Copeland v. Energizer Holdings, Inc. ( 2024 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 8 DON COPELAND, et al., Case No. 23-cv-02087-PCP 9 Plaintiffs, 10 v. 11 ENERGIZER HOLDINGS, INC., et al., Defendants. 12 13 PORTABLE POWER, INC., Case No. 23-cv-02091-PCP 14 Plaintiff, v. 15 16 ENERGIZER HOLDINGS, INC., et al., Defendants. 17 18 KIMBERLY SCHUMAN, et al., Case No. 23-cv-02093-PCP 19 Plaintiffs, 20 v. 21 ENERGIZER HOLDING, INC., et al., Defendants. 22 23 24 ORDER DENYING MOTIONS TO DISMISS 25 In these related antitrust cases, three putative classes of plaintiffs allege that defendant 26 Energizer Holdings, Inc. agreed to give defendant Wal-Mart, Inc. control over the retail prices of 27 Energizer products everywhere the products are sold. Plaintiffs claim this violated Section 1 of the 1 plaintiffs have not adequately pleaded that Energizer and Walmart entered such an agreement, and 2 that even if they had, the complaint does not allege that the agreement harmed competition in a 3 manner that violates the Sherman Act or the identified state laws. They also challenge plaintiffs’ 4 standing. Defendants’ motions are denied for the reasons that follow. 5 I. Background 6 The facts that follow are alleged in plaintiffs’ complaints and accepted as true for purposes 7 of defendants’ Rule 12(b)(6) motion.1 8 Energizer and Duracell are the two main manufacturers of disposable batteries in the 9 United States. Together they account for 85% of U.S. battery sales. Energizer alone accounts for 10 over half of U.S. battery sales. The market for disposable batteries is hard to enter because of the 11 critical minerals (cobalt, lithium, graphite) and hazardous materials (lead, mercury) used to make 12 batteries, and because of significant ad spending by Energizer and Duracell. Demand is decreasing 13 for many reasons ranging from the rise of smartphones to environmental concerns. Energizer also 14 sells lighting products like headlights that use disposable batteries. 15 Walmart is the world’s largest company by revenue. It operates thousands of retail stores 16 in the United States. It is a major retailer of batteries. In 2012, Walmart purchases accounted for 17 20% of Energizer’s overall sales. Until 2013, Energizer had an exclusive contract to supply 18 batteries to Sam’s Club, Walmart’s discount warehouse chain. Energizer lost that contract in 2013, 19 however, and Walmart’s share of Energizer’s sales dropped to 13.3% that year and to 8.5% by 20 2014. From then until 2021, Walmart’s share of Energizer’s sales stayed below 15%. 21 Plaintiffs allege that as early as January 2018, Walmart and Energizer entered into a new 22 agreement pursuant to which Walmart would give Energizer preferential treatment at its stores 23 while Energizer would monitor Walmart’s competitors to keep them from undercutting Walmart’s 24 retail prices for Energizer batteries and, if necessary, increase wholesale prices charged to the 25 competitors. Energizer created a group called Project Atlas to monitor retail prices and ensure that 26 27 1 Defendants filed a single motion to dismiss directed at all three complaints in these actions. Like 1 its distributers would not undercut Walmart. By April 2018, Energizer had increased prices by 2 over 8% from the previous year. Plaintiffs allege that the agreement remains in effect. 3 Portable Power is an online battery retailer that tried to undercut Walmart’s prices for 4 Energizer batteries. One place it sells these products is Amazon’s online third-party marketplace. 5 Plaintiffs allege that Walmart complained to Energizer about “disruptive pricing” on online 6 marketplaces and asked Energizer what it was doing to “resolve” the issue. In response, in 7 November 2018, Energizer raised Portable Power’s wholesale prices by 50-85% for certain 8 products. Energizer’s sales representative told Portable Power that it was raising prices to align 9 Portable Power with Energizer’s pricing policy. Later, in January 2021, the same sales 10 representative forwarded to Portable Power’s CEO an email from Energizer’s Project Atlas team. ll The email identified portable Power as one of the top-ten Amazon sellers “in violation” of 12 Energizer’s “pricing policies.” The email included this chart listing the top ten violators: 13 Top Amazon Sellers in Violation for December 2020 = @® SELLER STATUS VIOLATIONS AVG % ALEXA RATINGS LAST ACTION DATE 5 14 1 amazon.com Pushorzed (amazor 274 -13.0% 10 NA New oe 6 2 = bestdealsupply.com Unauthorined Iindire 127 “10.0% NA NA Escalated Enforcement-New 08/01/20 15 3 □□ Unathonzed Indire 1090 -LLO% NA 379910 Escalated Enforcement -New O8/0U/20 4 Natonal Deals [Amazon Unashorized Indire 68 -221% NA $5184 Leter Sent - 12/1520 16 = Arether Day in 5 ParadisePCR Unauthorized Indire 3400-12. 8% NA 2204 New oO 17 [Amazon US] 6 Tzohar Inc [Amazon US] Unauthorized Indire 31 “15.9% NA 1257 Letter Sent - New 1v2v20 Oo 7 Quiver [Amazon US} Authorzed 17 -24.0% NA 85647 New as Z 18 JustCaloulators 8 [Amazon US] Unauthorized Indie 1d -39.8% NA 46232 Letter Sent - New 1W2020 19 98 Sole tt (Amarnn US thorired Incr i -7 Oe BA 6347 3 Leter Sent - New 12/14/20 20 21 22 || Plaintiffs allege that this chart shows that Energizer had a system for monitoring and disciplining 23 retailers, including by sending letters and escalating enforcement. In an internal email 24 || accompanying the chart, an Energizer manager asked the sales representative to “see the latest 25 situation” on Portable Power and to “see if he’s willing [to] revise his pricing and get him off the 26 || radar” “[b]efore we shut them off on these sku’s.” Compl. at 18. 