Google, which operates the world’s most popular search engine, recently defeated an antitrust claim brought by an online supplier of stock images in the case Dreamstime.com, LLC v. Google, LLC, decided on December 6, 2022, by the Ninth Circuit Court of Appeals. The Dreamstime Opinion helps illustrate some difficulties in defining the relevant market to allege anticompetitive injury to support an antitrust claim.

Google operates a popular search engine that connects users with websites based on search inquiries using proprietary algorithms developed by Google. These algorithms help users find pertinent websites by considering a website’s relevance, utility, age, as well as the user’s own search history and browser settings. Google also maintains an image repository (“Google Images”) that shows relevant pictures in connection with search results. Google’s business model focuses on advertising revenue instead of charging users to utilize its search engine. Companies can pay to have their ads displayed next to search results, which are referred to as sponsored or paid search results. The other search results generated by Google that are not associated with the paid advertisements are referred to as “organic” or “free” search results.

Dreamstime is a Romanian company that maintains an online repository of millions of stock images, many of which are available for purchase but millions of others are available for free. Dreamstime relies primarily on user traffic directed to its website from search engines like Google. Dreamstime began advertising on Google in 2004 and, during its first decade, ranked in the top three for organic search results related to stock photography.

In 2015, Google revised its search engine’s algorithms that gave more weight to “certain words based on how the webpage displayed them.” Dreamstime’s organic search ranking began to drop after this new algorithm was implemented by Google. In approximately one year, Dreamstime claimed that its number of new customers fell by 30% and claimed this was due to the changes in Google’s algorithms. Dreamstime raised this issue with Google, and its advertising support team suggested that Dreamstime retain an SEO expert to improve its search rankings. The expert provided a free analysis to Dreamstime that suggested its falling search ranking was the result of the “weak content of [its] site .” Dreamstime then invested millions of dollars in an attempt to improve its search ranking; however, its ranking continued to decline. 

In March 2018, Dreamstime sued Google for various claims, including an antitrust claim alleging violation of section 2 of the Sherman Act, 15 U.S.C. § 2. Google filed a motion to dismiss, which the court granted as to the antitrust claim but allowed Dreamstime leave to file an amended complaint which it did. Google moved to dismiss the amended antitrust claim, which was likewise granted by the court on the grounds that Dreamstime did “not plausibly allege harm to competition in the relevant market of online search advertising.” The court allowed Dreamstime’s other claims to proceed but later dismissed them as well. Dreamstime then appealed the dismissal of its antitrust claim to the Ninth Circuit.

The Ninth Circuit began by noting that an antitrust plaintiff can avoid a motion to dismiss by alleging “sufficient facts from which the Court can discern the elements of an injury resulting from an act forbidden by the antitrust laws.” Dreamstime asserted that the trial court had mischaracterized the relevant market in considering its antitrust claim as being limited to the online search advertising market as opposed to including the online search market. Dreamstime further alleged that the Court erred in finding no anticompetitive conduct and denying it leave to further amend its antitrust claim. 

The Ninth Circuit began by reviewing the elements of an antitrust claim under section 2 of the Sherman Act, which “prohibits concerts and independent action that monopolizes or attempts to monopolize.”  A Section 2 claim has two essential elements “(1) the defendant has monopoly power in the relevant market; and (2) the defendant has willfully acquired or maintained monopoly power in that market.” The court noted, however, that “[t]he mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free market system.” Thus, in the context of a section 2 antitrust claim, “monopoly power means the power to `control prices or exclude competition.'” 

Generally, market share is the “most important factor to consider” in determining whether a defendant has monopoly power, and the Ninth Circuit noted that generally, “65% market share is sufficient to establish that a defendant has monopoly power.” Nevertheless, to establish the first element of a section 2 antitrust claim, “a plaintiff generally must (1) define the relevant market, (2) establish that the defendant possesses market share in that market sufficient to constitute monopoly power, and (3) show that there are significant barriers to entering that market.” Once the plaintiff has established these elements, the second element of an antitrust claim “requires [a showing] that the defendant engaged in `willful’ acts to acquire or maintain a monopoly in the relevant market.” This requires a showing “that a defendant possessing monopoly power undertook `anticompetitive conduct,’ … and that the defendant did so with an `intent to control prices or exclude competition in a relevant market.'” The Ninth Circuit noted that the “focus of this element is on conduct that harms `the competitive process’ as a whole; it is `not on the success or failure of individual competitors.’”

Finally, the Ninth Circuit noted that section 2 claims are generally premised on two different theories of unlawful monopolization: (1) a “maintenance theory” by which a plaintiff claims that the defendant used improper conduct to maintain a monopoly in a single market; or (2) a “leveraging theory” in which a plaintiff claims that a defendant used its monopoly power in one market to gain a monopoly in a second market. 

The Ninth Circuit addressed what it felt to be the primary issue of whether Dreamstime had defined the relevant market to support its antitrust claim as including the online organic search market as opposed to just the online search advertising market. In its appeal, Dreamstime contended that it had done so and that the District Court had errored by focusing solely on the online search advertising market. The Ninth Circuit, after reviewing the entire record, disagreed.

