Wolfire Games LLC v. Valve Corp.

ORDER

HONORABLE JOHN C. COUGHENOUR JUDGE

This matter comes before the Court on Defendant's motion to dismiss (Dkt. No. 37). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby GRANTS in part and DENIES in part the motion for the reasons described below.

I. BACKGROUND

Plaintiff Wolfire Games, LLC alleges, in a Consolidated Amended Class Action Complaint (“CAC”), that Defendant utilizes anticompetitive practices and its monopoly power to force Wolfire and similarly situated personal computer (“PC”) desktop game publishers to pay Defendant supracompetitive fees for the sale of their games. (See generally Dkt. No. 34.) The

CAC also contains allegations and claims for relief from game consumers. (Id.) However, the Court already granted Defendant's motion to compel arbitration of those claims pursuant to Defendant's Steam Subscriber Agreement. (See Dkt. No. 66 at 5.)

Defendant operates a PC desktop gaming platform (the “Steam Platform”) and a retail electronic game store (the “Steam Store”). (Dkt. No. 34 at 10, 14-17.) Wolfire asserts, through the CAC, that Defendant forces game publishers to sell their games through the Steam Store, which results in anti-competitive injury to Wolfire and similarly situated game publishers. (See generally id.) According to the CAC, Defendant initially created the Steam Platform to facilitate the delivery of patches and updates for its own games. (Id. at 14.) Defendant later launched the Steam Store. (Id. at 15) At the time, it sold its own games through the Steam Store, which could only be played on the Steam Platform. (Id.) This is because PC desktop games are generally not compatible across platforms due to the “unique functionality” of each platform. (Id. at 24.)

At some point, Defendant opened up the Steam Platform to third-party game publishers. (Id. at 15.) However, like Defendant's own games, those third-party games, if compatible with the Steam Platform, were generally not compatible with other platforms. (Id.) Also, like Defendant's own games, absent the limited use of Steam Keys, ^[1] those games had to be purchased through the Steam Store. (Id.) Defendant does not charge a direct fee for consumers' use of the Steam Platform or its hosting of a third-party publishers' games. (See generally id.) Instead, it generates revenue through a fee that it charges for each third-party game sold in the Steam Store and for in-app purchases. (Id. at 24, 28, 78.) Defendant initially set the fee at 30% but now provides limited discounts to high-volume developers and/or publishers. (Id. at 5.)

The initial appeal of the Steam Platform to game consumers was the ability to maintain and update their game libraries in one location, regardless of which device they use to access the game. (Id.) However, over time, Defendant added more functionality to the platform. (Id. at 5,

16.) This included social networking features and other services, including a game achievement tracking service. (Id. at 5, 16.) Based in part on this increased functionality, demand for the platform steadily rose. (Id.) Today, the “vast majority of all PC [d]esktop [g]ames are played [] on the Steam Gaming Platform.” (Id. at 32.) As a result, Steam compatibility is considered to be a “must-have.” (Id.)

According to the CAC, Defendant uses this market dominance to unlawfully tie Steam Store sales to use of its Steam Platform and to impose price controls through contractual provisions and coercion. (See generally id.) The CAC asserts that these practices violate Sections 1 and 2 of the Sherman Act as well as the Washington Consumer Protection Act (“CPA”). (Id.) Defendant moves to dismiss, at least with respect to Wolfire, pursuant to Federal Rule of Civil Procedure 12(b)(6). (Dkt. No. 37.) It argues, inter alia, that CAC's tying claims are not supportable, given the integrated platform and distribution market described in the CAC, and that the CAC fails to allege facts supporting an antitrust injury. (See generally id.)

II. DISCUSSION

A. Legal Standard

A motion to dismiss pursuant to Rule 12(b)(6) “tests the legal sufficiency of a claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2011), see Fed. R. Civ. P. 12(b)(6). To survive such a motion, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009) (internal quotation marks and citation omitted); see Shroyer v. New Cingular Wireless Serv., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). In reviewing such a motion, the Court accepts the truth of the facts alleged and draws all reasonable inferences from those facts in a plaintiff's favor. Al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009). However, allegations must cross “the line between possibility and plausibility of entitlement to relief.” Iqbal, 556 U.S. at 677. To do so, the complaint must “plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. As a result, a “pleading that offers

‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'” Id. at 678 (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

B. Relevant Market

According to the CAC, by 2020, Defendant reported 45, 000 Steam-compatible games and 120 million monthly active Steam Platform users. (Dkt. No. 34 at 16.) The Steam Store, where those games are generally purchased, presently accounts for 75% of the $10 billion^[2] PC desktop game market. (Id. at 8.)

“A threshold step in any antitrust case is to accurately define the relevant market.” Fed. Trade Commn. v. Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020). Here, the CAC presents two different market theories. (Dkt. No. 34 at 32-39.) Under the first, the Steam Platform and Steam Store operate in separate markets: a PC desktop platform market and a PC desktop game transaction market. (Id. at 32-38.) Under the second, they operate as a single product in an integrated game transaction platform market. (Id. at 38-39.) This distinction matters-only a separate market theory would support the CAC's causes of action based on tying claims. (See Id. at 89-92.)

In defining the relevant market, Wolfire and Defendant debate the import of Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984). (See Dkt. Nos. 57 at 28-30, 54 at 15-19, 57 at 14-15.) In Jefferson Parish, the Court articulated a consumer demand test to assess tying allegations. If separate independent consumer demand exists for tied products, then the markets encompassing those products are separate; otherwise, they are not. See 466 U.S. at 19-20. Defendant takes issue with the application of Jefferson Parish's consumer demand standard, arguing that it is inappropriate in a case such as this...