27 On February 1, 2021, the sales representative told Portable Power that Energizer would 28 stop shipping certain products to Portable Power because it had not raised its retail prices to match 1 Walmart’s. The sales representative told Portable Power’s CEO, “This is 1000% about Walmart 2 || and wanting the best price.” On February 16, 2021, the sales representative quoted wholesale 3 || prices to Portable Power for a different product. She emailed Portable Power asking, “If the items 4 || are priced to match the Walmart selling price minus 20% would that work for you?” Her email 5 also included a chart plaintiffs say shows how the prices offered to Portable Power were 6 || determined based on Walmart’s retail prices: 7 Rai ] ] Walmart selli Walmart selling price ml Jose |rovovacrsausmsoum | | x | com | som [ois [os 8 10-16 RAYOVAC RETAILSIZE 10 16PK 24 $8.80 $10.81 direct 52.16 $8.65 Walmart loa _|rvovacrsausmsonn| | x | sun | sere |e” [ors [oso 9 |1o-4a □□□□□□□□□□□□□□□□□□□□□□□ | | 6 | s2a.aa | $29.75 | Localbattery [sess [$2320 Walmart [ravovcncauszesoon | | xe | cose | cus [amma [sco [ame Walmart 10 lise rovovacrsmusesse | | x | ore | ue [aso [ose Walmart 4 lua |rvovacnsmuseae| | x | sow | sar |e” [ase [oe DZEE lw |rvovcrsausevan| | « | san | sro [Spoon [so [sue Walmart = 12 jus |rovovacrzause | | x | ca | se” |e” [ear [oso RAVYOVAC RETAIL SIZE 312 Walmart faose [ttm TL | ree | ne [iter eo |e RAWOVAC RETAIL SIZE 312 Walmea, 1 face [ain SET Te | soe | re [omer sce [oe —= RAVOVAC RETAILSIZE 312 Waimea, fazae [tan PE TT [cue | ses [ate ose [sa Walmart Jaze |rovovacrtmuseanen| | «| on | so [eur [am Jaze [rwvovscncausreaven| | x | sro | seer [aa [ear [xo 15 L 312-8 | RAYOVAC RETAILSIZE 312 8PK_|_ | 24 | 5400 | $6.87 __| direct _ | 3137 $5.50 A | 13-6 _| Not In bid too! | $4.86 | | | $5.8) ean |sia7___| $4.70 16 [isso | mises sass] | | sss ee” oss [ase = | . oo. . . Z 18 Plaintiffs allege that the wholesale prices offered to Portable Power in the chart were set at 20% 19 || below Walmart’s retail price so that Portable Power could match Walmart’s retail prices and still 20 || retain a sufficient markup. 21 Plaintiffs allege that the agreement between Energizer and Walmart resulted in an overall 22 || increase in the retail price for Energizer’s batteries that began in 2018. By April 2018, prices had 23 increased by 8% from the year before. Throughout 2019, 2020, and 2021, Energizer continued to 24 || roll out additional wholesale price increases: 8% for certain batteries in mid-2019, 10% for all 25 products in late 2020, 10% for the “MAX” line of batteries in April 2021, and 11% for all 26 || household batteries in June 2021. Walmart, too, increased its retail prices for Energizer products: a 27 20% jump for some products in late 2019 and another 40% jump in early 2020. For example, 28 1 Walmart’s retail price for 24 Energizer Max Alkaline AAA batteries rose from $12.78 in May 2 2019 to $16.24 by July 2019, and stayed around that level for the following twelve months. 3 Plaintiffs argue that the scheme benefited Energizer because it was able to enjoy inflated 4 wholesale prices and preferential treatment at Walmart stores. And they argue that it benefited 5 Walmart because it was able to inflate its retail prices for Energizer products without being 6 undercut by other sellers. They also argue that Walmart charged similarly inflated prices for 7 Duracell products at its stores, thus eliminating Duracell’s largest opportunity to compete. 8 Three sets of plaintiffs filed putative class actions against Walmart and Energizer. The 9 first, the Copeland plaintiffs, are customers who purchased Energizer products from retailers other 10 than Walmart.2 The second, the Schuman plaintiffs, are customers who purchased Energizer or 11 Duracell battery products directly from Walmart stores.3 The third, Portable Power, proposes a 12 class of retailers (or anyone) who purchased Energizer products directly from Energizer.4 The 13 Court related the actions under Local Rule 3-12. Defendants have moved to dismiss all three 14 complaints. 15 16 17 18 2 The Copeland plaintiffs propose the following class definition: “All persons and entities in Repealer Jurisdictions who indirectly [and not from Walmart] purchased Energizer Battery 19 Products for their own use and not for resale, at any time during the period from January 1, 2018 until the anticompetitive effects of Defendants’ challenged conduct cease.” Compl. at 24. 20 3 The Schuman plaintiffs propose two classes: a California class consisting of “[a]ll persons who 21 purchased Energizer or Duracell Battery Products directly from a Walmart brick-and-mortar store in California from January 1, 2018 until the anticompetitive effects of Defendants’ challenged 22 conduct cease, and who did not use the Walmart Plus Program when making their purchases,” and a national class consisting of “[a]ll persons who purchased Energizer or Duracell Battery Products, 23 directly from a Walmart brick-and-mortar store in the United States from January 1, 2018 until the anticompetitive effects of Defendants’ challenged conduct cease, and who did not use the Walmart 24 Plus Program when making their purchases.” Schuman Compl. at 24. 25 4 Portable Power proposes two classes: a California class consisting of “[a]ll persons and entities that purchased Energizer Battery Products directly from Energizer in California from January 1, 26 2018 until the anticompetitive effects of Defendants’ challenged conduct cease,” and a national class consisting of “[a]ll persons and entities that purchased Energizer Battery Products directly 27 from Energizer in the United States from January 1, 2018 until the anticompetitive effects of 1 II. Legal Standards 2 Federal Rule of Civil Procedure 8 requires a “short and plain statement of the claim 3 showing that the pleader is entitled to relief,” with allegations that are “simple, concise, and 4 direct.” The purpose is twofold. The complaint must “plausibly suggest” the plaintiff’s entitlement 5 to relief. Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009). It must also give “fair notice” and “enable” 6 the defendant “to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). 7 A complaint that does not state a claim upon which relief can be granted can be dismissed 8 under Rule 12(b)(6). “A claim has facial plausibility when the plaintiff pleads factual content that 9 allows the court to draw the reasonable inference that the defendant is liable.” Iqbal, 556 U.S. at 10 678. Legal conclusions “can provide the framework of a complaint” but must be “supported by 11 factual allegations.” Id. at 664. The Court must “accept all factual allegations in the complaint as 12 true and construe the pleadings in the light most favorable to the nonmoving party.” Rowe v. Educ. 13 Credit Mgmt. Corp., 559 F.3d 1028, 1029–30 (9th Cir. 2009). 14 III. Analysis 15 A. Plaintiffs Have Adequately Pleaded a Violation of the Sherman Act. 16 Section 1 of the Sherman Act declares “[e]very contract, combination…, or conspiracy, in 17 restraint of trade or commerce … to be illegal.” 