[00:00:02] Speaker 01: All right, thank you, everyone. [00:00:03] Speaker 01: We are now back from our break. [00:00:05] Speaker 01: We're going to call the next case, Gibson versus Sendon Group, LLC, case number 243576. [00:00:14] Speaker 01: Here, each side will have 15 minutes. [00:00:16] Speaker 01: It's my understanding that Mr. Gibson will be taking 10 of those minutes while the United States is appearing as amicus counsel and would like five, or did I get that wrong? [00:00:27] Speaker 03: No, you got it correct, Your Honor. [00:00:28] Speaker 01: Perfect. [00:00:28] Speaker 01: OK. [00:00:29] Speaker 01: Of course, if you'd like to reserve time for rebuttal, please be aware you're responsible of keeping track of your own time, and also let me know if you do intend to keep any time. [00:00:38] Speaker 03: May I please the court, Steve Berman? [00:00:40] Speaker 03: I reserve two minutes for reply. [00:00:43] Speaker 03: OK. [00:00:43] Speaker 03: And my goal today is to be as excellent as that law student was. [00:00:46] Speaker 03: It was truly, truly fun to watch that. [00:00:49] Speaker 03: On the serious side, may I please the court again [00:00:55] Speaker 03: I start with the epic decision, because in the epic decision, the court said when you're analyzing a Section 1 claim, there's two components. [00:01:04] Speaker 03: The first is a threshold component. [00:01:07] Speaker 03: Is there a contract or conspiracy? [00:01:09] Speaker 03: And the second, is that contract or conspiracy unreasonable? [00:01:14] Speaker 03: So with that framework, with that two-step inquiry in mind, we submit the district court committed two errors that warrant reversal. [00:01:24] Speaker 03: First, the court [00:01:26] Speaker 03: failed to follow this circuit's precedent and Supreme Court precedent that says if you have a contract, that meets the first threshold question. [00:01:38] Speaker 04: And then the court commit... The contract, it can't be any contract, it has to be a contract which restrains trade, right? [00:01:45] Speaker 04: No, Your Honor, I submit that under Supreme Court precedent, and this court's precedent in Epic and Paladin, that any contract... Including your client's contract with you is a possible Section 1, if it's unreasonable? [00:02:03] Speaker 03: It meets the threshold, it meets the threshold question that it's a contract. [00:02:07] Speaker 04: But it's not a conspiracy or a combination. [00:02:10] Speaker 04: It's a contract. [00:02:11] Speaker 04: Every commercial relationship is a contract. [00:02:15] Speaker 03: That's why we have the second part of the test, and that's the second error the court made. [00:02:19] Speaker 03: So once you meet the threshold question, is there a contract, then you look and see whether that contract is unreasonable. [00:02:28] Speaker 04: No, it's whether the restraint is unreasonable, but the contract has to first restrain trade in order to be subjected to the inquiry whether it's unreasonable, doesn't it? [00:02:37] Speaker 03: It does. [00:02:38] Speaker 03: And I submit to Your Honor that every single Supreme Court case that has considered this and every Ninth Circuit case says that every commercial agreement, I'm quoting now from this Court's decision in Paladin, that the Supreme Court cases demonstrate that every commercial agreement is a restraint of trade. [00:02:57] Speaker 03: Meaning that every commercial agreement, and I'm quoting, is an agreement of two or more entities. [00:03:03] Speaker 03: The reason for this is simple. [00:03:05] Speaker 03: Every agreement, every regulation of trade restrains. [00:03:08] Speaker 03: To bind, to restrain is of the essence. [00:03:12] Speaker 03: Therefore, we've met threshold test here. [00:03:15] Speaker 03: There was a contract. [00:03:17] Speaker 03: And then what the court should have done is to gone to step two and to see whether there was an unreasonable [00:03:26] Speaker 03: interference with competition, pled plausibly in this complaint. [00:03:31] Speaker 03: And I submit to the court that on the second question, whether there was an unreasonable restraint, there was error there as well, because this court has said that when you want to look whether there are plausible allegations of effects, detrimental effects on competition, one of the things you do is look at whether price has been affected. [00:03:53] Speaker 03: whether price has been affected. [00:03:54] Speaker 03: And if the court had gone to the second step, the court would have sustained the complaint because we went out and we hired experts. [00:04:02] Speaker 03: And we asked those experts to look at prices of these hotel rooms compared to markets where there may not have been a restraint. [00:04:12] Speaker 03: And on that point, I think our best point is to look at the graphs at pages 20 to 21 of our reply brief. [00:04:20] Speaker 03: And there, we've taken [00:04:23] Speaker 03: the prices of casino hotels