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THOMAS P. BROWN (SB# 182916) tombrown@paulhastings.com SAMUEL C. ZUN (SB# 264930) samuelzun@paulhastings.com EMILY DODDS POWELL (SB# 274488) emilypowell@paulhastings.com PAUL HASTINGS LLP 55 Second Street Twenty-Fourth Floor San Francisco, CA 94105-3441 Telephone: 1(415) 856-7000 Facsimile: 1(415) 856-7100 Attorneys for Defendant eBay Inc. UNITED STATES DISTRICT COURT

10 NORTHERN DISTRICT OF CALIFORNIA 11 SAN JOSE DIVISION 12 13 UNITED STATES OF AMERICA, 14 Plaintiff, 15 v. 16 EBAY INC., 17 Defendant. 18 19 20 21 22 23 24 25 26 27 28
Case No. CV12-5869-EJD-PSG MOTION TO DISMISS

CASE NO. CV12-5869-EJD-PSG DEFENDANTS NOTICE OF MOTION, MOTION TO DISMISS THE COMPLAINT PURSUANT TO FRCP 12(B)(6), AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF Date: Time: Courtroom: Judge: April 26, 2013 9:00 a.m. Courtroom 4, 5th Floor Edward J. Davila

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 VI. 23 24 25 26 27 28 I. II. III. IV. V.

TABLE OF CONTENTS Page STATEMENT OF ISSUES TO BE DECIDED ................................................................. 1 INTRODUCTION .............................................................................................................. 1 FACTUAL BACKGROUND ............................................................................................. 3 LEGAL STANDARD ......................................................................................................... 5 THE COMPLAINT FAILS TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED ................................................................................................................... 6 A. The Complaint Fails To State A Claim Because A Section One Conspiracy Cannot Arise Where The Participants Share A Unity Of Purpose.......................... 6 1. A Section One Conspiracy Cannot Arise Among Alleged Conspirators That, Like eBays Officers and Directors, Share A Unity Of Purpose ........................................................................................ 7 2. The Complaint Challenges An Alleged Decision Made By A Group Of People Who By Virtue Of Their Roles As Officers And Directors Of eBay Had A Unity Of Purpose............................................... 8 3. The Complaint Threatens To Create A Conflict Between Section One Of The Sherman Act And Section Eight Of The Clayton Act, The Antitrust Statute That Governs Shared Directors And Senior Officers...................................................................................................... 11 B. The Complaint Does Not Allege Facts That, Even If Assumed True, Would Support A Conclusion That The Challenged Conduct Harmed Competition ....... 13 1. The DOJ Cannot Avoid Its Obligation To Establish That The Alleged Agreement Unreasonably Restrained Trade Simply By Labeling It Per Se Unlawful ...................................................................... 15 2. No Court Has Found An Antitrust Violation Based On An Agreement Regarding Hiring Practices Without Considering Facts Regarding Market Power And The Effect Of The Alleged Restraint On the Market ........................................................................................... 17 3. A Quick Look Analysis Is Inappropriate In This Case ......................... 20 4. The DOJs Remedies in Related Consent Decrees Demonstrate The Inconsistencies Created By Presuming Illegality Simply From The Existence Of An Agreement Between Firms Regarding Hiring Practices .................................................................................................... 22 CONCLUSION ................................................................................................................. 25

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MOTION TO DISMISS

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TABLE OF AUTHORITIES Page(s) Adaptive Power Solutions, LLC v. Hughes Missile Sys. Co., 141 F.3d 947 (9th Cir. 1998)................................................................................................... 14 Anderson v. Shipowners Association of the Pacific, 272 U.S. 359 (1926) ................................................................................................................ 20 Aronson v. Lewis, 473 A.2d 805 (Del. 1984) ......................................................................................................... 9 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................................................ 5, 19 Aydin Corp. v. Loral Corp., 718 F.2d 897 (9th Cir. 1983)............................................................................................. 19, 20 Bell Atl. Bus. Sys. Servs. v. Hitachi Data Sys. Corp., 849 F. Supp. 702 (N.D. Cal. 1994) ........................................................................................... 8 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .............................................................................................................. 5, 6 Board of Trade of the City of Chicago v. United States, 246 U.S. 231 (1918) ................................................................................................................ 14 Bogan v. Hodgkins, 166 F.3d 509 (2d Cir. 1999) .............................................................................................. 17, 18 Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. (BMI), 441 U.S. 1 (1979) .............................................................................................................. 16, 24 Cal. Dental Assn v. FTC, 526 U.S. 756 (1999) ................................................................................................................ 21 Century Oil Tool v. Prod. Specialties, 737 F.2d 1316 (5th Cir. 1984)................................................................................................... 8 Cesnik v. Chrysler Corp., 490 F. Supp. 859 (M.D. Tenn. 1980) ...................................................................................... 24 Coleman v. Gen. Elec. Co., 643 F. Supp. 1229 (E.D. Tenn. 1986) ..................................................................................... 24 Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) ............................................................................................................ 15, 16

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TABLE OF AUTHORITIES (continued) Page(s) Cooper v. Pickett, 137 F.3d 616 (9th Cir. 1997)..................................................................................................... 4 Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984) .................................................................................................. 1, 6, 7, 8, 9 Directory Sales Mgmt. Corp. v. Ohio Bell Tel. Co., 833 F.2d 606 (6th Cir. 1987)..................................................................................................... 8 Eichorn v. AT&T Corp., 248 F.3d 131 (3d Cir. 2007) .............................................................................................. 19, 24 FTC v. Ind. Fedn of Dentists, 476 U.S. 447 (1986) ................................................................................................................ 21 In re High-Tech Employee Antitrust Litig., 856 F. Supp. 2d 1103 (2012)................................................................................................... 17 Kendall v. Visa U.S.A., Inc., 518 F.3d 1042 (9th Cir. 2008)................................................................................................. 14 Krzalic v. Republic Title Co., 314 F.3d 875 (7th Cir. 2002) .................................................................................................. 13 Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) .......................................................................................................... 15, 16 Moss v. U.S. Secret Serv., 572 F.3d 962 (9th Cir. 2009)..................................................................................................... 6 N. Pac. Ry. Co. v. United States, 356 U.S. 1 (1958) .................................................................................................................... 16 Natl Collegiate Athletic Assn v. Bd. Of Regents of Univ. of Okla. (NCAA), 468 U.S. 85 (1984) ..................................................................................... 9, 17, 21 Natl Socy of Profl Engrs v. United States, 435 U.S. 679 (1978) ................................................................................................................ 21 Nichols v. Spencer International Press, Inc., 371 F.2d 332 (7th Cir. 1967)................................................................................................... 19 Polygram Holding, Inc. v. FTC, 416 F.3d 29 (D.C. Cir. 2005) .................................................................................................. 21