15 U.S.C. § 1. “Courts have long read Section 1 to 18 outlaw only unreasonable restraints. Thus, a Section 1 inquiry has both a threshold component 19 (whether there is a contract, combination, or conspiracy) and a merits component (whether it is 20 unreasonable).” Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 981 (9th Cir. 2023) (cleaned up). 21 Defendants argue that plaintiffs have failed to plead facts establishing either an agreement (as 22 opposed to unilateral conduct) or that the alleged agreement is unreasonable. They also challenge 23 certain plaintiffs’ standing to pursue their Sherman Act claims. 24 1. Plaintiffs Plausibly Allege that Defendants Had an Agreement. 25 To state a Section 1 claim, plaintiffs must plausibly allege an agreement between Energizer 26 and Walmart. “A formal agreement is not necessary,” simply “a conscious commitment to a 27 common scheme designed to achieve an unlawful objective.” PLS.Com, LLC v. Nat’l Ass’n of 1 firm, even if it appears to restrain trade unreasonably, is not unlawful under section 1.” The 2 Jeanery, Inc. v. James Jeans, Inc., 849 F.2d 1148, 1152 (9th Cir. 1988) (cleaned up). An unlawful 3 agreement can be shown by “direct evidence.” In re Musical Instruments & Equip. Antitrust Litig., 4 798 F.3d 1186, 1193 (9th Cir. 2015). Alternatively, plaintiffs can plead “evidentiary facts” that 5 “provide a plausible basis” to “infer the alleged agreements’ existence.” Id. at 1193, 1194 n.6. 6 Here, the contours of the agreement plaintiffs ask the Court to infer existed between 7 Energizer and Walmart are simple: In exchange for preferential treatment at Walmart stores, 8 Energizer would charge wholesale prices that would keep other retailers from undercutting 9 Walmart. Plaintiffs do not offer direct evidence of this alleged agreement. Accordingly, the Court 10 must determine whether the evidentiary facts in the complaint “provide a plausible basis” to “infer 11 the alleged agreement[’s] existence.” Musical Instruments, 798 F.3d at 1193, 1194 n.6. 12 The first question is what level of factual detail Rule 8 requires in order for the Court to 13 infer an agreement under Section 1. Defendants suggest that the Ninth Circuit’s decision in 14 Kendall v. Visa U.S.A., Inc. requires plaintiffs to specifically plead “who, did what, to whom (or 15 with whom), where, and when.” Reply at 10 (quoting Kendall, 518 F.3d 1042, 1049 (2008)). On 16 this basis, they fault plaintiffs for, among other things, failing to identify the specific Walmart and 17 Energizer employees who entered the agreement or where the agreement was formed. Id. 18 But Kendall does not establish a heightened pleading standard applicable only to antitrust 19 conspiracy cases. Nor could it: The Supreme Court has repeatedly recognized that the same Rule 8 20 standard applies to antitrust and non-antitrust cases alike. See Iqbal, 556 U.S. at 677–80; Johnson 21 v. City of Shelby, 574 U.S. 10, 12 (2014). Kendall affirmed dismissal of a Section 1 claim because 22 the complaint “failed to plead evidentiary facts sufficient to establish a conspiracy.” 518 F.3d at 23 1045. In explaining that the complaint included “no alleged facts” to support its conclusion, the 24 Ninth Circuit emphasized that “the complaint does not answer the basic questions: who, did what, 25 to whom (or with whom), where, and when?” Id. at 1048. But the Ninth Circuit’s rejection of a 26 complaint that pleaded no evidentiary facts and answered none of these questions does not mean 27 that antitrust plaintiffs must answer all of these questions to state a claim. While such allegations 1 detail about an agreement in order to raise a reasonable inference that one exists. See also Musical 2 Instruments, 798 F.3d at 1194 n.7 (explaining that “circumstantial evidence” can “support the 3 reasonable inference of an agreement” and “take a complaint from merely possible to plausible”). 4 So what does Rule 8 require? Stating a Section 1 claim “requires a complaint with enough 5 factual matter (taken as true) to suggest that an agreement was made.” Bell Atl. Corp. v. Twombly, 6 550 U.S. 544, 556 (2007). “Asking for plausible grounds to infer an agreement does not impose a 7 probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable 8 expectation that discovery will reveal evidence of illegal agreement.” Id. “The crucial question is 9 whether the challenged anticompetitive conduct stems from independent decision or from an 10 agreement.” Id. at 553 (cleaned up). 11 Determining whether a particular action is the result of an agreement or an independent 12 decision requires the Court to consider the plausibility of various potential explanations. In 13 Kendall, the Ninth Circuit explained that “facts that could just as easily suggest rational, legal 14 business behavior by the defendants as they could suggest an illegal conspiracy are insufficient to 15 plead a violation of the antitrust laws.” 518 F.3d at 1049. But context is crucial. Many Section 1 16 cases—including Kendall, Twombly, and others cited by defendants—involve parallel conduct by 17 competitors. Competitors inherently face similar incentives, and “[e]ven conscious parallelism, a 18 common reaction of firms in a concentrated market that recognize their shared economic interests 19 and their interdependence with respect to price and output decisions, is not in itself unlawful.” 20 Twombly, 550 U.S. at 553–54 (cleaned up). As a result, when plaintiffs claim horizontal 21 conspiracy based on nothing more than parallel conduct, there is an obvious alternative 22 explanation that the defendants were merely “reacting to the same market pressures and taking 23 parallel action to serve their interests.” See In re DRAM Indirect Purchaser Antitrust Litigation, 28 24 F.4th 42, 53 (9th Cir. 2022). When a court considers whether such allegations “could just as easily 25 suggest rational, legal business behavior … as they could suggest an illegal conspiracy,” Kendall, 26 518 F.3d at 1049, this obvious alternative explanation tips the scales in favor of finding rational, 27 independent behavior. 1 But the evidentiary showing needed to raise a reasonable inference of conspiracy will be 2 different where (as here) the alleged conspirators are not competitors. Without the obvious 3 alternative explanation that alleged conspirators were independently responding to the same 4 incentives, it will be easier to show that actions more easily suggest conspiracy than rational 5 independent behavior. 