The Ninth Circuit noted that the trial court had given Dreamstime several opportunities to clarify whether it was defining the relevant market to include the online search market, and Dreamstime failed to do so each time. Thus, the Ninth Circuit concluded that “[b]y such a course of conduct, Dreamstime waived any section 2 claim arising from the online search market.” In support of this conclusion, the Ninth Circuit noted that while there was some ambiguity in Dreamstime’s complaints as to whether it was including the online search market, when asked at hearings on Google’s motions to dismiss, Dreamstime each time stated that the only relevant market for its antitrust claim was the online search advertising market. 

Dreamstime also clarified that it was alleging a single maintenance theory claim as opposed to a two-market leveraging claim. In fact, the District Court apparently suggested that Dreamstime’s best strategy might be to pursue a two-market leveraging claim that included a market for searching online images, but Dreamstime declined the court’s invitation. The Ninth Circuit concluded that the record was clear, “Dreamstime refused expressly and repeatedly to include the online search market within its definition of the relevant market for its section 2 claim before the District Court” and ruled that it was not the appellate court’s “role to resuscitate claims that the parties expressly disavowed” below. Thus, the Ninth Circuit ruled that it would limit its review of the relevant market as being the online search advertising market.

In doing so, the Ninth Circuit concluded that the lower court properly found that Dreamstime failed to allege anticompetitive conduct in connection with this market. Dreamstime claimed that Google had committed eight acts that, taken individually or as a whole, had harmed competition in the online search market: “(1) rigging the Google Ads bidding process; (2) demoting Dreamstime’s organic search results on Google; (3) favoring Google’s stock photo contractual partners, Shutterstock and Getty Images; (4) selectively enforcing the Google Ads rules and terms; (5) elevating inferior stock photo websites above Dreamstime in search results; (6) suspending Dreamstime’s mobile application; (7) misappropriating Dreamstime’s licensed photos and showing them on Google images; and (8) unlawfully capturing data from users and advertisers.” The Ninth Circuit concluded that these alleged acts, either individually or as a whole, did not constitute anticompetitive injury.

First, the Ninth Circuit concluded that four of the alleged anticompetitive behaviors (Nos. 1, 3, 4, and 6 above) fail “short of alleging anticompetitive conduct in the online search advertising market.” The Ninth Circuit concluded that, at best, this alleged harm to Dreamstime but that it “does not exclude [Google’s] competitors in the online search advertising market.” The Court found that such behavior would, at best, encourage competition in that customers such as Dreamstime would feel aggrieved by Google’s conduct and would take their business to Google’s competitors. Further, section 2 allows companies like Google to choose who they wish to do business with, and there is no requirement that Google offers the same favorable terms to Dreamstime as it did to Shutterstock or Getty Images. The Ninth Circuit concluded that, at best, these allegations show that Google harmed Dreamstime as a customer but not the online search advertising market.

Next, the Ninth Circuit turned to three additional alleged anticompetitive behaviors: (1) demoting Dreamtime organic search results; (2) elevating inferior stock photo websites; and (3) misappropriating Dreamstime’s licensed photos. The Ninth Circuit concluded, however, that given that Dreamstime had “disavowed any reliance on the theory that Google is harming competition in the online search market for images,” these allegations could not support its antitrust claim.

Finally, the Ninth Circuit considered Dreamstime’s claim that Google had “unlawfully captured data from users and advertisers” but concluded that this allegation on its own was not unlawful under the Sherman Act. Rather, the Ninth Circuit concluded that it was, at best, “an example of a company using a competitive advantage gained from `establishing an infrastructure that renders them uniquely suited to serve [its] customers.’”

The Ninth Circuit next considered Dreamstime’s argument that the Court erred by failing to consider Google’s alleged conduct as part of an “overall scheme.” The Ninth Circuit noted that the U.S. Supreme Court has encouraged courts to give plaintiffs in antitrust actions “the full benefit of their proof without tightly compartmentalizing” each individual allegation and that a court should look at the alleged conduct as a whole. The Ninth Circuit concluded, however, that because each of the individual actions alleged by Dreamstime did not amount to anticompetitive conduct in the relevant market, “their collective sum likewise [did] not” either.

Finally, Dreamstime argued that it should have been permitted an opportunity to amend its complaint by the trial court. The Ninth Circuit likewise rejected this claim and found that the court had provided Dreamstime “several opportunities” to clarify its definition of the relevant market from the case’s onset. Finding that Dreamstime had expressly rejected the Court’s invitations and maintained its theory of the case, the Ninth Circuit concluded that it did not find the district court to have abused its “particularly broad” discretion in refusing Dreamstime another opportunity to amend its complaint.

The Dreamstime Opinion reinforces the importance that antitrust plaintiffs consider and properly allege the relevant market to pursue claims that a defendant’s behavior has caused anticompetitive injury to the market – rather than just to the plaintiff.