................... 4

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984) .................................................................................................. 1, 6, 7, 8, 9

Directory Sales Mgmt. Corp. v. Ohio Bell Tel. Co., 833 F.2d 606 (6th Cir. 1987) ..................................................................................................... 8

Eichorn v. AT&T Corp., 248 F.3d 131 (3d Cir. 2007) .............................................................................................. 19, 24

FTC v. Ind. Fed’n of Dentists, 476 U.S. 447 (1986) ................................................................................................................ 21

In re High-Tech Employee Antitrust Litig., 856 F. Supp. 2d 1103 (2012) ................................................................................................... 17

Kendall v. Visa U.S.A., Inc., 518 F.3d 1042 (9th Cir. 2008) ................................................................................................. 14

Krzalic v. Republic Title Co., 314 F.3d 875 (7th Cir. 2002) .................................................................................................. 13

Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) .......................................................................................................... 15, 16

Moss v. U.S. Secret Serv., 572 F.3d 962 (9th Cir. 2009) ..................................................................................................... 6

N. Pac. Ry. Co. v. United States, 356 U.S. 1 (1958) .................................................................................................................... 16

Nat’l Collegiate Athletic Ass’n v. Bd. Of Regents of Univ. of Okla. (“NCAA”), 468 U.S. 85 (1984) ..................................................................................... 9, 17, 21

Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679 (1978) ................................................................................................................ 21

Nichols v. Spencer International Press, Inc., 371 F.2d 332 (7th Cir. 1967) ................................................................................................... 19

Polygram Holding, Inc. v. FTC, 416 F.3d 29 (D.C. Cir. 2005) .................................................................................................. 21


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Page(s)


-iv- MOTION TO DISMISS

Pool Water Prods. v. Olin Corp., 258 F.3d 1024 (9th Cir. 2001) ................................................................................................. 17

Quinonez v. National Association of Securities Dealers, Inc., 540 F.2d 824 (5th Cir. 1976) ................................................................................................... 19

Rebel Oil, Inc. v. Atl. Richfield Co., 51 F.3d 1421 (9th Cir. 1995) ................................................................................................... 10

Siegel Transfer v. Carrier Express, 54 F.3d 1125 (3d Cir. 1995) ...................................................................................................... 8

State Oil Co. v. Khan, 522 U.S. 3 (1997) .................................................................................................................... 15

Texaco Inc. v. Dagher, 547 U.S. 1 (2006) .................................................................................................................... 14

Union Circulation Co. v. FTC, 241 F.2d 652 (2d Cir. 1957) .................................................................................................... 18

United States v. Brown, 936 F.2d 1042 (9th Cir. 1991) ................................................................................................. 20

United States v. Cooperative Theatres of Ohio, Inc., 845 F.2d 1367 (6th Cir. 1988) ................................................................................................. 20

United States v. Lucasfilm Ltd., No. 1:10-cv-02220 (D.D.C. June 3, 2011) .............................................................................. 23

STATUTES

15 U.S.C. § 1 .............................................................................................................................................. 7 § 19(a)(1)–(2) .................................................................................................................... 11, 12 § 19(a)(1)(B) ........................................................................................................................... 11

Del. Code Ann. Tit. 8 § 141(a)........................................................................................................ 9


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Page(s)


-v- MOTION TO DISMISS

OTHER AUTHORITIES

ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS (7th ed. 2012) ........... 12, 16

Benjamin M. Gerber, Enabling Interlock Benefits While Preventing Anticompetitive Harm: Toward An Optimal Definition of Competitors Under Section 8 Of The Clayton Act, 24 YALE J. ON REG. 107 (2007) ....................................................................................... 12

Brian R. Henry & Joseph M. Miller, “Sorry, We Can’t Hire You . . . We Promised Not To”: The Antitrust Implications of Entering Into No-Hire Agreements, 11 ANTITRUST 39 (Fall 1996) .......................................................................................................................... 23

Brief for the United States as Amicus Curiae Supporting Petitioner, Am. Needle, Inc. v. Nat’l Football League, No. 08-661, 2009 WL 3070863 (Sept. 25, 2009) ............................................................. 14, 24

H.R. Rep. 101-483 (1990) ............................................................................................................. 13

David K. Haase and Darren M. Mungerson, Agreements Between Employers Not to Hire Each Other’s Employees: When Are They Enforceable?, 21 LAB. LAW. 277 (2006) ............ 23

Mark S. Mizruchi, What Do Interlocks Do? An Analysis, Critique, and Assessment of Research on Interlocking Directorates, 22 ANN. REV. SOC. 271 (1996) ................................ 12

Michael Boudin, Acting Assistant Attorney General, Antitrust Div., U.S. Dep’t. of Justice, Statement before the House Committee on the Judiciary (June 15, 1989) ............................. 13

Thomas G. Krattenmaker, Situating Realcomp in the Sweep of Antitrust Law and Policy, 11 U.C. DAVIS BUS. L.J. 361 (2011) ....................................................................................... 10


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MOTION TO DISMISS

NOTICE OF MOTION AND MOTION TO DISMISS

TO PLAINTIFF AND ITS ATTORNEYS OF RECORD:

PLEASE TAKE NOTICE that on April 26, 2013, at 9:00 a.m., or as soon thereafter as this

matter may be heard in Courtroom 4, 5th Floor, of the United States District Court, Northern

District of California, located at 280 South 1st Street, San Jose, California, the Honorable Edward

J. Davila presiding, Defendant eBay Inc. will and hereby does move this Court for an order

dismissing the Complaint without leave to amend pursuant to Federal Rule of Civil Procedure

12(b)(6), for failure to state a claim upon which relief can be granted.

This motion is based on this Notice of Motion and Motion, the accompanying

Memorandum of Points and Authorities in support thereof, the Declaration of Thomas P. Brown

in support thereof, any Reply Memorandum, the pleadings and files in this action, and such

arguments and authorities as may be presented at or before the hearing.


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- 1 - MOTION TO DISMISS

MEMORANDUM OF POINTS AND AUTHORITIES

I. STATEMENT OF ISSUES TO BE DECIDED

Defendant eBay Inc. (“eBay”) moves to dismiss the Complaint pursuant to Federal Rule

of Civil Procedure 12(b)(6) on the following grounds:

1. The Complaint fails to state a claim upon which relief may be granted under the

Sherman Act because it fails to allege an actionable conspiracy.

2. The Complaint fails to state a claim upon which relief may be granted under the

Sherman Act because it fails to allege harm to competition.

II. INTRODUCTION

Section One of the Sherman Act does not exist to micromanage the interaction between

the officers and directors of a public company. It exists to protect consumers from concerted

action among true rivals that suppresses demand without offering any offsetting benefits. By this

standard, even assuming the truth of the allegations in the Complaint, eBay did nothing wrong,

and the Complaint should be dismissed for failure to state a claim.

The Complaint does not allege a conspiracy actionable under Section One. All of the

people mentioned by name in the Complaint served as officers and/or Directors of eBay. Under

the Supreme Court’s decision in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752

(1984), as a matter of law the people named in the Complaint are incapable of conspiring with

one another. For purposes of setting eBay policy on recruiting and hiring, their collective

decision is eBay’s decision.

Moreover, the effort to force this case into a Section One paradigm creates an unnecessary

conflict with Section Eight of the Clayton Act. Section Eight embodies an express Congressional

judgment that people can serve on the boards of two companies so long as those companies are

not close competitors. The Complaint seeks to overturn this Congressional judgment. It turns an

individual, Mr. Scott Cook, who was lawfully serving on the board of two companies, eBay Inc.

and Intuit Inc., into the conduit for the creation of a conspiracy between those companies. The

Department of Justice’s (“DOJ”) action, if successful, would render Section Eight a dead letter


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and make it difficult for companies to find people of sufficient talent, experience and integrity to

staff their boards.