6 With these pleading standards in mind, the Court considers plaintiffs’ allegations. Plaintiffs 7 essentially claim that Energizer let Walmart control the minimum retail prices for Energizer 8 products at all retailers. The complaints include Energizer documents showing that Energizer 9 calculated at least some wholesale prices based directly on Walmart’s retail prices, allegedly 10 aiming to ensure that retailers would ultimately match Walmart’s retail prices. See Compl. at 19, 11 Fig. 2. Does this suggest rational independent business behavior, or does it suggest an agreement? 12 Defendants point out that many of Energizer’s alleged actions are not inherently 13 impermissible because “businesses are free to choose the parties with whom they will deal, as well 14 as the prices, terms, and conditions of that dealing.” Pac. Bell Tel. Co. v. LinkLine Commc’ns, 15 Inc., 555 U.S. 438, 448 (2009). This freedom includes the right to set minimum retail prices and 16 rein in discounters: A “manufacturer has every right to set the price at which it wants its goods 17 resold and to terminate a dealer who undercuts that price.” The Jeanery, 849 F.2d at 1159. But 18 defendants’ argument misses the point. The question is not whether Energizer’s actions would be 19 legal if taken independently. The question is whether the actions support an inference that 20 Energizer was acting in accordance with an agreement. If they do, then that suffices to state a 21 claim, because the agreement itself can be illegal even if the actions taken to implement it 22 otherwise would not be. It is not enough for defendants to argue that Energizer could have legally 23 taken the alleged actions on its own; to defeat the plausible inference of an agreement, defendants 24 must show why Energizer would have taken those actions absent an agreement, and why this 25 explanation is stronger. 26 The Court concludes that Energizer’s alleged actions are more suggestive of an agreement 27 than rational independent business behavior. If Energizer was independently pursuing its own 1 the ultimate retail prices—thereby maximizing sales and ultimately its profits. Even if Energizer 2 decided it wanted to raise wholesale prices, the straightforward incentive would still be to keep 3 retail prices low to drive sales. Of course, a manufacturer might decide that it is in their interest to 4 set a uniform minimum retail price across all retailers. Such policies can help prevent intrabrand 5 competition among different sellers, for example. But even if Energizer did want to prevent 6 intrabrand competition among its retailers (which itself seems unlikely), preventing intrabrand 7 competition does not explain why Energizer would allow Walmart to set those minimum prices 8 instead of setting them itself. Indeed, Energizer allegedly told distributors that its pricing policies 9 did not reflect its own business interests but were instead “1000% about Walmart.” Compl. at 18. 10 It is of course possible that Energizer acted independently: Walmart is a major customer, 11 and Energizer may have thought that responding aggressively to Walmart’s complaints about price 12 competition would result in better treatment from Walmart. See, e.g., The Jeanery, 849 F.2d at 13 1154–55 (noting that competitors’ complaints about price-cutters have “probative value” but are 14 insufficient without “something more” to establish concerted action because complaints can be 15 “natural … reactions by distributors to the activities of their rivals”). But at the pleading stage, 16 plaintiffs need not disprove all other explanations. They simply need to provide “plausible 17 grounds to infer an agreement.” Twombly, 550 U.S. at 556. Even if it is conceivable that Energizer 18 might accept negative consequences because it expected benefits from a major customer, the more 19 plausible inference is that the two businesses had a shared understanding of the mutual benefits 20 their coordinated conduct would create. 21 Here, plaintiffs have alleged that Energizer and Walmart had an agreement. They have 22 pleaded facts showing how both Energizer and Walmart stood to benefit from the alleged 23 agreement. They have outlined actions by Energizer and Walmart that are clearly consistent with 24 the alleged agreement. And they have suggested multiple ways in which Energizer’s conduct 25 would be inconsistent with its own interests absent the alleged agreement.5 Taken together, these 26 5 Plaintiffs do not need to specifically plead that Energizer acted against its self-interest, as 27 defendants argue. See Reply at 14. Rather, they must simply plead facts that are more plausibly 1 nonconclusory allegations place Energizer’s conduct “in a context that raises a suggestion of a 2 preceding agreement.” Musical Instruments, 798 F.3d at 1194. The allegations appear more 3 consistent with an agreement than with rational business decisions by Energizer. See Kendall, 518 4 F.3d at 1049. They provide a plausible basis for the Court to reasonably infer that the agreement 5 existed and therefore sufficiently allege an agreement for purposes of plaintiffs’ Section 1 claim. 6 2. Plaintiffs Plausibly Allege that the Agreement Is Unreasonable. 7 “Section 1 … has been interpreted as outlawing only unreasonable restraints of trade.” In re 8 Nat’l Football League’s Sunday Ticket Antitrust Litig., 933 F.3d 1136, 1149 (9th Cir. 2019) (cleaned 9 up). Courts generally “determine whether a particular restraint of trade is unreasonable and thus a 10 violation of Section 1 under the so-called ‘rule of reason.’” Id. at 1150. But “[a] small group of 11 restraints are unreasonable per se because they always or almost always tend to restrict competition 12 and decrease output.” Ohio v. Am. Express Co., 138 S. Ct. 2274, 2283–84 (2018) (cleaned up). 13 “Typically only ‘horizontal’ restraints—restraints imposed by agreement between 14 competitors—qualify as unreasonable per se.” Id. Plaintiffs do not allege such a restraint, and 15 instead focus on an alleged vertical agreement—one between entities “up and down a supply chain, 16 such as between a manufacturer and a retailer.” Musical Instruments, 798 F.3d at 1191. Their claims 17 are therefore “analyzed under the rule of reason.” Id.6 18 Courts analyze rule of reason claims with a burden-shifting framework that has three steps. 