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MOTION TO DISMISS

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TABLE OF AUTHORITIES (continued) Page(s) Pool Water Prods. v. Olin Corp., 258 F.3d 1024 (9th Cir. 2001)................................................................................................. 17 Quinonez v. National Association of Securities Dealers, Inc., 540 F.2d 824 (5th Cir. 1976)................................................................................................... 19 Rebel Oil, Inc. v. Atl. Richfield Co., 51 F.3d 1421 (9th Cir. 1995)................................................................................................... 10 Siegel Transfer v. Carrier Express, 54 F.3d 1125 (3d Cir. 1995) ...................................................................................................... 8 State Oil Co. v. Khan, 522 U.S. 3 (1997) .................................................................................................................... 15 Texaco Inc. v. Dagher, 547 U.S. 1 (2006) .................................................................................................................... 14 Union Circulation Co. v. FTC, 241 F.2d 652 (2d Cir. 1957) .................................................................................................... 18 United States v. Brown, 936 F.2d 1042 (9th Cir. 1991)................................................................................................. 20 United States v. Cooperative Theatres of Ohio, Inc., 845 F.2d 1367 (6th Cir. 1988)................................................................................................. 20 United States v. Lucasfilm Ltd., No. 1:10-cv-02220 (D.D.C. June 3, 2011) .............................................................................. 23

15 U.S.C. 1 .............................................................................................................................................. 7 19(a)(1)(2) .................................................................................................................... 11, 12 19(a)(1)(B) ........................................................................................................................... 11 Del. Code Ann. Tit. 8 141(a)........................................................................................................ 9

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TABLE OF AUTHORITIES (continued) Page(s)

ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS (7th ed. 2012) ........... 12, 16 Benjamin M. Gerber, Enabling Interlock Benefits While Preventing Anticompetitive Harm: Toward An Optimal Definition of Competitors Under Section 8 Of The Clayton Act, 24 YALE J. ON REG. 107 (2007) ....................................................................................... 12 Brian R. Henry & Joseph M. Miller, Sorry, We Cant Hire You . . . We Promised Not To: The Antitrust Implications of Entering Into No-Hire Agreements, 11 ANTITRUST 39 (Fall 1996) .......................................................................................................................... 23 Brief for the United States as Amicus Curiae Supporting Petitioner, Am. Needle, Inc. v. Natl Football League, No. 08-661, 2009 WL 3070863 (Sept. 25, 2009) ............................................................. 14, 24 H.R. Rep. 101-483 (1990) ............................................................................................................. 13 David K. Haase and Darren M. Mungerson, Agreements Between Employers Not to Hire Each Others Employees: When Are They Enforceable?, 21 LAB. LAW. 277 (2006) ............ 23 Mark S. Mizruchi, What Do Interlocks Do? An Analysis, Critique, and Assessment of Research on Interlocking Directorates, 22 ANN. REV. SOC. 271 (1996) ................................ 12 Michael Boudin, Acting Assistant Attorney General, Antitrust Div., U.S. Dept. of Justice, Statement before the House Committee on the Judiciary (June 15, 1989) ............................. 13 Thomas G. Krattenmaker, Situating Realcomp in the Sweep of Antitrust Law and Policy, 11 U.C. DAVIS BUS. L.J. 361 (2011) ....................................................................................... 10

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NOTICE OF MOTION AND MOTION TO DISMISS TO PLAINTIFF AND ITS ATTORNEYS OF RECORD: PLEASE TAKE NOTICE that on April 26, 2013, at 9:00 a.m., or as soon thereafter as this matter may be heard in Courtroom 4, 5th Floor, of the United States District Court, Northern District of California, located at 280 South 1st Street, San Jose, California, the Honorable Edward J. Davila presiding, Defendant eBay Inc. will and hereby does move this Court for an order dismissing the Complaint without leave to amend pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim upon which relief can be granted. This motion is based on this Notice of Motion and Motion, the accompanying Memorandum of Points and Authorities in support thereof, the Declaration of Thomas P. Brown in support thereof, any Reply Memorandum, the pleadings and files in this action, and such arguments and authorities as may be presented at or before the hearing.

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MEMORANDUM OF POINTS AND AUTHORITIES STATEMENT OF ISSUES TO BE DECIDED Defendant eBay Inc. (eBay) moves to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on the following grounds: 1. The Complaint fails to state a claim upon which relief may be granted under the

Sherman Act because it fails to allege an actionable conspiracy. 2. The Complaint fails to state a claim upon which relief may be granted under the

Sherman Act because it fails to allege harm to competition. II. INTRODUCTION Section One of the Sherman Act does not exist to micromanage the interaction between the officers and directors of a public company. It exists to protect consumers from concerted action among true rivals that suppresses demand without offering any offsetting benefits. By this standard, even assuming the truth of the allegations in the Complaint, eBay did nothing wrong, and the Complaint should be dismissed for failure to state a claim. The Complaint does not allege a conspiracy actionable under Section One. All of the people mentioned by name in the Complaint served as officers and/or Directors of eBay. Under the Supreme Courts decision in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), as a matter of law the people named in the Complaint are incapable of conspiring with one another. For purposes of setting eBay policy on recruiting and hiring, their collective decision is eBays decision. Moreover, the effort to force this case into a Section One paradigm creates an unnecessary conflict with Section Eight of the Clayton Act. Section Eight embodies an express Congressional judgment that people can serve on the boards of two companies so long as those companies are not close competitors. The Complaint seeks to overturn this Congressional judgment. It turns an individual, Mr. Scott Cook, who was lawfully serving on the board of two companies, eBay Inc. and Intuit Inc., into the conduit for the creation of a conspiracy between those companies. The Department of Justices (DOJ) action, if successful, would render Section Eight a dead letter