Even assuming that the challenged actions fall within the scope of Section One, the action

still fails as a matter of law. The Complaint does not identify even a single person who was

harmed by eBay’s alleged actions, and concedes that eBay’s conduct may not have affected

anyone. Although this concession necessarily means that eBay’s conduct could not have affected

competition in any cognizable antitrust market as a whole, the Complaint asserts that such an

effect should be presumed through application of the per se rule or “quick look” doctrine. This,

too, is wrong.

The per se rule and “quick look” doctrine represent narrow exceptions to the general rule

that every plaintiff in a Section One case must prove that the challenged conduct actually harmed

competition in a relevant market. The per se rule and “quick look” doctrine only apply where

unambiguous judicial experience demonstrates that the particular conduct at issue has no effect,

other than to stifle competition, or where such an effect is obvious to anyone “with a rudimentary

understanding of economics.” These exceptions have no place in this case. No prior case

evaluating similar conduct has ever deemed such conduct per se unlawful or concluded that its

effects were so obviously anticompetitive that it should be condemned based on a “quick look.”

And the Complaint fails to explain how the challenged conduct could possibly have affected

market-wide outcomes.

The most compelling argument against the application of the per se rule or “quick look”

doctrine comes from the DOJ itself. The DOJ, as the Complaint states, has filed prior cases

challenging similar conduct. In resolving those cases, the DOJ has explicitly recognized that the

precise conduct alleged here—an agreement not to recruit or hire employees of another

company—can be justified. Indeed, the DOJ’s consent decrees with other defendants approve of

conduct restricting the hiring and recruiting of employees in a long and varied list of

circumstances. Such an outcome cannot be squared with the argument that such agreements,

without fail, harm competition. By definition, a per se violation can have no exceptions.


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This Complaint does not state a claim on which relief can be granted. Every plaintiff

seeking to prove a violation of Section One must allege that the defendant engaged in (1)

concerted action that (2) harmed consumer welfare. This Complaint does not offer facts that

plausibly support either conclusion. It should, therefore, be dismissed.

III. FACTUAL BACKGROUND1

In November 2005, eBay’s then-COO, Maynard Webb, approached Mr. Scott Cook, a

long-standing member of eBay’s Board of Directors, to discuss some potential hires from Intuit, a

company that Mr. Cook had founded and for whom he served as Chairman of its Executive

Committee. (Id. ¶¶ 12, 15.) Mr. Webb explained to Mr. Cook that eBay planned to hire an Intuit

employee and proposed a going-forward policy in which eBay would give Intuit notice in the

event that eBay intended to recruit more senior level people. (Id.)

The Complaint alleges that Mr. Cook objected to the proposed policy “insofar as it

allowed hiring of any employees without prior notice to Intuit.” (Id.) According to the

Complaint, Mr. Cook told eBay’s COO via email that companies with a shared director “don’t

recruit from other board companies, period.” (Id.) He added that “we’re passionate on this.”

(Id.) Mr. Cook made his point to Mr. Webb with an example drawn from his board service for

another company, alluding to the duties that someone with a role as a director or officer of two

companies owes both companies and the challenge of managing those duties given the

confidential information that a Board member is exposed to about many things, including critical

employees. (Id.)

The Complaint alleges that notwithstanding this discussion, eBay hired the two Intuit

employees in December 2005. (Compl. ¶ 16.) These hires prompted a discussion between

eBay’s then-CEO, Meg Whitman, and Mr. Cook, about hiring from “board companies.” (Id.)

According to the Complaint, Ms. Whitman communicated to eBay’s head of human resources

that eBay’s decision to hire two executives from Intuit had left eBay’s Director, Mr. Cook,

“slightly miffed.” (Id.)

1 Solely for the purposes of this Motion to Dismiss, eBay assumes the truth of the facts alleged in the Complaint.


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The Complaint alleges that sometime after this discussion eBay changed its policy

regarding recruiting Intuit employees. The Complaint claims that in August 2006, eBay’s head of

human resources observed that eBay had decided to provide Mr. Cook with advance notice before

recruiting Intuit employees. (Id. ¶ 17.) This observation occurred in response to a potential

recruit from Intuit. (Id.) According to the Complaint, eBay’s head of human resources confirmed

with Ms. Whitman that eBay had implemented a policy of “notifying Scott first.” (Id.) The

Complaint alleges that eBay did not reach out to the potential candidate. (Id.)

The Complaint alleges that eBay continued to hire from Intuit after this change in policy.

In about April of 2007, according to the Complaint, eBay hired into its internal communications

department an employee from Intuit. (Id. ¶¶ 18–19.) The Complaint alleges that eBay had not

recruited this particular candidate. (Id. ¶ 18.) Instead, the candidate had applied unsolicited.

(Id.) The Complaint claims that this hire made Mr. Cook “quite unhappy.” (Id.) The Complaint

alleges that following this hire, and beginning in April 2007, eBay changed its policy to not hire

any employees from Intuit. (Id.)

The Complaint does not allege that Intuit refrained from hiring eBay employees. Rather,

it claims that Mr. Cook told an applicant that had taken a job at eBay that “Intuit is precluded

from recruiting you.” (Id. ¶ 21.) The Complaint also alleges that Ms. Whitman sent Mr. Cook a

recruiting flyer, forwarded to her by eBay’s head of human relations, that Intuit had apparently

sent to an eBay employee. (Id. ¶ 22.)

The Complaint identifies “Intuit and senior executives at Intuit and eBay” as co-

conspirators. (Id. ¶ 9.) It does not, however, name Intuit as a Defendant. Instead, the Complaint

alleges that any violation committed by Intuit was cured by Intuit’s entry into an earlier consent

decree arising from a complaint that alleged an agreement involving a company other than eBay.

(Id.; see also Brown Decl., Ex. A (the “Consent Decree”).2) Although the Consent Decree

nominally bars “any agreement” that “in any way” restrains “soliciting, cold calling, recruiting, or

2 Because the DOJ referred to the Consent Decree in its Complaint, it is appropriate to attach the Consent Decree to the motion for the Court’s consideration. See Cooper v. Pickett, 137 F.3d 616, 622 (9th Cir. 1997) (“a document is not ‘outside’ the complaint if the complaint specifically refers to the document and if its authenticity is not questioned”).


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otherwise competing for employees,” it also contains broad exceptions to this blanket

prohibition. (Consent Decree at 5.) More specifically, the Consent Decree allows Intuit and the

other signatories to continue to “attempt[] to enter into, enter[] into, maintain[] or enforc[e] a no

direct solicitation provision,” including with their own employees in employment or severance

agreements. (Id. at 5–6.) The Consent Decree also leaves the signatories, including Intuit, free to

“unilaterally decid[e] to adopt a policy not to consider applications from employees of another

person, or to solicit, cold call, recruit or hire employees of another person.” (Id. at 7.)