and non-casino hotels over a period. [00:04:29] Speaker 03: And you see in that chart that in 2015, when Rainmaker began using competitor pricing and its formulas, there's a huge leap between the price of hotel rooms in Las Vegas and the price for goods and services for hotel rooms. [00:04:47] Speaker 03: And you do not see that leap when you look at non-casino hotels. [00:04:52] Speaker 03: And we also, as a second step, we compared the price of rooms at the Venetian, which is not a user of Rainmaker. [00:05:01] Speaker 03: So it's an untainted user. [00:05:04] Speaker 03: And we found a statistically significant increase in prices. [00:05:12] Speaker 03: So we met the plausibility test. [00:05:15] Speaker 03: And the court erred in, first, failing to find that there was a restraint. [00:05:21] Speaker 03: And then second, in failing to find that we plausibly alleged an improper interference with competition. [00:05:29] Speaker 03: That's my pitch, unless you have some questions. [00:05:31] Speaker 03: I know I have a lot more time. [00:05:33] Speaker 03: Use it. [00:05:36] Speaker 03: Then let me talk a little bit about your court's decision, which I think is also important in this kind of case. [00:05:45] Speaker 03: And that is, in the musical instruments case, [00:05:48] Speaker 03: I have some acquaintance with that. [00:05:51] Speaker 03: I think you do, Your Honor. [00:05:53] Speaker 03: In the musical instruments case, the court was careful to say that there can be a series of vertical agreements, even without a horizontal conspiracy, and the impact of those vertical agreements can be anti-competitive. [00:06:08] Speaker 03: And that's exactly the situation we have here. [00:06:11] Speaker 04: That was a hypothetical, because it wasn't involved in that case, right? [00:06:16] Speaker 03: It wasn't the facts of that case, but you went and were very careful in talking about the rimless conspiracy, a rim conspiracy, a vertical set of agreements that could injure competition. [00:06:27] Speaker 04: But whether it's a set of agreements or not is really an assertion by the plaintiff. [00:06:32] Speaker 04: There's no factual allegation that there was any collusion to make it a set of vertical agreements, correct? [00:06:40] Speaker 03: Well, there is no evidence. [00:06:44] Speaker 04: There's no allegation of any collusion between the hotels in using Sendin, correct? [00:06:51] Speaker 04: You've abandoned your first claim. [00:06:53] Speaker 03: Well, there is allegations that every hotel knew which other hotels were subscribing. [00:07:01] Speaker 04: So that's parallel, conscious parallelism, all right? [00:07:05] Speaker 04: What are the plus factors? [00:07:07] Speaker 03: Well, the plus factors here would be a high barrier to entry, right? [00:07:12] Speaker 03: and acting against self-interest, because prior to this time, hotels filled rooms. [00:07:18] Speaker 03: That was the revenue market, not cutting back on rooms in order to collectively jack up prices. [00:07:24] Speaker 04: Is revenue more important than the bottom line? [00:07:27] Speaker 03: Well, revenue was doing well, apparently, before that time. [00:07:31] Speaker 03: Revenue? [00:07:31] Speaker 03: We're talking about profit, not revenue. [00:07:34] Speaker 03: Yes, OK. [00:07:34] Speaker 03: But if I was competing for more profits by filling my rooms, and now I know I don't have to compete, [00:07:42] Speaker 03: I can collectively subscribe to this algorithm service, and I raise it all. [00:07:48] Speaker 04: But collectively, that implies that there's some agreement between the people who are using SendIn, correct? [00:07:56] Speaker 03: As you said, Your Honor, we're not pushing that horizontal claim. [00:07:59] Speaker 03: We're pushing a vertical claim. [00:08:00] Speaker 04: And I think under the Legan case... But this isn't the typical vertical agreement, is it, Mr. Berman? [00:08:07] Speaker 04: I mean, a typical vertical agreement is a price maintenance agreement. [00:08:10] Speaker 04: And that's when the manufacturer requires a price to be charged. [00:08:16] Speaker 04: And that is a restraint of trade as to the retailer because he can't charge any other price. [00:08:22] Speaker 04: Here, that's not there. [00:08:24] Speaker 04: I agree it's not there. [00:08:25] Speaker 04: So why do you call it a vertical agreement? [00:08:28] Speaker 04: It's not really a vertical agreement. [00:08:30] Speaker 04: It's an agreement to use an agency to recommend prices, correct? [00:08:36] Speaker 03: That's correct. [00:08:36] Speaker 03: So it's a hybrid agreement. [00:08:40] Speaker 03: American Needles, that is, you don't look at the form, you look at the effect. [00:08:46] Speaker 03: And what we're alleging here under American Needle is that the effect of all these vertical agreements being produced from this common rainmaker was to increase prices. [00:08:59] Speaker 04: Can an entrepreneur increase those