D.C. v. Amazon.com, Inc.

320 A.3d 1073

DISTRICT OF COLUMBIA, Appellant,

v.AMAZON.COM, INC., Appellee.

No. 22-CV-0657

District of Columbia Court of Appeals.

Argued December 7, 2023

Decided August 22, 2024

Appeal from the Superior Court of the District of Columbia (2021-CA-001775-B), (Hon. Hiram E. Puig-Lugo, Motions Judge)

Caroline S. Van Zile, Solicitor General, with whom Brian L. Schwalb, Attorney General, Graham E. Phillips, Deputy Solicitor General, and Jeremy R. Girton, Assistant Attorney General, were on the brief for appellant.

Kannon K. Shanmugam, with whom Karen L. Dunn, William A. Isaacson, Paul D. Brachman, Amy J. Mauser, and Martha L. Goodman, Washington, DC, Paul, Weiss, Rifkind, Wharton & Garrison LLP were on the brief, for appellee.

Eric F. Citron, Bethesda, MD, filed a brief for Antitrust Law Professors and Economists as amici curiae in support of appellant.

Victoria Sims, Washington, DC, filed a brief for the Committee to Support the Antitrust Laws as amicus curiae in support of appellant.

Sandeep Vaheesan filed a brief for Open Markets Institute as amicus curiae in support of appellant.

Tyler S. Badgley, Jonathan D. Urick, Adam G. Unikowsky, Washington, DC, and Mary E. Marshall filed a brief for the Chamber of Commerce of the United States of America and the D.C. Chamber of Commerce as amici curiae in support of appellee.

David L. Meyer filed a brief for Federal City Council as amicus curiae in support of appellee.

Before Beckwith and Deahl, Associate Judges, and Fisher, Senior Judge.

Beckwith, Associate Judge:

The District of Columbia sued Amazon.com alleging that certain Amazon policies amounted to illegal restraints of trade under the District’s antitrust laws. Claiming that these practices stifled competition, reduced consumer choice, and led to increased prices across online marketplaces, the District sought to enjoin Amazon from using them.

Defending its policies as prohibitions against discrimination and price gouging that actually foster competition, Amazon moved to dismiss the District’s first amended complaint. The trial court granted Amazon’s motion, concluding that the District failed to plausibly allege that the challenged policies had anticompetitive ef- fects. On appeal, the District challenges the trial court’s order on grounds that the court misconstrued the elements of a restraint-of-trade claim and failed to accept the District’s factual allegations as true. We hold that the District alleged sufficient facts to survive the motion to dismiss and therefore reverse the judgment of the Superior Court.

I.

Amazon.com operates the world’s largest online retail marketplace. According to the District’s first amended complaint, Amazon is consumers’ go-to platform for online shopping, where two thirds of people begin their search for new products and where nearly three quarters "go directly" once they have settled upon a specific product to buy. In addition to selling things directly to consumers on its online platform, Amazon contracts with third-party merchants seeking to sell their products on Amazon and also buys products from wholesale suppliers—known as first-party sellers—that it then sells to consumers, sometimes under its own brand. In many cases, these third-party sellers and first-party sellers offer the same products on other online platforms, including on their own websites.

The District’s complaint takes aim at three aspects of the agreements Amazon requires certain merchants to enter into that the District says run afoul of D.C. law prohibiting restrictive trade policies and monopolies. See D.C. Code § 28-4502 (stating that "[e]very contract … in restraint of trade or commerce" is illegal); § 28-4503 (making it unlawful to monopolize or attempt to monopolize trade or commerce in the District). The first two—which the District regards as "most-favored-nation" agreements ¹—involve the third-party sellers. The "price parity provision," which was in effect until 2019, required these sellers to agree to contract terms that prohibited them from offering their products through other online marketplaces, including their own websites, at a lower price than that offered on Amazon. According to the complaint, this provision "artificially raised the price of goods to consumers across online marketplaces" because third-party sellers "were forced to incorporate Amazon’s high fees and commissions into their product prices not only when selling through Amazon’s marketplace, but also when selling through competing online marketplaces."

