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From Antitrust Law Daily, September 30, 2013

eBay not entitled to dismissal of U.S. action over alleged no-hire agreement with Intuit

By Jeffrey May, J.D.

The federal district court in San Jose, California, has denied eBay, Inc.’s motion to dismiss a U.S. Department of Justice Antitrust Division complaint, alleging that the company conspired with Intuit Inc. to refrain from recruiting each other’s employees. However, claims brought by the State of California under federal and state antitrust laws against eBay over the same conduct were dismissed with leave to amend (U.S. v. eBay, Inc., September 27, 2013, Davila, E.;California v. eBay, Inc., September 27, 2013, Davila, E.).

Both complaints alleged an agreement between eBay and Intuit’s that ultimately “metastasized” into a no-hire policy. However, Intuit was not a defendant in the action, because that company had already agreed to refrain from entering into or enforcing any agreement that improperly limits competition for employee services under an earlier settlement with the Justice Department (U.S. v. Adobe Systems, No. 10-01629, 2011-1 Trade Cases ¶77,483 (D.D.C. Mar. 17, 2011)). Intuit also agreed to settle a dispute with California.

eBay unsuccessfully contended that the U.S. complaint had to be dismissed because it failed to allege an actionable conspiracy and failed to allege harm to competition. According to the court, the case concerned “an alleged handshake agreement struck and occasionally refined by eBay executives, including then-CEO Meg Whitman, and Scott Cook, the founder and Chairman of the Executive Committee of Intuit, Inc.” The complaint contained several examples of eBay’s understanding and implementation of the agreement, it was noted.

The Justice Department plausibly alleged an actionable agreement between the two companies “at this stage in the litigation,” the court decided. eBay asserted that, as officers and directors of the same company, the participants in the agreement’s negotiations shared a “unity of purpose” and were incapable of conspiring. Cook, as a member of the board of directors of eBay, was an overlapping director of both companies. According to eBay, Cook only insisted on the agreement in order to assist him in his eBay board role by eliminating the appearance of divided loyalties.

The court concluded that it could make a reasonable inference that Cook had the authority to bind Intuit to agreements. An allegation that Cook responded to complaints from eBay CEO Whitman about Intuit’s continued solicitation of eBay employees by promising to investigate “how this slip up occurred again” suggested not only that an agreement between the two companies had been established, but also that Intuit executives other than Cook generally abided by it, the court explained. Moreover, the court rejected eBay’s additional argument that Section 8 of the Clayton Act—which permits individuals to serve on boards of multiple companies—precluded a finding of an actionable agreement.

The Justice Department adequately alleged a horizontal market allocation agreement in per se violation of Section 1 of the Sherman Act, the court also held. Because the government alleged the existence of a restraint of trade that was of the type that was subject to per se treatment, it also sufficiently pled the existence of a restraint that might fall under the ambit of the quick look rule, the court noted.

eBay contended that the agreement was not a naked restraint of trade because it was ancillary to a legitimate procompetitive business purpose. However, the court would need to make that determination based on factual evidence relating to the agreement’s formation and character at a later stage in the proceedings.

Because the Justice Department was pursuing its claims under the per se and quick look rules, it was not required to include any allegations to state a rule of reason claim. The court cautioned, however, that if it were to find that the government “cannot maintain a per se or quick look claim, the United States will then be without recourse to the rule of reason and its case will be dismissed.”

California complaint. eBay was entitled to dismissal of California’s complaint on the ground that California lacked standing to assert a claim for injunctive relief under the Sherman Act. The state sought only injunctive relief for its antitrust claims. California could not state a threatened injury for purposes of injunctive standing based on allegations that eBay continued to enforce its agreement with Intuit even after learning of a Justice Department’s investigation into similar agreements among other technology companies and the lingering effects that occurred therefrom. “eBay’s adherence to its agreement in the face of generalized legal ambiguity simply does not, without more, suffice to state a threatened, forward-looking, antitrust injury,” the court explained.

The cases are U.S. v. eBay, Inc., Case No. 12-cv-58690, and California v. eBay, Inc., Case 12-cv-05874.

Attorneys: Kathleen E. Foote, Office of California Attorney General, for State of California. Scott Sacks, U.S. Dept. of Justice, for United States. Thomas Patrick Brown (Paul Hastings LLP) for eBay Inc.

Companies: eBay Inc.; Intuit Inc.

MainStory: TopStory Antitrust CaliforniaNews AntitrustDivisionNews

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