prices? [00:09:02] Speaker 03: By himself. [00:09:02] Speaker 04: By himself. [00:09:03] Speaker 03: Yes. [00:09:04] Speaker 04: Where is the allegation that the increase in prices was not done by each hotel by itself? [00:09:12] Speaker 03: It was done by each hotel through a central person, not just by itself. [00:09:17] Speaker 04: If they had a real estate magnate who wanted to tell them what the best price was, wouldn't that be all right? [00:09:26] Speaker 04: If they had a magical real estate person who knew the best prices and they all hired him to make a recommendation, what would be wrong with that? [00:09:38] Speaker 03: I think it would be wrong. [00:09:39] Speaker 03: If the effect of each of those vertical agreements was to raise price in a market, that's the exact anticutton behavior that is frowned on by the Legan case. [00:09:51] Speaker 01: Council, does it matter that Sendin does not require the hotels to accept its price recommendations? [00:09:56] Speaker 01: Does that matter? [00:09:58] Speaker 03: I don't think it matters if the effect is price increases. [00:10:04] Speaker 03: In other words, we know from the allegations of the complaint that 90% of the time they do accept these prices. [00:10:10] Speaker 03: But for the purposes of [00:10:12] Speaker 03: The vertical agreement, I don't think it's the percent that's important. [00:10:16] Speaker 03: I think it's that we've plausibly shown that these hotels and no other hotels, since they started doing Rainmaker, have collectively raised prices. [00:10:27] Speaker 03: I see my time is up now. [00:10:30] Speaker 03: Just let me rest for my two minutes. [00:10:32] Speaker 03: Thank you. [00:10:33] Speaker 01: Okay, thank you. [00:10:41] Speaker 02: Good morning, your honors. [00:10:42] Speaker 02: May it please the court, Spencer Smith for the United States. [00:10:46] Speaker 02: We're here today because the district court applied an incorrect legal standard in dismissing plaintiffs' Section 1 claim, challenging a set of vertical agreements. [00:10:56] Speaker 02: And if affirmed, that legal error would have ripple effects for antitrust enforcement beyond this case. [00:11:02] Speaker 02: If I may, I'd like to first explain our view of how the district court aired. [00:11:06] Speaker 02: And then I would like to try to address Judge Bea's questions regarding contracts in restraint of trade [00:11:11] Speaker 02: and considering a set of vertical agreements subject to the court's questions, of course. [00:11:17] Speaker 02: Section 1 declares illegal every contract combination or conspiracy in restraint of trade. [00:11:23] Speaker 02: The Supreme Court has interpreted that language to comprise two primary elements. [00:11:27] Speaker 02: First, concerted action. [00:11:30] Speaker 02: Second, that unreasonably restrains trade. [00:11:33] Speaker 02: Defendants haven't disputed that the concerted action element of plaintiff's vertical claim is met here by the contractual agreements [00:11:41] Speaker 02: between Sendin and the casino hotels. [00:11:44] Speaker 04: Oh, I think they haven't. [00:11:45] Speaker 04: They said those are individual agreements. [00:11:48] Speaker 04: I don't think they're vertical agreements, but they're individual agreements, and the plaintiffs have abandoned their concerted action claim. [00:11:58] Speaker 02: I don't think that's quite right, Your Honor, on multiple fronts. [00:12:01] Speaker 02: The first, I'm not sure I understand, appellees to dispute that the concerted action element of the vertical claim [00:12:08] Speaker 02: is met by the existence of contractual agreements between Sendin and the casino hotels. [00:12:14] Speaker 02: And yes, plaintiffs here have abandoned their horizontal claim, but it's not appropriate to require agreement or collusion among all the casino hotels for purposes of their vertical claim. [00:12:26] Speaker 02: Do you have a case that says that? [00:12:28] Speaker 02: Well, yes, all sorts of cases, Your Honor. [00:12:31] Speaker 02: For instance, in Legion, you wouldn't have expected all of the parties to the resale price maintenance agreements to have agreed with each other. [00:12:39] Speaker 02: So, too, in exclusive dealing cases, which are paradigmatic Section 1 cases involving vertical agreements, very often the parties to such agreements would not have agreed with each other to enter into such exclusive dealing arrangements, and we don't require them to under Section 1. [00:12:58] Speaker 02: The issue in this case, as we see it, is whether that concerted action unreasonably restrains trade, which means, as we explain on page 16 of our brief, unreasonably restricts competitive conditions. [00:13:12] Speaker 02: That's what the Supreme Court held in National Society of Professional Engineers, quoting Standard Oil. [00:13:18] Speaker 02: And as the Court made clear in its recent Alston decision, in a Rule of Reason case, [00:13:25] Speaker 02: A