19 First, the plaintiff must “prove that the challenged restraint has a substantial anticompetitive effect 20 that harms consumers in the relevant market.” PLS.Com, 32 F.4th at 834 (quoting Amex, 138 S. Ct. 21 at 2284). Next, the defendant must “show a procompetitive rationale for the restraint.” Id. “If the 22 defendant makes this showing, then the burden shifts back to the plaintiff to demonstrate that the 23 procompetitive efficiencies could be reasonably achieved through less anticompetitive means.” Id. 24 25 6 Plaintiffs briefly invoke the per se rule by arguing that Walmart, as a retailer, “competed directly 26 and horizontally with Energizer by offering its own private label brand of disposable batteries.” Compl. at 30. This conclusory allegation, however, is not accompanied with any evidentiary facts 27 demonstrating such competition. The complaints contain no allegation that Walmart manufactured 1 At the pleading stage, plaintiffs need only clear the first hurdle and plausibly allege that the 2 restraint substantially impairs competition in the relevant market in a way that harms consumers. A 3 “threshold step … is to accurately define the relevant market.” FTC v. Qualcomm Inc., 969 F.3d 4 974, 992 (9th Cir. 2020). The plaintiff must then plead facts showing substantial harm to competition 5 in that market. “A plaintiff can establish a substantial anticompetitive effect for purposes of the first 6 step of the rule of reason analysis either directly or indirectly.” PLS.Com, 32 F.4th at 824. 7 a. Relevant Market 8 Because plaintiffs allege a vertical restraint, they must define the relevant market 9 regardless of whether they attempt to establish anticompetitive effects through direct or indirect 10 proof. See Amex, 138 S. Ct. at 2285 n.7; cf. PLS.Com, 32 F.4th at 838 & n.7 (“A plaintiff is not 11 required to define a particular market … for a rule of reason claim based on evidence of the actual 12 anticompetitive impact of [a] … horizontal restraint.”). 13 “A relevant market contains both a geographic component and a product … component,” 14 and “comprises any grouping of sales whose sellers, if unified by a monopolist or a hypothetical 15 cartel, could profitably raise prices above a competitive level.” Epic Games, 67 F.4th at 975 16 (cleaned up). Any producers whose sales could “could substantially constrain the price-increasing 17 ability of the monopolist or hypothetical cartel … must be included in the market.” Id. (cleaned 18 up). This inquiry depends on whether products are reasonably interchangeable—i.e., whether the 19 products have a sufficient cross-elasticity of demand. 20 Plaintiffs assert that the relevant market is the nationwide market for disposable battery 21 products. Compl. at 22. Disposable batteries, according to the complaint, are a standardized product 22 for which there are no reasonable substitutes. Id. at 10, 22. Plaintiffs allege that there are significant 23 barriers to entry because of the critical minerals used to produce these batteries, safety concerns and 24 regulations, high capital costs of manufacturing facilities, and ad spending by incumbents. Id. at 11, 25 31. Defendants challenge whether plaintiffs have adequately established harm in this market, but 26 they do not take direct issue with plaintiffs’ proposed market definition. Accordingly, at the pleading 27 stage, the Court will accept plaintiffs’ market definition and focus its analysis on whether plaintiffs 1 b. Direct Evidence of Effects on Competition 2 “To prove a substantial anticompetitive effect directly, the plaintiff must provide proof of 3 actual detrimental effects on competition such as reduced output, increased prices, or decreased 4 quality in the relevant market.” PLS.Com, 32 F.4th at 834 (cleaned up). 5 Plaintiffs plead evidentiary facts asserting price increases at several levels of the market. 6 First, they claim that as early as 2018 Energizer imposed “widespread wholesale price increases 7 for direct purchasers other than Walmart,” including an 8% price increase for some of its products 8 in 2019, a 10% increase across all products in September and October 2020, another 10% increase 9 for some product lines in April 2021, and an 11% increase for all household batteries in June 10 2021. Compl. at 16–17. Next, plaintiffs assert that Walmart increased retail prices for Energizer 11 batteries by an even greater margin. Id. They allege, for example, that Walmart increased retail 12 prices for certain Energizer batteries by 20% in late 2019 and 40% in early 2020. Id. Finally, they 13 plead evidentiary facts suggesting that retail prices for Duracell batteries were also affected, with 14 overall retail prices for batteries increasing 8.2% from 2017 to 2018. Id. at 20. In short, while 15 plaintiffs allege that the agreement pertained only to Energizer wholesale prices, they allege that 16 its effects extended not only to Energizer’s wholesale prices and to retail prices for Energizer 17 batteries at Walmart and other retailers but also to retail prices for other manufacturers’ batteries.7 18 Of course, plaintiffs will eventually have to prove that these direct effects resulted from the 19 alleged agreement. But at the pleading stage, plaintiffs are only required to “sketch the outline of 20 the injury to competition with allegations of supporting factual detail” that are enough to “raise a 21 reasonable expectation that discovery will reveal evidence of an injury to competition.” Brantley 22 v. NBC Universal, Inc., 675 F.3d 1192, 1198 (9th Cir. 2012) (cleaned up). This they have done. 23 24 25 26 27 7 Because plaintiffs have adequately alleged harm to both inter- and intrabrand competition, the 1 c. Indirect Evidence of Effects on Competition 2 “To prove a substantial anticompetitive effect indirectly, a plaintiff must show that the 3 defendants have market power in the relevant market and that the challenged restraint harms 4 competition.” PLS.Com, 32 F.4th at 834 (quoting Amex, 138 S. Ct. at 2284). 5 “Market power is the ability for a defendant to profitably raise prices” and “is generally 6 inferred from the defendant’s possession of a high market share and the existence of significant 7 barriers to entry.” Epic Games, 67 F.4th at 983 (cleaned up). “The existence of market power … 8 casts an anticompetitive shadow over a party’s practices in a rule-of-reason case.” Hahn v. Oregon 9 Physicians’ Serv., 868 F.2d 1022, 1026 (9th Cir. 1988). 