The Complaint does not allege facts to support a conclusion that eBay’s conduct harmed

any individual or the market as a whole. It does not allege that eBay stopped hiring generally or

reduced wages and benefits for people that it did hire. It does not identify any Intuit employee

who would have received a better job at eBay, or vice versa, absent eBay’s alleged decision to not

recruit or hire from Intuit. Nor does it quantify the “better compensation, benefits, and working

conditions” that employees allegedly would have had the “ability to secure” but for eBay’s

alleged conduct. (Compl. ¶ 27.) While the Complaint speculates that eBay’s alleged conduct

“might” have had an impact on some individual employees who “remained in jobs that did not

fully utilize their unique skills” (id. ¶ 11), it fails to allege any facts that would support an

inference that the elimination of rivalry between eBay and Intuit would have any impact

whatsoever on any relevant market for talent.

Indeed, the Complaint does not allege that any of the people identified in the Complaint

were trying to impact the market. The Complaint does not allege Ms. Whitman, Mr. Webb, Mr.

Cook or anyone else intended to eliminate competition between Intuit and eBay in order to reduce

wages, increase prices, or otherwise affect price or output in any relevant market.

IV. LEGAL STANDARD

To survive a motion to dismiss, a complaint must plead “enough facts to state a claim to

relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A

formulaic recitation of the elements of the claims will not suffice, and the Court cannot assume

the truth of conclusory allegations unsupported by facts. Ashcroft v. Iqbal, 556 U.S. 662, 679

(2009). Further, the complaint’s “non-conclusory ‘factual content,’ and reasonable inferences


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from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” Moss

v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009). That is, the “[f]actual allegations must be

enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555.

V. THE COMPLAINT FAILS TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED.

The Complaint fails to allege facts that support either of the conclusions necessary to

sustain a case under Section One of the Sherman Act. First, it does not identify a conspiracy

actionable under Section One because it focuses exclusively on the interaction of a group of

people who served as officers and Directors of eBay Inc. By virtue of their shared connection to

eBay, the individuals identified in the Complaint had a unity of economic interest that, as a matter

of law, precludes a claim that they engaged in concerted action that triggers Section One scrutiny.

The Complaint’s attempt to use Section One to micromanage the interaction of the officers and

Directors of eBay also creates an unnecessary conflict between Section One and Section Eight of

the Clayton Act. Second, the Complaint makes no effort to identify the effect on competition (if

any) from eBay’s alleged conduct. Instead, it invokes the per se rule and quick look doctrine

even though courts and the DOJ have historically and consistently subjected practices related to

hiring and recruiting to rule of reason review. For both reasons, the Complaint should be

dismissed.3

A. The Complaint Fails To State A Claim Because A Section One Conspiracy Cannot Arise Where The Participants Share A Unity Of Purpose.

The Complaint does not allege an actionable conspiracy. Its allegations focus on the

interaction between the senior officers and the director of a single firm. But to be actionable

under the Sherman Act, a conspiracy must involve “independent centers of decisionmaking.”

Copperweld, 467 U.S. at 769. Because this Complaint concerns only the interaction of people

3 Separately, the Complaint does not explain how the “recruitment and hiring activities at issue in this Complaint . . . are in the flow of and substantially affect interstate commerce,” (Compl. ¶ 5), as is required for the Court to have subject matter jurisdiction. For example, the Complaint contains no allegations regarding whether the alleged agreement affected even a single Intuit employee seeking employment at an eBay location in a different state, or vice-versa.


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affiliated with a single entity, it fails as a matter of law. Moreover, by invoking Section One of

the Sherman Act to police an eBay policy that allegedly arose in response to concerns expressed

by a director that eBay shared with another firm, the Complaint threatens to create an unnecessary

and counterproductive conflict between Section One of the Sherman Act and Section Eight of the

Clayton Act, the antitrust statute that polices the competitive issues that arise from interlocking,

or shared, directors and senior officers.

1. A Section One Conspiracy Cannot Arise Among Alleged Conspirators That, Like eBay’s Officers and Directors, Share A Unity Of Purpose.

The Sherman Act draws a fundamental distinction between concerted action and unilateral

action. The Sherman Act gives individual firms a wide berth. It allows them to pursue their own

self-interest even if their actions leave consumers, suppliers and competitors worse off.

Implicitly, the text of the Sherman Act reflects a judgment that absent the threat of monopoly, the

market serves as an effective check on the actions of individual firms. The Sherman Act is more

suspicious of concerted action. When firms “contract, combin[e] . . . or conspir[e],” the Act

obliges them to behave reasonably. 15 U.S.C. § 1. The theory, best articulated by the Supreme

Court’s decision in Copperweld, is that concerted action “deprives the marketplace of the

independent centers of decisionmaking that competition assumes and demands.” Copperweld,

467 U.S. at 769.

But this distinction is meaningful only to the extent that courts coherently segregate

concerted action from unilateral action. The Supreme Court confronted this question in

Copperweld. That case originated in a dispute between three companies in the business of

manufacturing steel tubing: Independence Tube, Regal Tube, and Copperweld. Id. at 755–57.

Independence Tube claimed that Copperweld and its subsidiary, Regal Tube, had violated Section

One by conspiring with one another to prevent customers and suppliers from doing business with

Independence Tube. Id. at 757–58. A jury agreed, and the Seventh Circuit affirmed. Id. The

Supreme Court reversed, holding that a parent corporation and its wholly owned subsidiary are

incapable of conspiring with one another. Id. at 777.


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Copperweld holds that courts should not find antitrust conspiracies in contexts where the

alleged participants necessarily have a shared purpose even absent an agreement. Harking back

to American Tobacco, Copperweld observes that an antitrust conspiracy requires “a unity of

purpose or a common design and understanding, or a meeting of minds in an unlawful

arrangement.” Id. at 771 (quoting American Tobacco Co. v. United States, 328 U.S. 781, 810

(1946)). It explains that no such agreement can be reached in the context of a relationship

between a parent and a subsidiary because these entities always have a “unity of purpose or a

common design.” Id. It likewise admonishes courts not to construe Section One to reach actions

that involve “the coordination of two employees,” noting that “[s]uch a rule would obliterate the

Act’s distinction between unilateral and concerted conduct.” Id. at 776.

Courts have expanded on Copperweld’s examination of parent-subsidiary coordination to

hold that related corporate entities are also incapable of conspiring for Section One purposes.

See, e.g., Directory Sales Mgmt. Corp. v. Ohio Bell Tel. Co., 833 F.2d 606, 611 (6th Cir. 1987)

(two wholly-owned subsidiaries of the same parent corporation); Century Oil Tool v. Prod.

Specialties, 737 F.2d 1316, 1317 (5th Cir. 1984) (two corporations with common ownership);

Bell Atl. Bus. Sys. Servs. v. Hitachi Data Sys. Corp., 849 F. Supp. 702, 705–07 (N.D. Cal. 1994)

(a parent and its partially-owned subsidiary, over which it had legal control). Numerous courts

have also reaffirmed the principle stated in Copperweld, that “section 1 does not capture

coordinated activity among the employees and officers of the same firm or police ‘internal

agreements’ between a corporation and these individuals.” Siegel Transfer v. Carrier Express, 54

F.3d 1125, 1134 (3d Cir. 1995) (citing Copperweld, 467 U.S. at 769).

2. The Complaint Challenges An Alleged Decision Made By A Group Of People Who By Virtue Of Their Roles As Officers And Directors Of eBay Had A Unity Of Purpose.

The Complaint seeks to conjure a Section One conspiracy from the interactions of eBay’s

senior management with a member of eBay’s Board of Directors. It imputes to Mr. Cook the

interests of one of the other companies for which he also served as a director. But the mere fact

that Mr. Cook has interests outside of his role as an eBay Director does not support a Section One

claim in the wake of Copperweld and its progeny. This Complaint does not allege facts that


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support a conclusion that eBay’s policy with regard to recruiting or hiring people employed by

Intuit constituted an actionable conspiracy. Nor does it allege facts linking eBay’s policy to

competitive harm—regardless of whether the policy is attributed to an agreement or unilateral

action.