plaintiff can carry its initial burden on the unreasonable restraint of trade element by showing a substantial anti-competitive effect. [00:13:34] Speaker 02: So under the correct legal framework, the district court should have analyzed the complaint to determine whether it adequately alleges anti-competitive effect. [00:13:43] Speaker 02: But the district court never did that. [00:13:45] Speaker 02: Instead, it came up with a new rule [00:13:47] Speaker 02: It held that because sentence prices weren't binding, this goes to your question, Judge Dayalba, because they weren't binding, the court thought it, quote, cannot be that the challenged agreements restrain trade. [00:13:59] Speaker 02: That's on page 18 of the excerpts of record. [00:14:01] Speaker 02: That rigid and sweeping rule is inconsistent with settled antitrust principles, and it would upend multiple areas of antitrust law. [00:14:10] Speaker 02: And if there's time, I'd like to come back to some of those consequences. [00:14:13] Speaker 02: But the key point is, [00:14:14] Speaker 02: If the agreements have any competitive effect, they unreasonably restrain trade, that's what in restraint of trade means under the statute. [00:14:22] Speaker 02: And this is important because there can be anti-competitive effects from a group of competitors all signing up with a common entity to use the same pricing algorithm even if the algorithm's prices aren't binding Judge de Alba. [00:14:37] Speaker 02: So a categorical rule like the one adopted by the district court here that there can be no restraint of trade [00:14:44] Speaker 02: as long as the competitors retain some discretion to deviate from the algorithm's prices, would, in our view, effectively immunize this type of arrangement from antitrust scrutiny, and that can't be right. [00:14:56] Speaker 02: On consequences, just very briefly, we think this case is important enough for what it means for antitrust analysis of pricing algorithms, but the effect of the district court's rule would [00:15:08] Speaker 02: go beyond cases involving such algorithms. [00:15:11] Speaker 02: List price cases like Plymouth dealers and high fructose corn syrup we don't think can be squared with the district court's reasoning. [00:15:18] Speaker 02: And in addition, and I think this is important, Section 1 has long applied to the sharing of competitively sensitive information. [00:15:28] Speaker 02: And information sharing cases don't typically involve [00:15:32] Speaker 02: restraint in the very narrow sense urged by appellees here, let alone binding prices. [00:15:39] Speaker 02: We cite on page 29 of our brief [00:15:41] Speaker 02: Todd versus Exxon, which I think well explains how the rule of reason can apply to information sharing itself. [00:15:52] Speaker 02: And this court has recognized the viability of such claims in the petroleum products case. [00:15:57] Speaker 04: There's no direct sharing between the hotels, correct? [00:16:01] Speaker 02: So two points, Your Honor. [00:16:03] Speaker 02: First, appellees make much of the fact that one hotel's competitively sensitive information does not, another hotel doesn't get it back out of the algorithm. [00:16:15] Speaker 02: But quite frankly, when you have a central entity that is collecting the information, it sort of obviates the need for that direct information sharing. [00:16:27] Speaker 02: But the broader point on the information sharing cases more generally is just that they don't [00:16:32] Speaker 02: entail or require this restraint on decision-making that appellees have urged here. [00:16:38] Speaker 02: And so if your honors were to consult the Todd versus Exxon case, for instance, it cites a litany of Supreme Court cases, antitrust cases involving information that just can't be squared with their argument. [00:16:50] Speaker 02: Seminal cases like Container Corp or Gypsum. [00:16:53] Speaker 02: In Gypsum, for instance, the Supreme Court made quite clear that mere, quote, communication can violate the rule of reason when pursuant to an agreement [00:17:01] Speaker 02: and having anti-competitive effect. [00:17:04] Speaker 02: We ask the court to correct the error in the decision below, and we thank you for the opportunity to present our views today. [00:17:09] Speaker 01: Thank you. [00:17:19] Speaker 00: Good morning, your honors, may it please the court, Melissa Arbisheri representing Sendine on behalf of the defendant Pellies. [00:17:26] Speaker 00: If I could start with three quick points or clarifications. [00:17:29] Speaker 00: what this case is not about. [00:17:31] Speaker 00: This case is not one where there's a commingling or pooling of confidential competitor information. [00:17:36] Speaker 00: This case is not about delegating pricing authority to a third party. [00:17:41] Speaker 00: The district court said both of those things. [00:17:44] Speaker 00: Plaintiffs do not challenge that here today. [00:17:47] Speaker 00: And it