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and make it difficult for companies to find people of sufficient talent, experience and integrity to staff their boards. Even assuming that the challenged actions fall within the scope of Section One, the action still fails as a matter of law. The Complaint does not identify even a single person who was harmed by eBays alleged actions, and concedes that eBays conduct may not have affected anyone. Although this concession necessarily means that eBays conduct could not have affected competition in any cognizable antitrust market as a whole, the Complaint asserts that such an effect should be presumed through application of the per se rule or quick look doctrine. This, too, is wrong. The per se rule and quick look doctrine represent narrow exceptions to the general rule that every plaintiff in a Section One case must prove that the challenged conduct actually harmed competition in a relevant market. The per se rule and quick look doctrine only apply where unambiguous judicial experience demonstrates that the particular conduct at issue has no effect, other than to stifle competition, or where such an effect is obvious to anyone with a rudimentary understanding of economics. These exceptions have no place in this case. No prior case evaluating similar conduct has ever deemed such conduct per se unlawful or concluded that its effects were so obviously anticompetitive that it should be condemned based on a quick look. And the Complaint fails to explain how the challenged conduct could possibly have affected market-wide outcomes. The most compelling argument against the application of the per se rule or quick look doctrine comes from the DOJ itself. The DOJ, as the Complaint states, has filed prior cases challenging similar conduct. In resolving those cases, the DOJ has explicitly recognized that the precise conduct alleged herean agreement not to recruit or hire employees of another companycan be justified. Indeed, the DOJs consent decrees with other defendants approve of conduct restricting the hiring and recruiting of employees in a long and varied list of circumstances. Such an outcome cannot be squared with the argument that such agreements, without fail, harm competition. By definition, a per se violation can have no exceptions.

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This Complaint does not state a claim on which relief can be granted. Every plaintiff seeking to prove a violation of Section One must allege that the defendant engaged in (1) concerted action that (2) harmed consumer welfare. This Complaint does not offer facts that plausibly support either conclusion. It should, therefore, be dismissed. III. FACTUAL BACKGROUND1 In November 2005, eBays then-COO, Maynard Webb, approached Mr. Scott Cook, a long-standing member of eBays Board of Directors, to discuss some potential hires from Intuit, a company that Mr. Cook had founded and for whom he served as Chairman of its Executive Committee. (Id. 12, 15.) Mr. Webb explained to Mr. Cook that eBay planned to hire an Intuit employee and proposed a going-forward policy in which eBay would give Intuit notice in the event that eBay intended to recruit more senior level people. (Id.) The Complaint alleges that Mr. Cook objected to the proposed policy insofar as it allowed hiring of any employees without prior notice to Intuit. (Id.) According to the Complaint, Mr. Cook told eBays COO via email that companies with a shared director dont recruit from other board companies, period. (Id.) He added that were passionate on this. (Id.) Mr. Cook made his point to Mr. Webb with an example drawn from his board service for another company, alluding to the duties that someone with a role as a director or officer of two companies owes both companies and the challenge of managing those duties given the confidential information that a Board member is exposed to about many things, including critical employees. (Id.) The Complaint alleges that notwithstanding this discussion, eBay hired the two Intuit employees in December 2005. (Compl. 16.) These hires prompted a discussion between eBays then-CEO, Meg Whitman, and Mr. Cook, about hiring from board companies. (Id.) According to the Complaint, Ms. Whitman communicated to eBays head of human resources that eBays decision to hire two executives from Intuit had left eBays Director, Mr. Cook, slightly miffed. (Id.) Solely for the purposes of this Motion to Dismiss, eBay assumes the truth of the facts alleged in the Complaint.
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MOTION TO DISMISS

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The Complaint alleges that sometime after this discussion eBay changed its policy regarding recruiting Intuit employees. The Complaint claims that in August 2006, eBays head of human resources observed that eBay had decided to provide Mr. Cook with advance notice before recruiting Intuit employees. (Id. 17.) This observation occurred in response to a potential recruit from Intuit. (Id.) According to the Complaint, eBays head of human resources confirmed with Ms. Whitman that eBay had implemented a policy of notifying Scott first. (Id.) The Complaint alleges that eBay did not reach out to the potential candidate. (Id.) The Complaint alleges that eBay continued to hire from Intuit after this change in policy. In about April of 2007, according to the Complaint, eBay hired into its internal communications department an employee from Intuit. (Id. 1819.) The Complaint alleges that eBay had not recruited this particular candidate. (Id. 18.) Instead, the candidate had applied unsolicited. (Id.) The Complaint claims that this hire made Mr. Cook quite unhappy. (Id.) The Complaint alleges that following this hire, and beginning in April 2007, eBay changed its policy to not hire any employees from Intuit. (Id.) The Complaint does not allege that Intuit refrained from hiring eBay employees. Rather, it claims that Mr. Cook told an applicant that had taken a job at eBay that Intuit is precluded from recruiting you. (Id. 21.) The Complaint also alleges that Ms. Whitman sent Mr. Cook a recruiting flyer, forwarded to her by eBays head of human relations, that Intuit had apparently sent to an eBay employee. (Id. 22.) The Complaint identifies Intuit and senior executives at Intuit and eBay as coconspirators. (Id. 9.) It does not, however, name Intuit as a Defendant. Instead, the Complaint alleges that any violation committed by Intuit was cured by Intuits entry into an earlier consent decree arising from a complaint that alleged an agreement involving a company other than eBay. (Id.; see also Brown Decl., Ex. A (the Consent Decree).2) Although the Consent Decree nominally bars any agreement that in any way restrains soliciting, cold calling, recruiting, or
2

Because the DOJ referred to the Consent Decree in its Complaint, it is appropriate to attach the Consent Decree to the motion for the Courts consideration. See Cooper v. Pickett, 137 F.3d 616, 622 (9th Cir. 1997) (a document is not outside the complaint if the complaint specifically refers to the document and if its authenticity is not questioned). -4MOTION TO DISMISS