The interests of eBay’s executives and Board members, in particular those named in the

Complaint, cannot be separated from eBay. In their respective roles, they have obligations to one

another and to the other constituents with an interest in the decisions that eBay makes (e.g., its

shareholders). Under Delaware law, “[t]he business and affairs of every [Delaware] corporation .

. . shall be managed by or under the direction of a board of directors . . . .” Del. Code Ann. tit. 8 §

141(a). This managerial power “carries with it certain fundamental fiduciary obligations to the

corporation and its shareholders.” Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984), overruled

on other grounds by Brehm v. Eisner, 756 A.2d 244 (Del. 2000). But so long as eBay’s Directors

and officers operate within the broad parameters set by the business judgment rule, their decisions

are eBay’s decisions. See id. at 812 (noting that the business judgment rule “is a presumption that

in making a business decision the directors of a corporation acted on an informed basis, in good

faith and in the honest belief that the action taken was in the best interests of the company”). As

with the parent and wholly-owned subsidiary in Copperweld, the officers and directors of a

company “always have a ‘unity of purpose or a common design.’” Copperweld, 467 U.S. at 771

(quoting American Tobacco, 328 U.S. at 810). And as with a parent and a wholly-owned

subsidiary, “the very notion of an ‘agreement’ in Sherman Act terms between [a company’s

executives and its directors] lacks meaning.” Copperweld, 467 U.S. at 771. They are the

company.

The Complaint also fails to allege facts linking the alleged policy to the competitive

concerns that animate Section One. At this point in the long evolution of U.S. antitrust law, it is

universally accepted that preventing diminution in consumer welfare is the “fundamental goal of

antitrust law.” Nat’l Collegiate Athletic Ass’n v. Bd. Of Regents of Univ. of Okla. (“NCAA”), 468

U.S. 85, 107 (1984). The phrase “consumer welfare,” as used in the antitrust context, has a very

specific, technical meaning tied to the allocation of goods through the price mechanism. See id.


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(tying “consumer welfare” to “the importance of consumer preference in setting price and

output”).4 See also Rebel Oil, Inc. v. Atl. Richfield Co., 51 F.3d 1421, 1444 n.15 (9th Cir. 1995)

(“As we have noted previously, allocative efficiency is synonymous with consumer welfare, and

is the central goal of the Sherman Act.” (internal citations omitted)). Section One of the

Sherman Act advances the antitrust cause by prohibiting agreements that harm consumer

welfare—i.e., suppress market output below the levels that would prevail in the absence of the

agreement.

The Complaint does not allege that Ms. Whitman, Mr. Cook or anyone else associated

with eBay’s alleged policy advocated for it out of a desire to suppress wages or benefits for

anyone. The Complaint does not identify a single email that even referred to wages or benefits.

Even with the benefit of hindsight (and a three year investigation), the Complaint equivocates on

whether eBay’s policy had such an impact. The first paragraph claims only that the challenged

conduct “might” have lowered salaries and benefits for people who worked at Intuit, necessarily

conceding that such people also might not have commanded higher salaries or benefits. (Compl.

¶ 1 (emphasis added).) Later, the Complaint claims that the challenged conduct “likely resulted

in some of eBay’s and Intuit’s employees remaining in jobs that did not fully utilize their unique

skills,” without alleging a single fact to support such a conclusion. (Id. ¶ 11 (emphasis added).)

Absent allegations linking the policy to a desire to suppress wages or benefits, the

Complaint fails to allege facts that suggest the policy should be treated as anything other than

what it, on its face, appears to be—a reasonable accommodation to an eBay Director concerned

about the appearance of divided loyalties. Indeed, the Complaint concedes that the policy was

motivated by concerns that cross-hiring among companies that share a director could create the

appearance of a conflict of interest. The Complaint attempts to cast this motivation in a dark

light, alleging that Mr. Cook “was willing to sacrifice the welfare of Intuit’s employees in order

to advance his own personal interests in serving on eBay’s Board.” (Id. ¶ 12.) But this allegation

4 See also Thomas G. Krattenmaker, Situating Realcomp in the Sweep of Antitrust Law and Policy, 11 U.C. DAVIS BUS. L.J. 361, 364 (2011) (“We say that consumer welfare is harmed when market output is reduced below otherwise prevailing competitive levels, so that market prices rise above competitive levels.”).


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directly undermines the premise of the Complaint. It concedes that Mr. Cook’s interests in

eBay’s hiring related to his position on eBay’s Board and had nothing whatsoever to do with

suppressing wages or benefits for Intuit employees.

3. The Complaint Threatens To Create A Conflict Between Section One Of The Sherman Act And Section Eight Of The Clayton Act, The Antitrust Statute That Governs Shared Directors And Senior Officers.

To the extent that the claim is that Mr. Cook’s interests can be separated from eBay’s by

virtue of the roles he plays for other companies, the Complaint offers no explanation as to why

those concerns are not better addressed by the antitrust statute that was specifically crafted to

handle them, Section Eight of the Clayton Act. Every director, officer and employee has interests

independent of the roles they play for a particular company. Antitrust law polices the competitive

issues that flow from such interests through a clear set of rules set down by Congress in Section

Eight of the Clayton Act. Section Eight permits individuals to serve on the boards of multiple

companies so long as those companies are not meaningful competitors. Directors rely on those

rules to know when they can serve on the boards of multiple companies. This Complaint seeks to

override Congress’s express judgment by creating a Section One conspiracy through the actions

taken by someone lawfully serving on multiple boards of directors.

Section Eight establishes clear rules for evaluating potential competitive impacts where

firms share senior officers or directors—sometimes known as interlocking directors or interlocks.

The literal language of Section Eight prohibits interlocks if the interlocked companies are capable

of jointly violating the antitrust laws: “No person shall, at the same time, serve as a director or

officer in any two corporations . . . that are . . . by virtue of their business and location of

operation, competitors, so that the elimination of competition by agreement between them would

constitute a violation of the antitrust laws . . . .” 15 U.S.C. § 19(a)(1)(B). The statute then carves

out exemptions that permit interlocks where the companies are below a certain size or where their

competitive sales fall below a certain threshold. See id. § 19(a)(1)–(2).5 In doing so, Section

5 Section Eight permits interlocks between companies if (1) one of the companies has less than $10 million in aggregated capital, surplus, and undivided profits; (2) the competitive sales of either corporation are less than $1 million; (3) the competitive sales of either corporation is less


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Eight “removes from the coverage of interlock prohibitions arrangements that pose little risk of

significant antitrust injury.” ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW

DEVELOPMENTS, at 438 (7th ed. 2012) (citing the legislative history of Section Eight). Section

Eight, thus, reflects Congress’s judgment that interlocks between otherwise independent

companies are competitively benign so long as the companies, or their competitive overlap, are

small.6

Section Eight reflects a Congressional decision that the competitive benefits of an

interlock outweigh the costs of the coordination that inevitably follows so long as the companies

or their competitive overlap fall within the statutory safe-harbors. It implicitly recognizes that

few people possess the talent, experience and personal integrity necessary to manage large

shareholder-owned companies. People who serve as officers or directors of other companies are

inherently attractive because adding such people to a board “signals to potential investors that [a

company] is a legitimate enterprise worthy of support.” Mark S. Mizruchi, What Do Interlocks

Do? An Analysis, Critique, and Assessment of Research on Interlocking Directorates, 22 ANN.