does make this case different than a number of the pricing algorithm cases that are pending in the lower courts. [00:17:55] Speaker 00: The appeal now is a shell of three things. [00:17:59] Speaker 00: So that's the first one, even though I might have packed a little bit into there. [00:18:03] Speaker 00: The second point is that this appeal is now a shell of its former self. [00:18:08] Speaker 00: They have expressly abandoned the hub and spoke claim that was the primary claim that was pressed below. [00:18:14] Speaker 00: And that has consequences. [00:18:17] Speaker 00: So any discussions about concerted action among the hotel defendants, whether it's collusion, agreement, or otherwise, [00:18:24] Speaker 00: is completely off the table. [00:18:26] Speaker 00: At this point, it's as if the hotel defendants had no relationship to one another. [00:18:31] Speaker 00: This is all about their count to, which is about the vertical claim or whatever we're going to call the agreement with Sendine itself. [00:18:41] Speaker 00: Third point is what they're really asking this court to do is unprecedented. [00:18:46] Speaker 00: You heard my friend on the other side come up and say, all you need to do to get past the motion to dismiss stage [00:18:52] Speaker 00: is say, there was a contract. [00:18:54] Speaker 00: Any contract will do. [00:18:55] Speaker 00: And look, there's higher prices. [00:18:59] Speaker 00: No court has ever held that. [00:19:01] Speaker 00: And both parts of that equation are flawed. [00:19:04] Speaker 00: But especially the absence of a link between the two, between the contract that they want to point to and the purported higher prices makes the equation worse still. [00:19:16] Speaker 00: And I want to take those [00:19:18] Speaker 00: in two parts. [00:19:18] Speaker 00: So the first point is what the district court actually held, that there is no restraint of trade. [00:19:24] Speaker 00: It is critically important that what they have to identify is not just any contract, it's not just any agreement. [00:19:32] Speaker 00: It's an agreement [00:19:33] Speaker 00: that is the source of the anti-competitive harm that they're alleging. [00:19:38] Speaker 00: The two need to be connected. [00:19:39] Speaker 00: And with all due respect to the Department of Justice, we absolutely are disputing the concerted action requirement, not because there's no agreement, there's a non-exclusive license agreement, but because there's no restraint of trade. [00:19:52] Speaker 00: And we cite a number of cases, Malarkey out of this court, Buffalo broadcasting out of the Second Circuit, [00:19:59] Speaker 00: and St. [00:20:00] Speaker 00: Luke's out of the Sixth Circuit that make this point. [00:20:02] Speaker 00: But I think the source that makes it the clearest is the ARITA treatise. [00:20:08] Speaker 00: And that's 1437A and B in that treatise. [00:20:11] Speaker 00: We said it at page 58 and 59 of our answering brief. [00:20:16] Speaker 00: And what it says is contracts are ubiquitous. [00:20:19] Speaker 00: Every vertical arrangement for the most part has some sort of contracted issue. [00:20:24] Speaker 00: You have to define it at a more fine level [00:20:27] Speaker 00: of specificity because otherwise the agreement requirement is completely meaningless. [00:20:34] Speaker 00: It has no work to do at all. [00:20:36] Speaker 00: But it actually does have work it needs to do. [00:20:39] Speaker 00: We're talking about a Section 1 claim. [00:20:41] Speaker 00: And it is important to distinguish concerted action from unilateral action. [00:20:47] Speaker 00: And so if what they're pointing to as the source of the anti-competitive harm is only unilateral action, it falls outside of Section 1. [00:20:56] Speaker 00: Secondly, they need to link up the two. [00:20:58] Speaker 00: There's a causation-like requirement. [00:21:01] Speaker 00: The anti-competitive harms have to be caused by the restraint they're alleging. [00:21:06] Speaker 00: So I think that really gets to the heart of the issue and what the district court was struggling with below. [00:21:11] Speaker 00: What is the restraint they're alleging actually caused the anti-competitive harm? [00:21:17] Speaker 00: Well, one place to look is the complaint itself. [00:21:20] Speaker 00: In the first amended complaint at paragraphs three, I'm going to get this a little wrong, paragraphs [00:21:27] Speaker 00: I had it in my head, but I don't get the paragraphs in a second. [00:21:30] Speaker 00: 365 and 367. [00:21:32] Speaker 00: They say it's an agreement to set prices and to delegate pricing. [00:21:37] Speaker 00: Well, the district court said the factual allegations do not support the existence of either agreement. [00:21:43] Speaker 00: And to be very clear, it's not because you're not required to accept a binding price. [00:21:48] Speaker 00: It's not because it's not the final price. [00:21:51] Speaker 00: All of the starting