10 Because there are two defendants here, a threshold question is which of them must possess 11 market power and how this power should be measured in evaluating their combined actions. 12 Plaintiffs assert that Energizer had around 40% of the U.S. market for disposable batteries in 13 January 2018 and that this market share has since grown to above 50%. Compl. at 23. They also 14 assert that at the retail level for disposable battery products, “there is a single dominant firm, 15 Walmart.” Compl. at 12. They do not assign a particular share of this market to Walmart, although 16 they do allege that Walmart accounted for 14.1% of Energizer’s annual sales in fiscal year 2020 17 and that “Walmart has market power in many local ‘brick and mortar’ retail markets.” Id.at 12, 31. 18 Pointing to the Supreme Court’s decision in Leegin Creative Leader Products, Inc. v. 19 PSKS, Inc., 551 U.S. 877 (2007), defendants argue that plaintiffs’ theory of market harm “fails 20 because it depends on Walmart having market power in the retail market for sales of batteries— 21 which Plaintiffs do not, and cannot, allege with any facts.” Motion at 29. Under defendants’ 22 interpretation of Leegin, an agreement cannot harm competition unless the purported source of the 23 restraint (here, Walmart) has market power. Reply at 31. 24 Leegin does not support defendants’ arguments. In Leegin, a manufacturer had a retail 25 pricing policy under which it refused to sell goods to retailers that discounted its products below 26 suggested prices. 551 U.S. at 882. After one retailer refused to stop discounting the manufacturer’s 27 products, the manufacturer stopped selling to that retailer. Overruling its previous precedent, the 1 than a per se prohibition, reasoning that retail price maintenance agreements might benefit as well 2 as harm competition. See id. at 882–907. In so holding, the Supreme Court explained: 3 [T]hat a dominant manufacturer or retailer can abuse resale price 4 maintenance for anticompetitive purposes may not be a serious concern unless the relevant entity has market power. If a retailer lacks 5 market power, manufacturers likely can sell their goods through rival retailers. And if a manufacturer lacks market power, there is less 6 likelihood it can use the practice to keep competitors away from distribution outlets. 7 8 Id. at 898 (cleaned up). 9 Defendants argue that under the reasoning in this part of the Leegin opinion, the restraint 10 plaintiffs allege cannot harm competition if Walmart does not have market power. See Reply at 11 31. But the structure of the agreement plaintiffs allege is distinct from standard retail price 12 maintenance agreements like the one considered in Leegin where a dominant manufacturer sets 13 prices for all retailers. Plaintiffs allege that Walmart (the retailer) was given the ability to control 14 its competitors’ retail prices by virtue of Energizer’s market power. Even assuming Walmart lacks 15 market power, under the agreement as alleged Energizer cannot freely sell its goods through rival 16 retailers at retail prices lower than Walmart’s. Accordingly, the “relevant entity” here is not solely 17 Walmart, but rather the combination of Energizer and Walmart. 18 Defendants also ignore Leegin’s relevant cautions. In the paragraph before the one they 19 cite, for example, the Supreme Court counseled that the “source of the restraint may also be an 20 important consideration” and that if “retailers were the impetus for a vertical price restraint, there 21 is a greater likelihood that the restraint facilitates a retailer cartel or supports a dominant, 22 inefficient retailer.” 551 U.S. at 897–98. Leegin also warned that “[r]esale price maintenance 23 should be subject to more careful scrutiny” if the agreements “cover the bulk of an industry’s 24 output.” Id. at 897 (quoting F. Scherer & D. Ross, Industrial Market Structure and Economic 25 Performance 558 (3d ed.1990)). Plaintiffs allege that both of these conditions are present here. 26 In considering defendants’ market power, what ultimately matters are the details of the 27 specific alleged agreement and its effect on the relevant market. Plaintiffs’ allegations are enough 1 market power, it was able to exercise influence over Energizer in a manner that effectively 2 delegated Energizer’s market power to Walmart and gave Walmart the ability to set retail prices 3 and increase wholesale prices for Energizer products. This is in addition to Walmart’s obvious 4 ability to control the retail prices of all battery products at its own stores. 5 In short, under terms of the agreement as alleged, Walmart was given the ability to 6 exercise the combined market power possessed by both Walmart and Energizer within the 7 wholesale and retail markets for disposable battery products. These allegations plausibly suggest 8 that defendants, together, exercised sufficient market power to support a finding of substantial 9 anticompetitive effects via indirect evidence. 10 The next question is whether plaintiffs have adequately alleged that defendants used this 11 market power to harm competition. “This inquiry need not always be extensive or highly 12 technical. It is sufficient that the plaintiff prove the defendant’s conduct, as matter of economic 13 theory, harms competition.” Epic Games, 67 F.4th at 983–84 (cleaned up). An agreement that 14 prevents retailers from selling products below a certain price harms competition in one of the 15 simplest ways possible: by preventing retailers from competing on the basis of price to increase 16 sales. Plaintiffs also argue that their direct evidence of anticompetitive effects—the price increases 17 discussed above—are sufficient to establish harm to competition. Opp. at 44. The Court agrees. 