REV. SOC. 271, 276 (1996). Moreover, adding people to a board who serve in a senior capacity

for another company allows for the transfer of general management information and expertise,

which ultimately benefits consumers and society as a whole. See Benjamin M. Gerber, Enabling

Interlock Benefits While Preventing Anticompetitive Harm: Toward An Optimal Definition of

Competitors Under Section 8 Of The Clayton Act, 24 YALE J. ON REG. 107, 115–16 (2007).

The Complaint’s effort to invoke Section One to police eBay’s response to concerns

expressed by a Director it shared with Intuit creates an unnecessary and, ultimately,

counterproductive conflict between these two provisions. All productive enterprises compete for

employees, and cross-hiring across companies that share directors has the potential to create real

issues for those directors. For example, if a shared director were aware of a unique problem

associated with a particular cross-hire, would that director be obligated to tell the hiring company

than 2% of that corporation’s total sales; or (4) the competitive sales of each corporation are less than 4% of that corporation’s total sales. 15 U.S.C. § 19(a)(1)–(2). 6 The Complaint does not allege that competitive sales by eBay and Intuit exceed these thresholds.


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of that problem? Would that obligation give way if revealing the information to the hiring

company would harm the company from which that person was being hired? As a result, all

companies can be expected to devise policies around whether to hire from companies affiliated

with their directors, to communicate with their directors about such policies, and to modify those

policies based on feedback from their directors. To the extent that such exchanges become the

basis for a Section One claim, the mere existence of an interlocked director would become the

basis for an action.7 This would effectively render the safe-harbors of Section Eight a dead letter,

making it more difficult for firms to attract qualified directors and undermining the objective that

Congress sought to achieve when it added those safe-harbors to the statute.8

B. The Complaint Does Not Allege Facts That, Even If Assumed True, Would Support A Conclusion That The Challenged Conduct Harmed Competition.

Even if there were some basis for invoking Section One to challenge the interaction

between Mr. Cook, Ms. Whitman and other senior eBay executives, the Complaint should still be

dismissed. As noted above, the Complaint fails to allege any facts that support a conclusion that

the alleged conspiracy actually affected market outcomes. This hole in the Complaint’s

allegations is fatal to the claim, and the Complaint’s effort to invoke the per se rule and “quick

look” doctrine should be rejected.9

7 The theory of this Complaint could be extended to a host of actions that arise on the supply side of firms. Negotiations to obtain real estate, telecommunications, advertising services, payment card processing and even office supplies could give rise to claims of “coordination” essentially identical to those at issue here. 8 Congress amended Section Eight in 1990 in reaction to calls by some, including the DOJ, for an amendment that would add explicit safe-harbors to the statute. See Michael Boudin, Acting Assistant Attorney General, Antitrust Div., U.S. Dep’t. of Justice, Statement before the House Committee on the Judiciary, at 23 (June 15, 1989) (urging Congress to add “[e]xplicit, numerical safe harbors” to Section Eight). As the House Report recommending passage of the amendments explained, “[a] ban on interlocking directorates serves no functional purpose where the corporations are not in competition with one another to a significant degree or where they compete in a line of business that is not economically significant in relation to their overall operations.” H.R. Rep. 101-483, at 7 (1990). 9 The DOJ’s interpretation of the law is not entitled to deference in a civil or criminal case. See Krzalic v. Republic Title Co., 314 F.3d 875, 883 (7th Cir. 2002) (Easterbrook, J., concurring) (“Judges do not apply Chevron to the Attorney General’s interpretation of the Sherman Antitrust Act, whether in public or in private litigation.”).


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The “presumptive or default standard” for determining whether a particular practice

imposes an unreasonable restraint is the “rule of reason” that Justice Brandeis first enunciated in

Board of Trade of the City of Chicago v. United States, 246 U.S. 231 (1918). See Texaco Inc. v.

Dagher, 547 U.S. 1, 5 (2006) (“this Court presumptively applies rule of reason analysis”). As the

DOJ itself explained in a recent amicus curiae brief, the rule of reason evaluates the

reasonableness of an alleged restraint by considering “as appropriate, ‘specific information about

the relevant business,’ ‘the restraint’s history, nature, and effect,’ and the participants’ market

power.” Brief for the United States as Amicus Curiae Supporting Petitioner at 11–12, Am.

Needle, Inc. v. Nat’l Football League, No. 08-661, 2009 WL 3070863, at *12 (Sept. 25, 2009)

(quoting Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885–86 (2007)

(internal citations omitted)).10

In determining whether a practice is unreasonable, “the focus is on actual effects that the

challenged restraint has had on competition in a relevant market.” Adaptive Power Solutions,

LLC v. Hughes Missile Sys. Co., 141 F.3d 947, 950–51 (9th Cir. 1998) (quoting Bhan v. NME

Hosps., Inc., 929 F.2d 1404, 1410 (9th Cir. 1991)). Thus, to state a Section One claim under the

rule of reason, a plaintiff must plead three elements: “(1) a contract, combination or conspiracy

among two or more persons or distinct business entities; (2) by which the persons or entities

intended to harm or restrain trade or commerce among the several States, or with foreign nations;

(3) which actually injures competition.” Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047 (9th

Cir. 2008). To demonstrate injury to competition, a plaintiff must “prove the relevant market and

. . . show the effects of competition within that market.” Adaptive Power Solutions, 141 F.3d at

951.

10 In the same amicus curiae brief, the DOJ took the position that hiring restrictions among competing NFL franchises should be evaluated under the rule of reason: “[A] rule forbidding teams from poaching one another’s coaching talent . . . . [w]ould be an agreement . . . . Of course, such a rule might be reasonable, and thus lawful. The scope and substance of that inquiry would depend on factors such as . . . the rationale for its adoption, and the nature of its effect on competition.” Brief for the United States as Amicus Curiae Supporting Petitioner at 20 & n.10, Am. Needle, Inc. v. Nat’l Football League, No. 08-661, 2009 WL 3070863, at *20 and no. 10 (citations omitted) (Sept. 25, 2009).


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The Complaint explicitly declines the opportunity to state a claim under the traditional

rule of reason. It does not seek to define a market, assert that eBay (with or without Intuit) had

market power in such a market, or allege facts demonstrating that eBay’s policy actually had

marketwide effects. It does not even explain how eBay’s policy could have such an effect.

Instead, the Complaint asserts that the Court should presume the existence of such marketwide

effects under the per se rule or through “an abbreviated or ‘quick look’ rule of reason analysis.”

(Compl. ¶¶ 4, 28–29.) This assertion is both novel and wrong as matter of law.

The Complaint’s attempt to extend the scope of the per se rule and “quick look” doctrine

should be rejected for four reasons: (1) per se condemnation is reserved for agreements and

practices that are plainly anticompetitive and, even then, plaintiffs are expected to explain how

the challenged conduct would actually suppress output or increase price; (2) no court has ever

before applied the per se rule to strike down a bilateral agreement regarding recruiting or hiring

as per se illegal; (3) “quick look” is reserved for conduct that closely resembles price fixing that

applies on a nearly market wide basis; and (4) the remedy accepted by the DOJ to resolve its

earlier enforcement actions confirms that no impact to competition should be presumed or

assumed to flow from eBay’s alleged conduct.

1. The DOJ Cannot Avoid Its Obligation To Establish That The Alleged Agreement Unreasonably Restrained Trade Simply By Labeling It Per Se Unlawful.