In response to scrutiny from Congress and government regulators, Amazon removed the price parity provision from its U.S. contracts in 2019 and replaced it with the so-called "fair pricing policy." Under the fair pricing policy—characterized in the complaint as "an effectively identical substitute" for the price parity provision—Amazon will sanction third-party sellers who "harm[ ] consumer trust" by setting a price on a product or service on Amazon "that is significantly higher than recent prices offered on or off Amazon."² Both policies ultimately harm these sellers, consumer choice, and competition, the District’s complaint alleges, by causing higher commissions and fees to third-party sellers and lower profits than would occur in a competitive market.

The third practice targeted by the District’s complaint is Amazon’s use of "minimum margin agreements" that require first-party sellers to guarantee Amazon an agreed-upon minimum profit for the products Amazon purchases wholesale and sells retail on Amazon’s online marketplace. If, for example, Amazon identifies a lower price for a product on a competing online marketplace, it will lower its price to match, and the first-party seller must pay Amazon for any corresponding loss in profit margin.

The District’s original complaint against Amazon challenged the former price parity provision and the fair pricing policy as violations of the District’s antitrust laws. Amazon moved to dismiss, and in response, the District filed the operative amended complaint alleging four violations of the D.C. Antitrust Act: First, the District asserts, Amazon’s price parity provision and fair pricing policy restrain trade in violation of D.C. Code § 28-4502 by establishing Amazon’s price as the price floor across online marketplaces. Second, Amazon’s minimum margin agreements also violate section 28-4502 by incentivizing first-party sellers to increase their prices on other online marketplaces to avoid owing any loss of profit margin to Amazon—what the District calls "true up" payments. Third, Amazon’s anticompetitive conduct constitutes maintenance of an unlawful monopoly as prohibited by D.C. Code § 28-4503. And fourth, to the extent Amazon has not already established a monopoly, "Amazon’s anticompetitive conduct constitutes an attempt to achieve a monopoly in violation of D.C. Code § 28-4503." For relief, the District seeks a declaratory judgment and an injunction against Amazon’s anticompetitive acts as well as civil penalties and damages.

Amazon again moved to dismiss under Super. Ct. Civ. R. 12(b)(6) for failure to state a claim, arguing, among other things, that the District failed to allege any "plausible relevant product market in which competition was harmed" and failed to show that the challenged policies had anticompetitive effects. The trial court orally granted Amazon’s motion. Relying on the pleading standard set forth in Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), and Bell All. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the court evaluated the terms of the fair pricing policy, concluding that "sellers are free to set prices" and that "the only limit" in the policy is that sellers "cannot set a price that is significantly higher than recent prices offered on or off Amazon." The court did not agree with the District that prohibiting sellers from raising their prices on Amazon created an implicit limit on sellers’ ability to offer lower prices on other online marketplaces. The court stated that nothing in the fair pricing policy expressly created a floor on prices and that neither the word "floor" nor the word "lower" appeared anywhere in the policy. As for the District’s allegations that Amazon’s practices lead to higher prices, the court dismissed them as "conclusory." The court did not address the District’s monopolization and attempted monopolization claims or its al- legations regarding the price parity provision or the minimum margin agreements. It subsequently denied a motion for reconsideration and the District’s alternative request to file a second amended complaint.³

II.

[1, 2] On appeal, the District levels several challenges against the trial court’s ruling granting Amazon’s motion to dismiss. We review a trial court’s dismissal of a complaint de novo. Bell v. First Invs. Servicing Corp., 256 A.3d 246, 251 (D.C. 2021). "We accept the allegations of the complaint as true, and construe all facts and inferences in favor of the plaintiff." Grayson v. AT&T Corp., 15 A.3d 219, 228 (D.C. 2011) (en banc) (quoting Solers, Inc. v. John Doe, 977 A.2d 941, 947 (D.C. 2009)) (internal brackets omitted).

[3–5] To survive a Rule 12(b)(6) motion to dismiss, a complaint must "plead ‘enough facts to state a claim to relief that is plausible on its face,’ " Poola v. Howard Univ., 147 A.3d 267, 276 (D.C. 2016) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955), meaning "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (quoting Comer v. Wells Fargo Bank, N.A., 108 A.3d 364, 371 (D.C. 2015)). While "this standard ‘does not require detailed factual allegations,’ it does ‘demand[ ] more than an unadorned, the-defendant-unlawfully-harmed me accusation.’ " Id. (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937). If the complaint contains sufficient factual allegations, "the case must not be dismissed even if the...