point cases that the DOJ points to, that's not the issue here. [00:21:56] Speaker 00: The issue is it is a non-exclusive license to use, to have the permission rather to use a certain software. [00:22:03] Speaker 00: There is no agreement to use the pricing algorithm, the pricing recommendations in any way, shape or form to use them at all. [00:22:12] Speaker 00: They are purely advisory only. [00:22:15] Speaker 00: And so the allegations in the complaint do not identify the restraint, which is why my friend here is now saying forget all of that. [00:22:22] Speaker 00: It's just the fact that there's a non-exclusive license agreement. [00:22:26] Speaker 00: But they never link that up to the anti-competitive harms they're alleging. [00:22:30] Speaker 00: And my friend pointed to the graphs on page, I think it was 21 of the reply brief. [00:22:35] Speaker 00: Well, if you look at those graphs, they claim the anti-competitive effects started when? [00:22:40] Speaker 00: In 2015. [00:22:43] Speaker 00: What relationship does 2015 have to the license agreements? [00:22:48] Speaker 00: None at all. [00:22:49] Speaker 00: You see in our chart of the timeline, the first hotel defendant, 2004 was when the agreement was, even the latest one was 2014. [00:23:00] Speaker 00: Why are they pointing to 2015? [00:23:02] Speaker 00: They say it in their opposition to the motion to dismiss below. [00:23:06] Speaker 00: It's at page 525 of the excerpts of record. [00:23:10] Speaker 00: They say 2015. [00:23:12] Speaker 00: That's the challenge restraint. [00:23:14] Speaker 00: And what do they define as the challenge restraint? [00:23:16] Speaker 00: They specifically say, namely, the complete integration of competitor pricing into guest rev in 2015. [00:23:25] Speaker 00: That's not an agreement at all. [00:23:28] Speaker 00: That's not a restraint at all. [00:23:29] Speaker 00: There's no connection between their anti-competitive effects theory [00:23:34] Speaker 00: and the restraint that they're alleging. [00:23:36] Speaker 00: Now, they point to cases from the Supreme Court and from this court that have broad language saying every contract is a restraint in some sense. [00:23:45] Speaker 00: OK, fine. [00:23:46] Speaker 00: But what those cases aren't saying are that you have to read section one more narrowly than that. [00:23:52] Speaker 00: It can't possibly just be every agreement. [00:23:55] Speaker 00: Your Honor's example, I think, of all the contracts we have in our everyday life are a good example of that. [00:24:00] Speaker 00: But instead, you have to define it more narrowly. [00:24:03] Speaker 00: Epic Systems, I think, is a great example. [00:24:06] Speaker 00: It has that language in there. [00:24:08] Speaker 00: But what was being pointed to? [00:24:09] Speaker 00: It wasn't just the developer license. [00:24:12] Speaker 00: It was three restrictions that were in the developer license. [00:24:16] Speaker 00: American Express, before the Supreme Court, it was the anti-steering provision that was in the merchant agreement. [00:24:22] Speaker 00: Every case that's actually looked at this issue, instead of just quoted that broad language, has focused on a particular restraint. [00:24:31] Speaker 00: And so we think the court was absolutely right to say that the problem here is there's no alleged restraint of trade, and the court could resolve it on that grounds. [00:24:40] Speaker 00: Alternatively, you could look at it and say it's not unreasonable, or they have improved causation. [00:24:45] Speaker 00: The Fortress case out of this court reached a similar result as one of the reasons why. [00:24:50] Speaker 00: the motion to dismiss was correctly granted. [00:24:53] Speaker 00: I think you could also look at it through the lens of the recent case involving Zillow that we cited in the 28-J letter. [00:25:02] Speaker 04: Your friends have said the restraint wasn't considered by the court. [00:25:09] Speaker 00: The restraint was. [00:25:10] Speaker 00: So it was. [00:25:11] Speaker 00: So what the court said is you have alleged that the restraint is setting prices or delegating pricing [00:25:18] Speaker 00: As I just spent the first half of my opinion saying, there aren't factual allegations to support that particular restraint. [00:25:26] Speaker 00: And I think their point is that that was wrong. [00:25:29] Speaker 00: All the court should have said is there's a non-exclusive license agreement. [00:25:33] Speaker 00: That counts as the restraint because it's an agreement. [00:25:36] Speaker 00: And jump right into the numbers and into anti-competitive effects. [00:25:40] Speaker 00: And I think that's what the case law doesn't support. [00:25:42] Speaker 00: I think the Zillow case. [00:25:44] Speaker 00: is helpful for a number of reasons, but one of which is the unilateral point I made. [00:25:49] Speaker 00: There, there was a disagreement as to where the harm was coming