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otherwise competing for employees, it also contains broad exceptions to this blanket prohibition. (Consent Decree at 5.) More specifically, the Consent Decree allows Intuit and the other signatories to continue to attempt[] to enter into, enter[] into, maintain[] or enforc[e] a no direct solicitation provision, including with their own employees in employment or severance agreements. (Id. at 56.) The Consent Decree also leaves the signatories, including Intuit, free to unilaterally decid[e] to adopt a policy not to consider applications from employees of another person, or to solicit, cold call, recruit or hire employees of another person. (Id. at 7.) The Complaint does not allege facts to support a conclusion that eBays conduct harmed any individual or the market as a whole. It does not allege that eBay stopped hiring generally or reduced wages and benefits for people that it did hire. It does not identify any Intuit employee who would have received a better job at eBay, or vice versa, absent eBays alleged decision to not recruit or hire from Intuit. Nor does it quantify the better compensation, benefits, and working conditions that employees allegedly would have had the ability to secure but for eBays alleged conduct. (Compl. 27.) While the Complaint speculates that eBays alleged conduct might have had an impact on some individual employees who remained in jobs that did not fully utilize their unique skills (id. 11), it fails to allege any facts that would support an inference that the elimination of rivalry between eBay and Intuit would have any impact whatsoever on any relevant market for talent. Indeed, the Complaint does not allege that any of the people identified in the Complaint were trying to impact the market. The Complaint does not allege Ms. Whitman, Mr. Webb, Mr. Cook or anyone else intended to eliminate competition between Intuit and eBay in order to reduce wages, increase prices, or otherwise affect price or output in any relevant market. IV. LEGAL STANDARD To survive a motion to dismiss, a complaint must plead enough facts to state a claim to relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A formulaic recitation of the elements of the claims will not suffice, and the Court cannot assume the truth of conclusory allegations unsupported by facts. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Further, the complaints non-conclusory factual content, and reasonable inferences
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from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief. Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009). That is, the [f]actual allegations must be enough to raise a right to relief above the speculative level. Twombly, 550 U.S. at 555. V. THE COMPLAINT FAILS TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED. The Complaint fails to allege facts that support either of the conclusions necessary to sustain a case under Section One of the Sherman Act. First, it does not identify a conspiracy actionable under Section One because it focuses exclusively on the interaction of a group of people who served as officers and Directors of eBay Inc. By virtue of their shared connection to eBay, the individuals identified in the Complaint had a unity of economic interest that, as a matter of law, precludes a claim that they engaged in concerted action that triggers Section One scrutiny. The Complaints attempt to use Section One to micromanage the interaction of the officers and Directors of eBay also creates an unnecessary conflict between Section One and Section Eight of the Clayton Act. Second, the Complaint makes no effort to identify the effect on competition (if any) from eBays alleged conduct. Instead, it invokes the per se rule and quick look doctrine even though courts and the DOJ have historically and consistently subjected practices related to hiring and recruiting to rule of reason review. For both reasons, the Complaint should be dismissed.3 A. The Complaint Fails To State A Claim Because A Section One Conspiracy Cannot Arise Where The Participants Share A Unity Of Purpose.

The Complaint does not allege an actionable conspiracy. Its allegations focus on the interaction between the senior officers and the director of a single firm. But to be actionable under the Sherman Act, a conspiracy must involve independent centers of decisionmaking. Copperweld, 467 U.S. at 769. Because this Complaint concerns only the interaction of people
3

Separately, the Complaint does not explain how the recruitment and hiring activities at issue in this Complaint . . . are in the flow of and substantially affect interstate commerce, (Compl. 5), as is required for the Court to have subject matter jurisdiction. For example, the Complaint contains no allegations regarding whether the alleged agreement affected even a single Intuit employee seeking employment at an eBay location in a different state, or vice-versa.
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affiliated with a single entity, it fails as a matter of law. Moreover, by invoking Section One of the Sherman Act to police an eBay policy that allegedly arose in response to concerns expressed by a director that eBay shared with another firm, the Complaint threatens to create an unnecessary and counterproductive conflict between Section One of the Sherman Act and Section Eight of the Clayton Act, the antitrust statute that polices the competitive issues that arise from interlocking, or shared, directors and senior officers. 1. A Section One Conspiracy Cannot Arise Among Alleged Conspirators That, Like eBays Officers and Directors, Share A Unity Of Purpose.

The Sherman Act draws a fundamental distinction between concerted action and unilateral action. The Sherman Act gives individual firms a wide berth. It allows them to pursue their own self-interest even if their actions leave consumers, suppliers and competitors worse off. Implicitly, the text of the Sherman Act reflects a judgment that absent the threat of monopoly, the market serves as an effective check on the actions of individual firms. The Sherman Act is more suspicious of concerted action. When firms contract, combin[e] . . . or conspir[e], the Act obliges them to behave reasonably. 15 U.S.C. 1. The theory, best articulated by the Supreme Courts decision in Copperweld, is that concerted action deprives the marketplace of the independent centers of decisionmaking that competition assumes and demands. Copperweld, 467 U.S. at 769. But this distinction is meaningful only to the extent that courts coherently segregate concerted action from unilateral action. The Supreme Court confronted this question in Copperweld. That case originated in a dispute between three companies in the business of manufacturing steel tubing: Independence Tube, Regal Tube, and Copperweld. Id. at 75557. Independence Tube claimed that Copperweld and its subsidiary, Regal Tube, had violated Section One by conspiring with one another to prevent customers and suppliers from doing business with Independence Tube. Id. at 75758. A jury agreed, and the Seventh Circuit affirmed. Id. The Supreme Court reversed, holding that a parent corporation and its wholly owned subsidiary are incapable of conspiring with one another. Id. at 777.

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Copperweld holds that courts should not find antitrust conspiracies in contexts where the alleged participants necessarily have a shared purpose even absent an agreement. Harking back to American Tobacco, Copperweld observes that an antitrust conspiracy requires a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement. Id. at 771 (quoting American Tobacco Co. v. United States, 328 U.S. 781, 810 (1946)). It explains that no such agreement can be reached in the context of a relationship between a parent and a subsidiary because these entities always have a unity of purpose or a common design. Id. It likewise admonishes courts not to construe Section One to reach actions that involve the coordination of two employees, noting that [s]uch a rule would obliterate the Acts distinction between unilateral and concerted conduct. Id. at 776. Courts have expanded on Copperwelds examination of parent-subsidiary coordination to hold that related corporate entities are also incapable of conspiring for Section One purposes. See, e.g., Directory Sales Mgmt. Corp. v. Ohio Bell Tel. Co., 833 F.2d 606, 611 (6th Cir. 1987) (two wholly-owned subsidiaries of the same parent corporation); Century Oil Tool v. Prod. Specialties, 737 F.2d 1316, 1317 (5th Cir. 1984) (two corporations with common ownership); Bell Atl. Bus. Sys. Servs. v. Hitachi Data Sys. Corp., 849 F. Supp. 702, 70507 (N.D. Cal. 1994) (a parent and its partially-owned subsidiary, over which it had legal control). Numerous courts have also reaffirmed the principle stated in Copperweld, that section 1 does not capture coordinated activity among the employees and officers of the same firm or police internal agreements between a corporation and these individuals. Siegel Transfer v. Carrier Express, 54 F.3d 1125, 1134 (3d Cir. 1995) (citing Copperweld, 467 U.S. at 769). 2. The Complaint Challenges An Alleged Decision Made By A Group Of People Who By Virtue Of Their Roles As Officers And Directors Of eBay Had A Unity Of Purpose.