The Complaint fails to allege facts that explain how the challenged conduct could produce

the kind of impact on demand for labor necessary to support an antitrust claim. It simply

announces that the alleged agreement is per se unlawful and claims that, as a result, “[n]o

elaborate industry analysis is required to demonstrate the anticompetitive character of this

agreement.” (Compl. ¶ 28.) But unilateral proclamation is not a substitute for legal analysis.

The fact that the Department has labeled the challenged conduct per se unlawful does not

make it so. In a series of cases that stretches back four decades, the Supreme Court has limited

the application of the per se rule to the discrete categories of price fixing and bid rigging. See

Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877 (2007); State Oil Co. v. Khan, 522

U.S. 3 (1997); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977). These cases also


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make clear that the per se rule does not apply outside of hard core antitrust violations. See

Leegin, 551 U.S. at 894 (“Notwithstanding the risks of unlawful conduct, it cannot be stated with

any degree of confidence that resale price maintenance ‘always or almost always tend[s] to

restrict competition and decrease output.’”) (quoting Bus. Elec. Corp. v. Sharp Elec. Corp., 485

U.S. 717, 723 (1988)); GTE Sylvania, 433 U.S. at 49–50 (“Per se rules of illegality are

appropriate only when they relate to conduct that is manifestly anticompetitive.”). See also N.

Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958) (agreements are unlawful per se where they

have a “pernicious effect on competition and lack . . . any redeeming virtue”).

Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. (“BMI”), 441 U.S. 1 (1979),

goes one step further, holding that even where conduct can be labeled price fixing, the label “does

not alone establish that [it] is ‘plainly anticompetitive’ and very likely without ‘redeeming

virtue.’” Id. at 9. In BMI, the Court faced a Section One claim brought by a television station

against two organizations that, between them, controlled “[a]lmost every domestic copyrighted

composition” due to their widespread membership comprised of composers, authors, and

publishers. Id. at 4–6. The television station alleged that the defendants’ practice of issuing

“blanket licenses”—or licenses to use any of the copyrighted works for a fixed fee—constituted

price fixing, a recognized per se violation of Section One. Id. at 6. After the Second Circuit

reinstated a complaint that had been dismissed below, the Court reversed.

BMI explains that courts must decline to apply the per se rule and instead analyze conduct

under the rule of reason where there is an insufficient history of rule of reason cases finding the

conduct anticompetitive. Surveying the many cases that had challenged blanket licenses, BMI

observes that “there is no nearly universal view that either the blanket or the per-program licenses

issued by [defendant] at prices negotiated by it are a form of price fixing subject to automatic

condemnation under the Sherman Act, rather than to a careful assessment under the rule of

reason.” Id. at 16. On that basis, BMI reverses the Second Circuit and remands for “a more

discriminating examination under the rule of reason.” Id. at 24. See also ANTITRUST LAW

DEVELOPMENTS (SEVENTH), at 56 (collecting cases and observing that “the per se rule should be


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invoked only on the strength of unambiguous judicial experience” demonstrating that the

challenged conduct is necessarily anticompetitive).

Since BMI, courts have limited the application of the per se rule to conduct that directly

affects price or output. This means price fixing, bid rigging, and market division. They, and they

alone, are “the paradigmatic examples of restraints of trade that the Sherman Act was intended to

prohibit.” NCAA, 468 U.S. at 107–08. See also Pool Water Prods. v. Olin Corp., 258 F.3d 1024,

1034 (9th Cir. 2001) (“[T]he antitrust laws are only concerned with acts that harm ‘allocative

efficiency and raise[] the price of goods above their competitive level or diminish[] their

quality.’”) (quoting Rebel Oil., 51 F.3d at 1433)). The Complaint alleges no effect on price or

output, and should be dismissed based on that failure.

2. No Court Has Found An Antitrust Violation Based On An Agreement Regarding Hiring Practices Without Considering Facts Regarding Market Power And The Effect Of The Alleged Restraint On the Market.

The Complaint offers no explanation for why an agreement between a firm and a member

of its board of directors to refrain from recruiting or hiring employees from a single other

company affiliated with the board member should be added to a limited list of per se violations.

Even assuming that such an agreement is a cognizable agreement for purposes of the Sherman

Act, the assertion finds no support in case law or economic theory. Indeed, no court has ever

applied the per se rule to find a bilateral agreement between potential employers regarding hiring

practices per se illegal,11 and the few courts that have considered such arrangements have

uniformly applied the rule of reason, carefully considering the underlying facts in evaluating the

legality of the challenged conduct.

In Bogan v. Hodgkins, 166 F.3d 509 (2d Cir. 1999), the Second Circuit addressed a

business structure in which an insurance company consisted of independent contractor “General

11 Cf. In re High-Tech Employee Antitrust Litig., 856 F. Supp. 2d 1103, 1122 (N.D. Cal. 2012) (finding that the plaintiffs had successfully pled a per se violation of the Sherman Act for purposes of a Rule 12(b)(6) motion based on allegations of an industry-wide conspiracy to restrict competition for skilled labor, but declining to decide whether the per se rule would ultimately apply).


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Agents” who in turn contracted with lower-tier sales agents. The General Agents agreed not to

recruit or hire sales agents employed by other General Agents. Two sales agents unable to

transfer sued. After considering whether the conduct fell into any previously-recognized per se

categories, the court concluded that no easy label applied. Id. at 515. For example, the

agreement was not a territorial or customer allocation because the record revealed no geographic

or market division, and it was not a supplier allocation because the current agents were not the

only suppliers of such services. The agreement thus did not “allocate the market for agents to any

meaningful extent.” Id. Ultimately, although the court found that the agreement was properly

characterized as an intrafirm agreement, it emphasized that “[e]ven if the Agreement were

interfirm, [the court] would still not afford it per se illegal treatment.” Id. The court noted that

no-switching agreements were “distinguishable from those boycotts that have been held illegal

per se.” Id. (citing Union Circulation Co. v. FTC, 241 F.2d 652, 657 (2d Cir. 1957)). While such

agreements “fall within the ambit of antitrust law,” they are not afforded per se treatment because

the harmful effect on competition is not clearly apparent. Id. Because the agreement’s

anticompetitive effect on the market for insurance sales agents was not obvious, the court did not

find that the plaintiffs made a case sufficient to justify per se treatment. Id.

Similarly, in Union Circulation Co., agencies in the business of selling magazine

subscriptions by door-to-door solicitation entered into “no-switching” agreements with each

other, providing that they would not hire solicitors who had been employed by the other agency

during a certain time period. 241 F.2d at 655. The court distinguished the no-switching

agreements from per se illegal group boycotts. The no-switching agreements were “directed at

the regulation of hiring practices and the supervision of employee conduct, not at the control of

manufacturing or merchandising practices,” and “a harmful effect upon competition is not clearly

apparent from the terms of the[] agreements.” Id. at 657. Instead, the court considered the

agreements “within the specific framework of the magazine-selling industry and in the light of the

fact that the signatory parties represent a very substantial segment of that industry,” ultimately

finding the agreement unlawful. Id.


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In Nichols v. Spencer International Press, Inc., 371 F.2d 332 (7th Cir. 1967), the court

considered a “no-switching” agreement between companies in the business of selling reference

books in which the companies refused to hire employees of a competitor for six months after

termination of the former employment. The court noted that “[a]greements not to compete are

tested by a standard of reasonableness”; because “further inquiry into the facts” was needed, it

reversed the district court’s grant of summary judgment.12 Id. at 337.