from. [00:25:53] Speaker 00: Was it the optional rule or was it how it was implemented, the website design? [00:25:58] Speaker 00: And the issue was, if it was a website design, that was purely unilateral conduct. [00:26:03] Speaker 00: If I could spend a moment on musical instruments and footnote three in particular of that decision, [00:26:09] Speaker 00: What I just said about restraint of trade and what the district court held is more than enough to resolve this appeal. [00:26:15] Speaker 00: If the court does get into the issue of aggregation, I think that's just a second example of how far this goes from the normal antitrust case. [00:26:24] Speaker 00: Footnote three cited two decisions. [00:26:27] Speaker 00: It cited Dixon out of the Fourth Circuit, and it cited the Legion case. [00:26:31] Speaker 00: In Dixon, I think it's a perfect example where the court said, we are not going to act as if these two independent conspiracies are really one conspiracy. [00:26:41] Speaker 00: We're going to look at each allegation, the two different agreements, standing alone. [00:26:45] Speaker 00: And I think it said independently at least six times in that decision. [00:26:50] Speaker 00: So certainly that case is not an example of aggregation. [00:26:53] Speaker 00: The cases they point to where courts have done any version of aggregating either do involve a horizontal collusion allegation of some sort, which again has now been abandoned, or they're the exclusive dealing time cases which are just different in kind because there there's a discrete anti-competitive effect each time and the courts are looking at them collectively to decide whether they're substantial foreclosure of the market. [00:27:19] Speaker 00: Increased prices, the court has said over and over and over again that that is not enough to allege the anti-competitive harm. [00:27:27] Speaker 00: High prices exist for a number of pro-competitive reasons. [00:27:30] Speaker 00: You can't just say the price has went up and then move on from that part of the analysis. [00:27:36] Speaker 00: And I don't know if it's worth going into the stats. [00:27:38] Speaker 00: We have the arguments in our brief. [00:27:40] Speaker 00: But the reality is the charts do not show direct evidence of anti-competitive harm, what they pointed to as far as those charts go. [00:27:49] Speaker 00: Look, don't just focus on the alleged conspiracy and those who actually subscribed to Rainmaker during the relevant period of time. [00:27:56] Speaker 00: They're either over broad or too narrow in very different respects. [00:28:01] Speaker 00: The Venetian Compare, I think, is a good example. [00:28:03] Speaker 00: They include MGM. [00:28:05] Speaker 00: In there, the district court dismissed MGM as a defendant, finding that there weren't allegations that MGM used the software during the relevant period of time. [00:28:14] Speaker 00: One other fact that I think sometimes gets lost when we talk about subscribing to the revenue management software here, and the district court recognized this as well, the software has many other features besides the pricing algorithm. [00:28:30] Speaker 00: It has at least 10 other features, including detailed demand forecasting. [00:28:34] Speaker 00: And maybe this gets me to the 90% number. [00:28:38] Speaker 00: The 90% number in the complaint has nothing to do with the held defendants. [00:28:42] Speaker 00: It's a national number. [00:28:44] Speaker 00: According to the complaint, there's 5,500 hotels in 110 different countries that subscribe to the revenue management software. [00:28:52] Speaker 00: When it comes to the actual defendants, the allegations [00:28:57] Speaker 00: are absent, the only defendant that it talks about in terms of whether they use the pricing recommendations at all is Hard Rock. [00:29:05] Speaker 00: That's a paragraph 175, and it just says they use it in some circumstances. [00:29:11] Speaker 00: They don't have any allegations about the other hotel defendants, and I don't think they could consistent with rule 11. [00:29:18] Speaker 00: As we point out in footnote four of our brief, the hotel defendants filed initial disclosures saying, [00:29:25] Speaker 00: that as a practice they don't use the pricing recommendations. [00:29:34] Speaker 00: I guess one final point and maybe this is a good place to stop if there are [00:29:39] Speaker 00: are no further questions. [00:29:40] Speaker 00: There's a lot of reliance. [00:29:41] Speaker 00: I don't think it came up today. [00:29:42] Speaker 00: But in the briefs on the Plymouth case, and I know the Department of Justice cares a lot about the notion of starting price cases, I think Plymouth is actually quite useful for the point that we're trying to make. [00:29:55] Speaker 00: Because again, the issue here is not just they didn't agree to the final price. [00:30:00] Speaker 00: They didn't agree to do anything whatsoever. [00:30:03] Speaker 00: when it comes