The Complaint seeks to conjure a Section One conspiracy from the interactions of eBays senior management with a member of eBays Board of Directors. It imputes to Mr. Cook the interests of one of the other companies for which he also served as a director. But the mere fact that Mr. Cook has interests outside of his role as an eBay Director does not support a Section One claim in the wake of Copperweld and its progeny. This Complaint does not allege facts that
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support a conclusion that eBays policy with regard to recruiting or hiring people employed by Intuit constituted an actionable conspiracy. Nor does it allege facts linking eBays policy to competitive harmregardless of whether the policy is attributed to an agreement or unilateral action. The interests of eBays executives and Board members, in particular those named in the Complaint, cannot be separated from eBay. In their respective roles, they have obligations to one another and to the other constituents with an interest in the decisions that eBay makes (e.g., its shareholders). Under Delaware law, [t]he business and affairs of every [Delaware] corporation . . . shall be managed by or under the direction of a board of directors . . . . Del. Code Ann. tit. 8 141(a). This managerial power carries with it certain fundamental fiduciary obligations to the corporation and its shareholders. Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984), overruled on other grounds by Brehm v. Eisner, 756 A.2d 244 (Del. 2000). But so long as eBays Directors and officers operate within the broad parameters set by the business judgment rule, their decisions are eBays decisions. See id. at 812 (noting that the business judgment rule is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company). As with the parent and wholly-owned subsidiary in Copperweld, the officers and directors of a company always have a unity of purpose or a common design. Copperweld, 467 U.S. at 771 (quoting American Tobacco, 328 U.S. at 810). And as with a parent and a wholly-owned subsidiary, the very notion of an agreement in Sherman Act terms between [a companys executives and its directors] lacks meaning. Copperweld, 467 U.S. at 771. They are the company. The Complaint also fails to allege facts linking the alleged policy to the competitive concerns that animate Section One. At this point in the long evolution of U.S. antitrust law, it is universally accepted that preventing diminution in consumer welfare is the fundamental goal of antitrust law. Natl Collegiate Athletic Assn v. Bd. Of Regents of Univ. of Okla. (NCAA), 468 U.S. 85, 107 (1984). The phrase consumer welfare, as used in the antitrust context, has a very specific, technical meaning tied to the allocation of goods through the price mechanism. See id.
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(tying consumer welfare to the importance of consumer preference in setting price and output).4 See also Rebel Oil, Inc. v. Atl. Richfield Co., 51 F.3d 1421, 1444 n.15 (9th Cir. 1995) (As we have noted previously, allocative efficiency is synonymous with consumer welfare, and is the central goal of the Sherman Act. (internal citations omitted)). Section One of the Sherman Act advances the antitrust cause by prohibiting agreements that harm consumer welfarei.e., suppress market output below the levels that would prevail in the absence of the agreement. The Complaint does not allege that Ms. Whitman, Mr. Cook or anyone else associated with eBays alleged policy advocated for it out of a desire to suppress wages or benefits for anyone. The Complaint does not identify a single email that even referred to wages or benefits. Even with the benefit of hindsight (and a three year investigation), the Complaint equivocates on whether eBays policy had such an impact. The first paragraph claims only that the challenged conduct might have lowered salaries and benefits for people who worked at Intuit, necessarily conceding that such people also might not have commanded higher salaries or benefits. (Compl. 1 (emphasis added).) Later, the Complaint claims that the challenged conduct likely resulted in some of eBays and Intuits employees remaining in jobs that did not fully utilize their unique skills, without alleging a single fact to support such a conclusion. (Id. 11 (emphasis added).) Absent allegations linking the policy to a desire to suppress wages or benefits, the Complaint fails to allege facts that suggest the policy should be treated as anything other than what it, on its face, appears to bea reasonable accommodation to an eBay Director concerned about the appearance of divided loyalties. Indeed, the Complaint concedes that the policy was motivated by concerns that cross-hiring among companies that share a director could create the appearance of a conflict of interest. The Complaint attempts to cast this motivation in a dark light, alleging that Mr. Cook was willing to sacrifice the welfare of Intuits employees in order to advance his own personal interests in serving on eBays Board. (Id. 12.) But this allegation
4

See also Thomas G. Krattenmaker, Situating Realcomp in the Sweep of Antitrust Law and Policy, 11 U.C. DAVIS BUS. L.J. 361, 364 (2011) (We say that consumer welfare is harmed when market output is reduced below otherwise prevailing competitive levels, so that market prices rise above competitive levels.).
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directly undermines the premise of the Complaint. It concedes that Mr. Cooks interests in eBays hiring related to his position on eBays Board and had nothing whatsoever to do with suppressing wages or benefits for Intuit employees. 3. The Complaint Threatens To Create A Conflict Between Section One Of The Sherman Act And Section Eight Of The Clayton Act, The Antitrust Statute That Governs Shared Directors And Senior Officers.