In a more recent case, Eichorn v. AT&T Corp., 248 F.3d 131 (3d Cir. 2001), the Third

Circuit considered whether a “no hire” agreement that provided that the seller of a company

“would not hire, rehire, retain, or solicit the services of” any employee of the company being sold

whose annual income exceeded $50,000 violated Section One. Id. at 136–37. The plaintiffs

contended on appeal that the no-hire agreement was per se unlawful as either a group boycott or a

horizontal price fixing conspiracy. Id. at 142. The court rejected the plaintiffs’ attempt to allege

a per se antitrust violation by affixing a label to the challenged conduct, noting that “there are no

Supreme Court cases nor any federal cases that have applied the per se rule in similar factual

circumstances.” Id. at 143. Instead, the court looked to the “totality of the circumstances” and

analyzed the no-hire agreement under the rule of reason, ultimately holding that it was not an

unreasonable restraint of trade because “[a]ny restraint on plaintiffs’ ability to seek employment

at [the restricted employer] . . . was incidental to the effective sale” of the company. Id. at 145–

46.

Similarly, in Aydin Corp. v. Loral Corp., 718 F.2d 897 (9th Cir. 1983), the Ninth Circuit

considered the legality of a termination agreement between a company (and its subsidiary) and its

former employee, Moyes, that obligated him to not “now or in the future . . . interfer[e] with or

raid[] [the company’s] employees . . . .” Id. at 899. After Moyes’s new employer hired away ten

employees from the company, the company filed suit alleging breach of contract and unfair

12 The Nichols court noted that the procedural posture was equivalent to a motion to dismiss. 371 F.2d at 333 n.1. In that way, it is like Quinonez v. National Association of Securities Dealers, Inc., 540 F.2d 824 (5th Cir. 1976), in which allegations involving a no-switching agreement survived a motion to dismiss. However, both cases were decided under the Conley standard for a motion to dismiss, which is no longer applicable. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).


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competition. Id. Moyes’s new employer responded by filing its own action, arguing that the

agreement constituted a per se violation of Section One. Id. The court rejected this attempt to

expand the per se rule, noting that “[w]e have been reluctant to extend the per se categories of

antitrust violations beyond price-fixing, market division, group boycotts, and tying

arrangements,” and that “courts have had inadequate experience with [the types of agreement at

issue] to warrant a per se categorization.” Id. at 900. After conducting an analysis under the rule

of reason, the court affirmed the district court’s grant of summary judgment on the grounds that

the new employer had failed to show that the agreement caused a decrease in competition in the

relevant market. Id. at 902–03.

That few courts have even considered the legality of agreements restricting interfirm

hiring is reason enough for this Court to dismiss the Complaint for failure to allege sufficient

facts regarding the alleged agreement’s anticompetitive effects within a relevant market.13 The

fact that courts have not uniformly found such agreements unlawful reinforces this conclusion.14

3. A “Quick Look” Analysis Is Inappropriate In This Case.

As a fallback to its position that the alleged conduct is subject to the per se rule, the DOJ

alleges that the conduct is unlawful under an abbreviated or “quick look” inquiry. (Compl. ¶ 29.)

13 The Supreme Court disposed of a case involving hiring practices in the mid 1920s, Anderson v. Shipowners Association of the Pacific, 272 U.S. 359 (1926). The question of what type of scrutiny should be applied to the alleged conduct was not before the Court. Indeed, antitrust jurisprudence had not yet begun to categorize antitrust claims as per se, rule of reason or “quick look.” The opinion involved the question of whether the Complaint alleged the requisite impact on interstate commerce. After observing that the alleged restriction involved “substantially all the merchant vessels of American registry” operating on the Pacific Coast, the Court held that the Complaint adequately alleged an impact on interstate commerce. Id. at 361, 365. 14 The DOJ is likely to cite United States v. Cooperative Theatres of Ohio, Inc., 845 F.2d 1367 (6th Cir. 1988), and United States v. Brown, 936 F.2d 1042 (9th Cir. 1991), in support of its claim that eBay’s policy was per se illegal. Neither case supports the DOJ’s legal argument because neither case involved an agreement between two companies regarding recruiting or hiring one another’s employees. Cooperative Theatres involved an agreement between competing movie theater booking agencies to refrain from seeking business from each other’s customers, which was subject to the per se rule. 845 F.2d at 1372. Brown involved an agreement among the two dominant billboard advertising companies in California to refrain from bidding on each other’s former billboard locations for a year after the spaces were abandoned. 936 F.2d at 1045.


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For many of the same reasons that the conduct is not unlawful per se, it is not subject to “quick

look.”

The Supreme Court has explained that “quick look” is reserved for cases where “an

observer with even a rudimentary understanding of economics could conclude that the

arrangements in question would have an anticompetitive effect on customers and markets.” Cal.

Dental Ass’n v. FTC, 526 U.S. 756, 770 (1999). The Court in California Dental provided

examples of “quick look” cases where competitors expressly limited output and fixed a minimum

price, NCAA, 468 U.S. at 99–100, absolutely banned competitive bidding, Nat’l Soc’y of Prof’l

Eng’rs v. United States, 435 U.S. 679, 692 (1978), and agreed to restrict the output of an

important service, FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 459 (1986). Cal. Dental Ass’n,

526 U.S. at 770. Because the agreement at issue in California Dental, in which three quarters of

the state’s dentists agreed to restrict price advertising, was not obviously anticompetitive but in

fact “might plausibly be thought to have a net procompetitive effect, or possibly no effect at all on

competition,” the Court remanded the case for a fuller consideration of the issue. Id. at 771, 790.

Polygram Holding, Inc. v. FTC, 416 F.3d 29 (D.C. Cir. 2005), provides another example

of appropriate “quick look” review. There, the D.C. Circuit cautioned against extending

application of the per se rule even where “[a]n agreement between joint venturers to restrain price

cutting and advertising with respect to products not part of the joint venture looks suspiciously

like a naked price fixing agreement between competitors, which would ordinarily be condemned

as per se unlawful.” Id. at 37. Instead, the court applied a “quick look” analysis to the

agreement, in which two recording companies agreed to suspend advertising and discounting of

their respective previously-released Three Tenors albums while jointly promoting an upcoming

Three Tenors album.15 The court explained that “[i]f, based upon economic learning and the

experience of the market, it is obvious that a restraint of trade likely impairs competition, then the

restraint is presumed unlawful.” Id. at 36.

15 The case was brought under Section Five of the FTC Act, but the analysis was the same as it would be under Section One of the Sherman Act. Polygram Holding, Inc. v. FTC, 416 F.3d 29, 32 (D.C. Cir. 2005)


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The allegations in the Complaint do not support extension of the “quick look” doctrine to

the challenged conduct. The challenged conduct does not, on its face, restrict price or output.

The Complaint does not allege that the conduct suppressed wages or benefits for any individual,

and it concedes that the alleged agreement might not have harmed anyone. (See Compl. ¶ 1.)

Moreover, the Complaint makes clear that whatever effect the alleged restraint may have had, it

was not a “naked” restraint—i.e., it did not represent the sum total of interaction between the

alleged participants. Rather, according to the Complaint, the alleged restraint arose from Mr.

Cook’s “personal interests in serving on eBay’s Board.” (See id. ¶ 12.) This context provides the

type of pro-competitive explanation that does not exist in a “quick look” case. The alleged

agreement might plausibly have produced a net pro-competitive effect or no effect by eliminating

a point of friction between the senior management of eBay and a Director.