18 Defendants raise several counterarguments that focus on hypothetical actions Energizer 19 could take on its own, without an agreement with Walmart, that would be similar to the actions 20 taken pursuant to the alleged agreement. They assert that Energizer’s “alleged actions—raising 21 wholesale prices and monitoring retail prices of its distribution network—are things Energizer can 22 do on its own, without the aid of Walmart,” and that as a result, “there is no incremental restraint 23 on competition from the alleged scheme that goes beyond what Energizer can lawfully do on its 24 own.” Reply at 30. They also argue that because Energizer distributes a trademarked product, 25 Energizer could permissibly “enter into an exclusive agreement with a single retailer to distribute 26 its products without unreasonably harming competition,” and it therefore follows that Energizer 27 “can agree with a single retailer to provide it the best wholesale pricing available,” effectively a 1 These arguments fail. First, that a business can take certain actions independently without 2 violating the Sherman Act does not necessarily establish that such actions do not harm 3 competition. It simply reflects that Section 1 does not apply to unilateral conduct at all, regardless 4 of its effect on competition. See Fisher v. City of Berkeley, 475 U.S. 260, 266 (1986). 5 Second, Defendants understate the substance of plaintiffs’ allegations. Plaintiffs assert not 6 just that Energizer raised wholesale prices and monitored retail prices, but that Energizer raised 7 wholesale prices to force other retailers who undercut Walmart to raise their prices. They assert 8 not that Energizer promised Walmart its most favorable wholesale prices, but that it effectively 9 delegated to Walmart substantial (if indirect) control of the wholesale prices Energizer charged to 10 other retailers. And they assert that these coordinated actions resulted in price increases across the 11 relevant market. Because the rule-of-reason analysis must always be tailored to the specific facts 12 of each case, the question here is not whether similar conduct in other situations might be 13 undertaken without harming the market, but whether the specific alleged conduct in this case has 14 plausibly been alleged to harm competition. For the reasons set forth herein, Plaintiffs have 15 satisfied that burden. 16 To be certain, as defendants emphasize, the Supreme Court has held that vertical price 17 restraints and other vertical restraints are sometimes justified and can stimulate competition. See 18 Leegin, 551 U.S. at 890. Defendants will have an opportunity to demonstrate procompetitive 19 rationales for the alleged restraints at a later stage of these proceedings. But the Supreme Court 20 has also counseled that vertical pricing agreements can create “economic dangers” in addition to 21 their potential benefits, and that courts must therefore “be diligent in eliminating their 22 anticompetitive uses from the market.” Id. at 897. Determining whether the alleged agreement 23 between Energizer and Walmart can ultimately be justified by benefits to competition that 24 outweigh any harm will be a complex and fact-specific inquiry. At the pleading stage, plaintiffs 25 have done enough to allow their claims to move forward. 26 3. All Three Sets of Plaintiffs Have Antitrust Standing. 27 “To plead a Sherman Act claim, a private plaintiff must show that it is a proper party to 1 Raiders, 20 F.4th 441, 448 (9th Cir. 2021). Defendants do not argue that the non-Walmart retailers 2 like Portable Power who purchased Energizer batteries from Energizer at allegedly inflated 3 wholesale prices lack antitrust standing, nor do they argue that customers such as Mr. Copeland 4 who purchased Energizer batteries from those sellers at correspondingly inflated retail prices lack 5 antitrust standing to pursue injunctive relief. Instead, they challenge the antitrust standing of only 6 the Schuman plaintiffs, who purchased Energizer and Duracell batteries directly from Walmart. 7 Defendants assert that these Walmart customer plaintiffs “did not pay any price that is alleged to 8 have been inflated by the claimed conspiracy,” and that the “chain of causation” for this injury is 9 “too indirect and speculative to be actionable under the antitrust laws.” Motion at 37. 10 Courts balance several factors to determine whether a plaintiff has antitrust standing, 11 including: “(1) the nature of the plaintiff’s alleged injury; that is, whether it was the type the 12 antitrust laws were intended to forestall; (2) the directness of the injury; (3) the speculative 13 measure of the harm; (4) the risk of duplicative recovery; and (5) the complexity in apportioning 14 damages.” Oakland Raiders, 20 F.4th at 455. 15 The first factor, whether the injury is of a type the antitrust laws were intended to forestall 16 (i.e., whether the plaintiff suffered an “antitrust injury”), “is mandatory.” Oakland Raiders, 20 17 F.4th at 456. There are “four requirements for antitrust injury: (1) unlawful conduct, (2) causing an 18 injury to the plaintiff, (3) that flows from that which makes the conduct unlawful, and (4) that is of 19 the type the antitrust laws were intended to prevent.” Id. Here, the Walmart customer plaintiffs 20 have alleged unlawful conduct as discussed above. They have also alleged an injury: that they paid 21 inflated prices. They also assert that this injury flows from the unreasonable (and therefore 22 unlawful) aspects of the agreement: its restraint of prices. Finally, the injury they allege— 23 consumers being forced to pay higher prices—is exactly the sort the antitrust laws aim to prevent. 24 The Walmart customers have thus alleged the type of injury needed to state a Sherman Act claim. 25 The second factor is the directness of the injury. “This factor focuses on the chain of 26 causation between the plaintiff’s injury and the alleged restraint of trade. The harm may not be 27 derivative and indirect or secondary, consequential, or remote.” Oakland Raiders, 20 F.4th at 458. 1 raise its own retail prices for disposable battery products. But they do allege that the agreement, by 2 protecting Walmart from retail price competition, “allowed Walmart to raise the prices it charged 3 at retail” for both Energizer and Duracell products. Schuman Compl. at 18 (emphasis added). Even 4 if raising Walmart’s retail prices was not a term of the agreement as alleged, it is obvious how it 5 could be a direct, foreseeable result of the agreement. And because the complaint challenges 6 Walmart’s pricing of Duracell products, it does not necessarily require, as defendants argue, a 7 separate inquiry into Duracell’s own pricing practices. See Motion at 39–40. There is therefore a 8 sufficiently direct chain of causation between the alleged restraint and the Schuman plaintiffs’ 9 alleged injury. 