To the extent that the claim is that Mr. Cooks interests can be separated from eBays by virtue of the roles he plays for other companies, the Complaint offers no explanation as to why those concerns are not better addressed by the antitrust statute that was specifically crafted to handle them, Section Eight of the Clayton Act. Every director, officer and employee has interests independent of the roles they play for a particular company. Antitrust law polices the competitive issues that flow from such interests through a clear set of rules set down by Congress in Section Eight of the Clayton Act. Section Eight permits individuals to serve on the boards of multiple companies so long as those companies are not meaningful competitors. Directors rely on those rules to know when they can serve on the boards of multiple companies. This Complaint seeks to override Congresss express judgment by creating a Section One conspiracy through the actions taken by someone lawfully serving on multiple boards of directors. Section Eight establishes clear rules for evaluating potential competitive impacts where firms share senior officers or directorssometimes known as interlocking directors or interlocks. The literal language of Section Eight prohibits interlocks if the interlocked companies are capable of jointly violating the antitrust laws: No person shall, at the same time, serve as a director or officer in any two corporations . . . that are . . . by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of the antitrust laws . . . . 15 U.S.C. 19(a)(1)(B). The statute then carves out exemptions that permit interlocks where the companies are below a certain size or where their competitive sales fall below a certain threshold. See id. 19(a)(1)(2).5 In doing so, Section Section Eight permits interlocks between companies if (1) one of the companies has less than $10 million in aggregated capital, surplus, and undivided profits; (2) the competitive sales of either corporation are less than $1 million; (3) the competitive sales of either corporation is less
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Eight removes from the coverage of interlock prohibitions arrangements that pose little risk of significant antitrust injury. ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS, at 438 (7th ed. 2012) (citing the legislative history of Section Eight). Section Eight, thus, reflects Congresss judgment that interlocks between otherwise independent companies are competitively benign so long as the companies, or their competitive overlap, are small.6 Section Eight reflects a Congressional decision that the competitive benefits of an interlock outweigh the costs of the coordination that inevitably follows so long as the companies or their competitive overlap fall within the statutory safe-harbors. It implicitly recognizes that few people possess the talent, experience and personal integrity necessary to manage large shareholder-owned companies. People who serve as officers or directors of other companies are inherently attractive because adding such people to a board signals to potential investors that [a company] is a legitimate enterprise worthy of support. Mark S. Mizruchi, What Do Interlocks Do? An Analysis, Critique, and Assessment of Research on Interlocking Directorates, 22 ANN. REV. SOC. 271, 276 (1996). Moreover, adding people to a board who serve in a senior capacity for another company allows for the transfer of general management information and expertise, which ultimately benefits consumers and society as a whole. See Benjamin M. Gerber, Enabling Interlock Benefits While Preventing Anticompetitive Harm: Toward An Optimal Definition of Competitors Under Section 8 Of The Clayton Act, 24 YALE J. ON REG. 107, 11516 (2007). The Complaints effort to invoke Section One to police eBays response to concerns expressed by a Director it shared with Intuit creates an unnecessary and, ultimately, counterproductive conflict between these two provisions. All productive enterprises compete for employees, and cross-hiring across companies that share directors has the potential to create real issues for those directors. For example, if a shared director were aware of a unique problem associated with a particular cross-hire, would that director be obligated to tell the hiring company than 2% of that corporations total sales; or (4) the competitive sales of each corporation are less than 4% of that corporations total sales. 15 U.S.C. 19(a)(1)(2). 6 The Complaint does not allege that competitive sales by eBay and Intuit exceed these thresholds.
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of that problem? Would that obligation give way if revealing the information to the hiring company would harm the company from which that person was being hired? As a result, all companies can be expected to devise policies around whether to hire from companies affiliated with their directors, to communicate with their directors about such policies, and to modify those policies based on feedback from their directors. To the extent that such exchanges become the basis for a Section One claim, the mere existence of an interlocked director would become the basis for an action.7 This would effectively render the safe-harbors of Section Eight a dead letter, making it more difficult for firms to attract qualified directors and undermining the objective that Congress sought to achieve when it added those safe-harbors to the statute.8 B. The Complaint Does Not Allege Facts That, Even If Assumed True, Would Support A Conclusion That The Challenged Conduct Harmed Competition.

Even if there were some basis for invoking Section One to challenge the interaction between Mr. Cook, Ms. Whitman and other senior eBay executives, the Complaint should still be dismissed. As noted above, the Complaint fails to allege any facts that support a conclusion that the alleged conspiracy actually affected market outcomes. This hole in the Complaints allegations is fatal to the claim, and the Complaints effort to invoke the per se rule and quick look doctrine should be rejected.9

The theory of this Complaint could be extended to a host of actions that arise on the supply side of firms. Negotiations to obtain real estate, telecommunications, advertising services, payment card processing and even office supplies could give rise to claims of coordination essentially identical to those at issue here. 8 Congress amended Section Eight in 1990 in reaction to calls by some, including the DOJ, for an amendment that would add explicit safe-harbors to the statute. See Michael Boudin, Acting Assistant Attorney General, Antitrust Div., U.S. Dept. of Justice, Statement before the House Committee on the Judiciary, at 23 (June 15, 1989) (urging Congress to add [e]xplicit, numerical safe harbors to Section Eight). As the House Report recommending passage of the amendments explained, [a] ban on interlocking directorates serves no functional purpose where the corporations are not in competition with one another to a significant degree or where they compete in a line of business that is not economically significant in relation to their overall operations. H.R. Rep. 101-483, at 7 (1990). 9 The DOJs interpretation of the law is not entitled to deference in a civil or criminal case. See Krzalic v. Republic Title Co., 314 F.3d 875, 883 (7th Cir. 2002) (Easterbrook, J., concurring) (Judges do not apply Chevron to the Attorney Generals interpretation of the Sherman Antitrust Act, whether in public or in private litigation.).
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10

The presumptive or default standard for determining whether a particular practice imposes an unreasonable restraint is the rule of reason that Justice Brandeis first enunciated in Board of Trade of the City of Chicago v. United States, 246 U.S. 231 (1918). See Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (this Court presumptively applies rule of reason analysis). As the DOJ itself explained in a recent amicus curiae brief, the rule of reason evaluates the reasonableness of an alleged restraint by considering as appropriate, specific information about the relevant business, the restraints history, nature, and effect, and the participants market power. Brief for the United States as Amicus Curiae Supporting Petitioner at 1112, Am. Needle, Inc. v. Natl Football League, No. 08-661, 2009 WL 3070863, at *12 (Sept. 25, 2009) (quoting Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 88586 (2007) (internal citations omitted)).10 In determining whether a practice is unreasonable, the focus is on actual effects that the challenged restraint has had on competition in a relevant market. Adaptive Power Solutions, LLC v. Hughes Missile Sys. Co., 141 F.3d 947, 95051 (9th Cir. 1998) (quoting Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1410 (9th Cir. 1991)). Thus, to state a Section One claim under the rule of reason, a plaintiff must plead three elements: (1) a contract, combination or conspiracy among two or more persons or distinct business entities; (2) by which the persons or entities intended to harm or restrain trade or commerce among the several States, or with foreign nations; (3) which actually injures competition. Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047 (9th Cir. 2008). To demonstrate injury to competition, a plaintiff must prove the relevant market and . . . show the effects of competition within that market. Adaptive Power Solutions, 141 F.3d at 951.