The legal context further weighs against application of the “quick look” doctrine. The

Complaint implicitly concedes that Mr. Cook’s presence on eBay’s Board of Directors was

perfectly lawful. Per the express terms of Section Eight, any agreement between eBay and Intuit

could, at most, have a trivial impact on competition in any relevant market. This Complaint asks

the Court to replace that Congressional judgment with a contrary judicial inference. But it

contains no allegations to support the exercise of that inference in these circumstances. The

Court should decline that invitation by dismissing the Complaint.

4. The DOJ’s Remedies in Related Consent Decrees Demonstrate The Inconsistencies Created By Presuming Illegality Simply From The Existence Of An Agreement Between Firms Regarding Hiring Practices.

The remedies secured by the DOJ are the proverbial nail in the per se and “quick look”

case. As the Complaint alleges, the DOJ obtained consent decrees with several employers,

including Intuit, prohibiting those companies from entering into agreements to refrain from

recruiting or hiring employees of other companies (the “Consents”). (Id. ¶ 9.) Those Consents

explicitly permit such agreements in a long list of circumstances. This list of exceptions

precludes application of the per se rule or “quick look” doctrine because, by definition, categories

of conduct that are subject to per se or quick look treatment can have no exceptions.


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The Consents leave each defendant free to enter into such agreements that are

1. contained within existing and future employment or severance agreements with the Defendant’s employees;

2. reasonably necessary for mergers or acquisitions, consummated or unconsummated, investments, or divestitures, including due diligence related thereto;

3. reasonably necessary for contracts with consultants or recipients of consulting services, auditors, outsourcing vendors, recruiting agencies or providers of temporary employees or contract workers;

4. reasonably necessary for the settlement or compromise of legal disputes; or

5. reasonably necessary for (i) contracts with resellers or OEMs; (ii) contracts with providers or recipients of services other than those [already enumerated] above; or (iii) the function of a legitimate collaboration agreement, such as joint development, technology integration, joint ventures, joint projects (including teaming agreements), and the shared use of facilities.

Final Judgment at 4–5, United States v. Lucasfilm Ltd., No. 1:10-cv-02220 (D.D.C. June 3, 2011).

(See also Brown Decl. Ex. A at 5–6.).

The rationale for many of these exceptions is straightforward. Agreements between firms

to restrict recruiting or hiring are essential in many contexts. See Brian R. Henry & Joseph M.

Miller, “Sorry, We Can’t Hire You . . . We Promised Not To”: The Antitrust Implications of

Entering Into No-Hire Agreements, 11 ANTITRUST 39, 40 (Fall 1996);16 David K. Haase & Darren

M. Mungerson, Agreements Between Employers Not to Hire Each Other’s Employees: When Are

They Enforceable?, 21 LAB. LAW. 277 (2006) (noting that suppliers of services or temporary

employees often require the recipient to execute a no-hire agreement because the hiring of one of

the temporary employees “could unfairly . . . benefit the recipient by eliminating the supplier as

16 Henry and Miller observe that “No-hire agreements that are ancillary to the sale of a business are supported by a valid procompetitive rationale—a buyer has a legitimate concern that a substantial portion of the assets it purchases not disappear shortly after the transaction closes. Moreover, the increased stability of the assets fostered by the agreement increases the value of the business, aids in assuring the viability of an existing market participant, and provides an incentive for companies to invest in human capital.” Brian R. Henry & Joseph M. Miller, “Sorry, We Can’t Hire You . . . We Promised Not To”: The Antitrust Implications of Entering Into No-Hire Agreements, 11 ANTITRUST 39, 40 (Fall 1996).


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the ‘middle man’”). It would, for example, be next to impossible for a firm contemplating

acquiring another firm to get accurate information about the performance of the employees of the

acquisition target if the target could not prevent the potential acquirer from hiring away its

employees in the event that the deal did not go forward. See, e.g., Eichorn, 248 F.3d at 145–46

(holding that non-hire agreement at issue was not an unreasonable restraint of trade and collecting

cases upholding covenants not to compete and no-hire agreements arising out of sales of business

or termination of employment).

But the need for exceptions fitting these and other circumstances precludes application of

the per se rule or “quick look” doctrine. The per se rule and “quick look” doctrine reflect

categorical judgments. They render broad swaths of conduct illegal upon proof of its existence

based on a conclusion that the conduct always produces the effect that antitrust law exists to

prevent (i.e., suppress output/demand and, by doing so, raise/lower prices). The per se rule and

“quick look” doctrine do not accommodate exceptions. They exist to provide a short and easy

leap from proof of conduct to proof of violation. They are, by design, inflexible. See BMI, 441

U.S. at 17 (“[I]t seems to us that the per se rule does not accommodate itself to such flexibility . .

. .”).

The exceptions laid out in the Consents establish that no categorical conclusion has been

reached about agreements between companies not to recruit or hire one another’s employees.

Indeed, DOJ said as much to the Supreme Court in its Amicus Curiae brief in American Needle

when it argued to the Court that a hypothetical agreement among NFL teams not to hire one

another’s coaches could well be “lawful,” explaining that analysis of such an agreement “would

depend on factors such as . . . the rationale for its adoption, and the nature of its effect on

competition.” Brief for the United States as Amicus Curiae Supporting Petitioner at 20 & n.10,

Am. Needle, No. 08-661, 2009 WL 3070863 (Sept. 25, 2009). In short, such agreements are

subject to scrutiny, if at all, under the rule of reason. See, e.g., Coleman v. Gen. Elec. Co., 643 F.

Supp. 1229 (E.D. Tenn. 1986), aff’d without op., 822 F.2d 59 (6th Cir. 1987) (no-hire agreement

upon sale of a business); Cesnik v. Chrysler Corp., 490 F. Supp. 859, 861 (M.D. Tenn. 1980)

(same).


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VI. CONCLUSION

Coming as it does after an extended investigation, this Complaint represents the DOJ’s

best effort to allege facts sufficient to state a claim under Section One. Because it does not, this

Court should dismiss the Complaint with prejudice. Although the Complaint purports to allege a

conspiracy, it focuses exclusively on conduct that took place among directors and officers of a

single company who necessarily share a unity of purpose. At the same time, the Complaint says

nothing about eBay’s (or Intuit’s) ability to affect competition, price, or output in any relevant

market. Nor does it allege any facts establishing that the alleged agreement had any effect on

competition, price, or output. Moreover, it recognizes that the policy, whatever effect it had (or,

more likely, did not have) on the market as whole, related to Mr. Cook’s service on eBay’s board.

These facts do not support any kind of antitrust claim, let alone a per se violation of

Section One or a case under the “quick look” doctrine. The per se rule and “quick look” doctrine

do not exist to short-circuit analysis of practices that have no demonstrable or even theoretical

effect on price or output. Where the DOJ cannot articulate how a practice affects price or output,

or where more information is needed before that practice’s effect can be determined, the per se

rule and “quick look” doctrine do not apply. The Complaint’s silence regarding the alleged

agreement’s impact on competition in a properly-defined market perfectly illustrates why the per

se rule and “quick look” doctrine have no place in this case.

Without resort to legal short cuts, the DOJ’s allegations amount to nothing. The DOJ

should not be allowed to proceed beyond the pleadings because after three years it cannot explain

how eBay’s policy harmed anyone. eBay respectfully requests that the Court dismiss the

Complaint without leave to amend.


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DATED: January 22, 2013

THOMAS P. BROWNSAMUEL C. ZUN EMILY DODDS POWELL PAUL HASTINGS LLP

By: /s/ Thomas P. Brown THOMAS P. BROWN

Attorneys for Defendant eBay Inc.


ebay motion to dismiss antitrust case

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