10 The third factor is whether the “damages are only speculative.” Oakland Raiders, 20 F.4th 11 at 460. Here, the Walmart customers’ alleged damages are not speculative. First, as discussed 12 above, they flow directly from the alleged agreement. Second, while defendants argue that “many 13 factors—such as raw material pricing and availability, shipping and distribution costs, and 14 changes in demand or business strategy, or macroeconomic factors like inflation—can influence 15 price,” Motion at 28, plaintiffs plausibly argue that defendants’ price increases went beyond what 16 would be justified by these other factors. Moreover, many of these factors are quantifiable based 17 on information that is either publicly available or within defendants’ control. That damages may 18 be complex to measure does not mean they are speculative. See Am. Ad. Mgmt., 190 F.3d at 1059. 19 Assuming defendants entered into the alleged agreement and increased prices accordingly, as 20 plaintiffs have plausibly alleged, it is fairly certain that Walmart customers will have been injured. 21 How much is a harder question for a later day, but the existence of that harm is not speculative. 22 Finally, defendants argue that the remaining factors overlap with the indirectness inquiry, 23 but they do not specifically argue that there is a significant risk of duplicative recovery or 24 insurmountable complexity in apportioning damages. 25 On balance, considering all five factors, the Court concludes that the Schuman plaintiffs 26 have adequately pleaded antitrust standing. Because all three sets of plaintiffs have adequately 27 pleaded their Sherman Act claims, defendants’ motion to dismiss those claims is denied. 1 B. Plaintiffs Have Adequately Pleaded Their State Law Claims. 2 In addition to their federal claims, the Copeland plaintiffs also bring twenty-seven state 3 antitrust claims8 and seventeen state consumer protection claims.9 They assert that the essential 4 elements for each of the state antitrust claims are the same, and that the same alleged conduct they 5 say violates the Sherman Act also establishes each of the state antitrust claims. They also assert 6 that the alleged conduct constitutes unfair competition, unconscionable conduct, and deceptive 7 acts and practices in violation of state consumer protection laws. The Portable Power and 8 Schuman plaintiffs assert claims under California’s Cartwright Act and Unfair Competition Law 9 in addition to their Sherman Act claims. 10 Defendants argue that the Copeland plaintiffs do not have standing to assert claims under 11 the laws of states where none of the named plaintiffs resided or purchased products, and that the 12 state antitrust and consumer protection claims fail for the same reasons the Sherman Act claims 13 fail. For the reasons that follow the Court rejects each of these arguments and denies defendants’ 14 motion to dismiss plaintiffs’ state law claims. 15 1. Plaintiffs Have Article III Standing To Pursue Their State Law Claims. 16 Defendants first argue that the Copeland plaintiffs lack Article III standing to pursue class 17 claims under the laws of states where they do not live and have not made relevant purchases. But 18 whether an out-of-state plaintiff can pursue claims under the law of a particular state presents a 19 merits question, not a question of Article III standing. “While a plaintiff’s likelihood of procuring 20 a favorable decision may be minimal where the plaintiff cannot assert claims under the laws at 21 issue, that inquiry goes to the merits of the plaintiff’s claim, not to the existence of an Article III 22 ‘Case’ or ‘Controversy.’ As the Supreme Court has explained, ‘the absence of a valid ... cause of 23 24 8 These include the antitrust laws of Arizona, California, Connecticut, the District of Columbia, Illinois, Iowa, Kansas, Maine, Maryland, Michigan, Minnesota, Mississippi, Nebraska, Nevada, 25 New Hampshire, New Mexico, New York, North Carolina, North Dakota, Oregon, Puerto Rico, Rhode Island, South Dakota, Tennessee, Utah, West Virginia, and Wisconsin. 26 9 These include the consumer protection laws of California, the District of Columbia, Florida, 27 Hawaiʻi, Idaho, Massachusetts, Missouri, Montana, Nebraska, Nevada, New Hampshire, New 1 action does not implicate subject-matter jurisdiction, i.e., the courts’ statutory or constitutional 2 || power to adjudicate the case.’” Urban vy. Tesla, Inc.,__ F. Supp. 3d __, No. 22-CV-07703-PCP, 3 2023 WL 6796021, at *2 (N.D. Cal. Oct. 13, 2023) (quoting Steel Co. v. Citizens for a Better 4 Environment, 523 U.S. 83, 89 (1998)). Because Defendants moved solely under Rule 12(b)(1), the 5 Court denies Defendants’ motion to dismiss all Copeland claims arising under the laws of states 6 || where no named plaintiff lives or purchased batteries.'° 7 2. Plaintiffs Have Adequately Pleaded State Antitrust Claims. 8 Defendants argue that the state antitrust claims fail for the same reason as the federal 9 claims, and do not offer any independent reasons for dismissing the state antitrust claims. Because 10 || the Court has concluded that all three sets of plaintiffs have adequately pleaded Sherman Act 11 claims, defendants’ motion to dismiss the corresponding state antitrust claims is denied. 12 3. Plaintiffs Have Adequately Pleaded State Consumer Protection Claims. 13 Defendants also argue that the state consumer protection claims fail because they are 14 || predicated on the same conduct that underlies the Sherman Act claims. As with the state antitrust 3 15 claims, defendants offer no independent reasons for dismissing the state consumer protection 16 || claims. The motion to dismiss the state consumer protection claims is therefore also denied. 2 17 || IV. Conclusion Z 18 Defendants’ motion to dismiss is denied. Pursuant to the parties’ stipulation and the 19 || Court’s September 18, 2023 order, the stay on discovery and disclosures in these cases is lifted. 20 21 IT IS SO ORDERED. 22 || Dated: February 9, 2024 Cy Qo 23 , P. Casey Pitts United States District Judge 25 26 ‘0 Courts in this district and circuit are divided on the propriety of dismissing at the pleading stage 07 claims arising under the laws of states where no named plaintiff lived or was harmed. See, e.g., In re JUUL Labs, Inc., Mktg., Sales Practices, & Products Liab. Litig., 533 F. Supp. 3d 858, 881 28 (N.D. Cal. 2021) (summarizing split). Because defendants moved solely under Rule 12(b)(1), the Court need not take a position on the issue at this time.