In the same amicus curiae brief, the DOJ took the position that hiring restrictions among competing NFL franchises should be evaluated under the rule of reason: [A] rule forbidding teams from poaching one anothers coaching talent . . . . [w]ould be an agreement . . . . Of course, such a rule might be reasonable, and thus lawful. The scope and substance of that inquiry would depend on factors such as . . . the rationale for its adoption, and the nature of its effect on competition. Brief for the United States as Amicus Curiae Supporting Petitioner at 20 & n.10, Am. Needle, Inc. v. Natl Football League, No. 08-661, 2009 WL 3070863, at *20 and no. 10 (citations omitted) (Sept. 25, 2009). - 14 MOTION TO DISMISS

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The Complaint explicitly declines the opportunity to state a claim under the traditional rule of reason. It does not seek to define a market, assert that eBay (with or without Intuit) had market power in such a market, or allege facts demonstrating that eBays policy actually had marketwide effects. It does not even explain how eBays policy could have such an effect. Instead, the Complaint asserts that the Court should presume the existence of such marketwide effects under the per se rule or through an abbreviated or quick look rule of reason analysis. (Compl. 4, 2829.) This assertion is both novel and wrong as matter of law. The Complaints attempt to extend the scope of the per se rule and quick look doctrine should be rejected for four reasons: (1) per se condemnation is reserved for agreements and practices that are plainly anticompetitive and, even then, plaintiffs are expected to explain how the challenged conduct would actually suppress output or increase price; (2) no court has ever before applied the per se rule to strike down a bilateral agreement regarding recruiting or hiring as per se illegal; (3) quick look is reserved for conduct that closely resembles price fixing that applies on a nearly market wide basis; and (4) the remedy accepted by the DOJ to resolve its earlier enforcement actions confirms that no impact to competition should be presumed or assumed to flow from eBays alleged conduct. 1. The DOJ Cannot Avoid Its Obligation To Establish That The Alleged Agreement Unreasonably Restrained Trade Simply By Labeling It Per Se Unlawful.

The Complaint fails to allege facts that explain how the challenged conduct could produce the kind of impact on demand for labor necessary to support an antitrust claim. It simply announces that the alleged agreement is per se unlawful and claims that, as a result, [n]o elaborate industry analysis is required to demonstrate the anticompetitive character of this agreement. (Compl. 28.) But unilateral proclamation is not a substitute for legal analysis. The fact that the Department has labeled the challenged conduct per se unlawful does not make it so. In a series of cases that stretches back four decades, the Supreme Court has limited the application of the per se rule to the discrete categories of price fixing and bid rigging. See Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877 (2007); State Oil Co. v. Khan, 522 U.S. 3 (1997); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977). These cases also
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make clear that the per se rule does not apply outside of hard core antitrust violations. See Leegin, 551 U.S. at 894 (Notwithstanding the risks of unlawful conduct, it cannot be stated with any degree of confidence that resale price maintenance always or almost always tend[s] to restrict competition and decrease output.) (quoting Bus. Elec. Corp. v. Sharp Elec. Corp., 485 U.S. 717, 723 (1988)); GTE Sylvania, 433 U.S. at 4950 (Per se rules of illegality are appropriate only when they relate to conduct that is manifestly anticompetitive.). See also N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958) (agreements are unlawful per se where they have a pernicious effect on competition and lack . . . any redeeming virtue). Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. (BMI), 441 U.S. 1 (1979), goes one step further, holding that even where conduct can be labeled price fixing, the label does not alone establish that [it] is plainly anticompetitive and very likely without redeeming virtue. Id. at 9. In BMI, the Court faced a Section One claim brought by a television station against two organizations that, between them, controlled [a]lmost every domestic copyrighted composition due to their widespread membership comprised of composers, authors, and publishers. Id. at 46. The television station alleged that the defendants practice of issuing blanket licensesor licenses to use any of the copyrighted works for a fixed feeconstituted price fixing, a recognized per se violation of Section One. Id. at 6. After the Second Circuit reinstated a complaint that had been dismissed below, the Court reversed. BMI explains that courts must decline to apply the per se rule and instead analyze conduct under the rule of reason where there is an insufficient history of rule of reason cases finding the conduct anticompetitive. Surveying the many cases that had challenged blanket licenses, BMI observes that there is no nearly universal view that either the blanket or the per-program licenses issued by [defendant] at prices negotiated by it are a form of price fixing subject to automatic condemnation under the Sherman Act, rather than to a careful assessment under the rule of reason. Id. at 16. On that basis, BMI reverses the Second Circuit and remands for a more discriminating examination under the rule of reason. Id. at 24. See also ANTITRUST LAW DEVELOPMENTS (SEVENTH), at 56 (collecting cases and observing that the per se rule should be

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invoked only on the strength of unambiguous judicial experience demonstrating that the challenged conduct is necessarily anticompetitive). Since BMI, courts have limited the application of the per se rule to conduct that directly affects price or output. This means price fixing, bid rigging, and market division. They, and they alone, are the paradigmatic examples of restraints of trade that the Sherman Act was intended to prohibit. NCAA, 468 U.S. at 10708. See also Pool Water Prods. v. Olin Corp., 258 F.3d 1024, 1034 (9th Cir. 2001) ([T]he antitrust laws are only concerned with acts that harm allocative efficiency and raise[] the price of goods above their competitive level or diminish[] their quality.) (quoting Rebel Oil., 51 F.3d at 1433)). The Complaint alleges no effect on price or output, and should be dismissed based on that failure. 2. No Court Has Found An Antitrust Violation Based On An Agreement Regarding Hiring Practices Without Considering Facts Regarding Market Power And The Effect Of The Alleged Restraint On the Market.

The Complaint offers no explanation for why an agreement between a firm and a member of its board of directors to refrain from recruiting or hiring employees from a single other company affiliated with the board member should be added to a limited list of per se violations. Even assuming that such an agreement is a cognizable agreement for purposes of the Sherman Act, the assertion finds no support in case law or economic theory. Indeed, no court has ever applied the per se rule to find a bilateral agreement between potential employers regarding hiring practices per se illegal,11 and the few courts that have considered such arrangements have uniformly applied the rule of reason, carefully considering the underlying facts in evaluating the legality of the challenged conduct. In Bogan v. Hodgkins, 166 F.3d 509 (2d Cir. 1999), the Second Circuit addressed a business structure in which an insurance company consisted of independent contractor General
11