to the pricing recommendations. [00:30:05] Speaker 00: And there is a world of difference between an advisory recommendation [00:30:10] Speaker 00: and what was going on in Plymouth and other cases. [00:30:14] Speaker 00: Because an advisory recommendation is just that. [00:30:17] Speaker 00: We all ask for recommendations in every aspect of our life. [00:30:20] Speaker 00: We ask for advice from people. [00:30:22] Speaker 00: Companies do the exact same thing. [00:30:24] Speaker 00: Outside consultants provide advice. [00:30:26] Speaker 00: Employees within the company provide advice. [00:30:28] Speaker 00: It doesn't bind anybody. [00:30:31] Speaker 00: And that's where we end up with the fundamental divide between concerted activity [00:30:36] Speaker 00: and unilateral action. [00:30:38] Speaker 00: And Plymouth, I think, said it exactly right. [00:30:40] Speaker 00: The focus needs to be on whether there is restrained ability to sell or hear price in accordance with their own judgment. [00:30:50] Speaker 00: Nothing that they have alleged restrained the hotel defendant's ability to price in accordance with their own judgment. [00:30:58] Speaker 00: And the Plymouth case, I should also add, affirmed a conviction while saying, we're not affirming it just because there was a price list. [00:31:06] Speaker 00: We're instead affirming it for a bunch of other facts that are in the record that are not present here. [00:31:11] Speaker 00: And so maybe to sum it all up, I think the difficulty with the arguments on the other side, including the arguments of the Department of Justice, is number one, they're divorced from the factual allegations in this case. [00:31:23] Speaker 00: Number two, they blur concerted action and unilateral action in a really problematic way when it comes to section one. [00:31:32] Speaker 00: And number three, [00:31:33] Speaker 00: It leaves the motion to dismiss analysis with no place where the court can look and say, you talked about an agreement on one hand. [00:31:43] Speaker 00: You've talked about higher prices on the other hands. [00:31:46] Speaker 00: You've never connected up the two. [00:31:47] Speaker 00: But we're going to deny the motion to dismiss, open the door to extensive discovery and exposure to tribal damages. [00:31:54] Speaker 00: No case says that. [00:31:57] Speaker 00: Thank you. [00:31:57] Speaker 00: Thank you. [00:32:05] Speaker 01: All right, we're going to put two minutes back on the clock for you. [00:32:09] Speaker 03: First, my colleague on the other side says that it's unreasonable for us to take the position that every contract is a contract that it meets the threshold test of Section 1. [00:32:22] Speaker 03: They have no case, not a single case they've cited, that says the contract has to on its face restrain trade. [00:32:32] Speaker 03: tons of cases that say every contract is a restraint. [00:32:36] Speaker 03: That doesn't mean that every contract is going to implicate the antitrust laws. [00:32:41] Speaker 03: You have to go to step two, and most contracts will not be unreasonable. [00:32:46] Speaker 03: So the question here, have we pled at this stage that there's some unreasonable interference with competition? [00:32:56] Speaker 03: And I say two things in that regard. [00:32:58] Speaker 03: Number one, we know that [00:33:01] Speaker 03: 90% of the time, 90% of the time, whether or not they were required to accept the prices, they did. [00:33:09] Speaker 03: They did. [00:33:10] Speaker 03: And if you look at ER 724, we have a confidential witness who describes how it would work. [00:33:17] Speaker 03: Rainmaker would come to the hotel, they would discuss who the competitors were and what data they wanted to come back in their price recommendations. [00:33:27] Speaker 03: That implicates anticompetitive behavior. [00:33:30] Speaker 03: because they know that they're going to set their price based on someone else gathering the prices from their competitors. [00:33:38] Speaker 03: And they know their competitors are also using Rainmaker because Rainmaker advertises that. [00:33:44] Speaker 03: So everyone who subscribes to this knows what's going on. [00:33:48] Speaker 03: And I think we've led a plausible interference with competition at this stage. [00:33:54] Speaker 03: And prices do matter. [00:33:56] Speaker 03: What this court has said in Epic and PLS [00:34:00] Speaker 03: is that one of the hallmarks of interference with competition is an increase in prices. [00:34:07] Speaker 03: Now, they quarrel with the merits of our price increases. [00:34:11] Speaker 03: That quarrel is not proper at this stage. [00:34:14] Speaker 03: The graphs we put in more than plausibly implicate a restraint in competition in the form of higher prices. [00:34:21] Speaker 03: Thank you, Your Honor. [00:34:22] Speaker 01: Thank you, Counsel. [00:34:23] Speaker 01: Thank you to both counsels. [00:34:24] Speaker 01: This case is now submitted.