Cf. In re High-Tech Employee Antitrust Litig., 856 F. Supp. 2d 1103, 1122 (N.D. Cal. 2012) (finding that the plaintiffs had successfully pled a per se violation of the Sherman Act for purposes of a Rule 12(b)(6) motion based on allegations of an industry-wide conspiracy to restrict competition for skilled labor, but declining to decide whether the per se rule would ultimately apply).
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Agents who in turn contracted with lower-tier sales agents. The General Agents agreed not to recruit or hire sales agents employed by other General Agents. Two sales agents unable to transfer sued. After considering whether the conduct fell into any previously-recognized per se categories, the court concluded that no easy label applied. Id. at 515. For example, the agreement was not a territorial or customer allocation because the record revealed no geographic or market division, and it was not a supplier allocation because the current agents were not the only suppliers of such services. The agreement thus did not allocate the market for agents to any meaningful extent. Id. Ultimately, although the court found that the agreement was properly characterized as an intrafirm agreement, it emphasized that [e]ven if the Agreement were interfirm, [the court] would still not afford it per se illegal treatment. Id. The court noted that no-switching agreements were distinguishable from those boycotts that have been held illegal per se. Id. (citing Union Circulation Co. v. FTC, 241 F.2d 652, 657 (2d Cir. 1957)). While such agreements fall within the ambit of antitrust law, they are not afforded per se treatment because the harmful effect on competition is not clearly apparent. Id. Because the agreements anticompetitive effect on the market for insurance sales agents was not obvious, the court did not find that the plaintiffs made a case sufficient to justify per se treatment. Id. Similarly, in Union Circulation Co., agencies in the business of selling magazine subscriptions by door-to-door solicitation entered into no-switching agreements with each other, providing that they would not hire solicitors who had been employed by the other agency during a certain time period. 241 F.2d at 655. The court distinguished the no-switching agreements from per se illegal group boycotts. The no-switching agreements were directed at the regulation of hiring practices and the supervision of employee conduct, not at the control of manufacturing or merchandising practices, and a harmful effect upon competition is not clearly apparent from the terms of the[] agreements. Id. at 657. Instead, the court considered the agreements within the specific framework of the magazine-selling industry and in the light of the fact that the signatory parties represent a very substantial segment of that industry, ultimately finding the agreement unlawful. Id.

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In Nichols v. Spencer International Press, Inc., 371 F.2d 332 (7th Cir. 1967), the court considered a no-switching agreement between companies in the business of selling reference books in which the companies refused to hire employees of a competitor for six months after termination of the former employment. The court noted that [a]greements not to compete are tested by a standard of reasonableness; because further inquiry into the facts was needed, it reversed the district courts grant of summary judgment.12 Id. at 337. In a more recent case, Eichorn v. AT&T Corp., 248 F.3d 131 (3d Cir. 2001), the Third Circuit considered whether a no hire agreement that provided that the seller of a company would not hire, rehire, retain, or solicit the services of any employee of the company being sold whose annual income exceeded $50,000 violated Section One. Id. at 13637. The plaintiffs contended on appeal that the no-hire agreement was per se unlawful as either a group boycott or a horizontal price fixing conspiracy. Id. at 142. The court rejected the plaintiffs attempt to allege a per se antitrust violation by affixing a label to the challenged conduct, noting that there are no Supreme Court cases nor any federal cases that have applied the per se rule in similar factual circumstances. Id. at 143. Instead, the court looked to the totality of the circumstances and analyzed the no-hire agreement under the rule of reason, ultimately holding that it was not an unreasonable restraint of trade because [a]ny restraint on plaintiffs ability to seek employment at [the restricted employer] . . . was incidental to the effective sale of the company. Id. at 145 46. Similarly, in Aydin Corp. v. Loral Corp., 718 F.2d 897 (9th Cir. 1983), the Ninth Circuit considered the legality of a termination agreement between a company (and its subsidiary) and its former employee, Moyes, that obligated him to not now or in the future . . . interfer[e] with or raid[] [the companys] employees . . . . Id. at 899. After Moyess new employer hired away ten employees from the company, the company filed suit alleging breach of contract and unfair
12

The Nichols court noted that the procedural posture was equivalent to a motion to dismiss. 371 F.2d at 333 n.1. In that way, it is like Quinonez v. National Association of Securities Dealers, Inc., 540 F.2d 824 (5th Cir. 1976), in which allegations involving a no-switching agreement survived a motion to dismiss. However, both cases were decided under the Conley standard for a motion to dismiss, which is no longer applicable. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).
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competition. Id. Moyess new employer responded by filing its own action, arguing that the agreement constituted a per se violation of Section One. Id. The court rejected this attempt to expand the per se rule, noting that [w]e have been reluctant to extend the per se categories of antitrust violations beyond price-fixing, market division, group boycotts, and tying arrangements, and that courts have had inadequate experience with [the types of agreement at issue] to warrant a per se categorization. Id. at 900. After conducting an analysis under the rule of reason, the court affirmed the district courts grant of summary judgment on the grounds that the new employer had failed to show that the agreement caused a decrease in competition in the relevant market. Id. at 90203. That few courts have even considered the legality of agreements restricting interfirm hiring is reason enough for this Court to dismiss the Complaint for failure to allege sufficient facts regarding the alleged agreements anticompetitive effects within a relevant market.13 The fact that courts have not uniformly found such agreements unlawful reinforces this conclusion.14 3. A Quick Look Analysis Is Inappropriate In This Case.

As a fallback to its position that the alleged conduct is subject to the per se rule, the DOJ alleges that the conduct is unlawful under an abbreviated or quick look inquiry. (Compl. 29.)

The Supreme Court disposed of a case involving hiring practices in the mid 1920s, Anderson v. Shipowners Association of the Pacific, 272 U.S. 359 (1926). The question of what type of scrutiny should be applied to the alleged conduct was not before the Court. Indeed, antitrust jurisprudence had not yet begun to categorize antitrust claims as per se, rule of reason or quick look. The opinion involved the question of whether the Complaint alleged the requisite impact on interstate commerce. After observing that the alleged restriction involved substantially all the merchant vessels of American registry operating on the Pacific Coast, the Court held that the Complaint adequately alleged an impact on interstate commerce. Id. at 361, 365. 14 The DOJ is likely to cite United States v. Cooperative Theatres of Ohio, Inc., 845 F.2d 1367 (6th Cir. 1988), and United States v. Brown, 936 F.2d 1042 (9th Cir. 1991), in support of its claim that eBays policy was per se illegal. Neither case supports the DOJs legal argument because neither case involved an agreement between two companies regarding recruiting or hiring one anothers employees. Cooperative Theatres involved an agreement between competing movie theater booking agencies to refrain from seeking business from each others customers, which was subject to the per se rule. 845 F.2d at 1372. Brown involved an agreement among the two dominant billboard advertising companies in California to refrain from bidding on each others former billboard locations for a year after the spaces were abandoned. 936 F.2d at 1045.
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For many of the same reasons that the conduct is not unlawful per se, it is not subject to quick look. The Supreme Court has explained that quick look is reserved for cases where an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets. Cal. Dental Assn v. FTC, 526 U.S. 756, 770 (1999). The Court in California Dental provided examples of quick look cases where competitors expressly limited output and fixed a minimum price, NCAA, 468 U.S. at 99100, absolutely banned competitive bidding, Natl Socy of Profl Engrs v. United States, 435 U.S. 679, 692 (1978), and agreed to restrict the output of an important service, FTC v. Ind. Fedn of Dentists, 476 U.S. 447, 459 (1986). Cal. Dental Assn, 526 U.S. at 770. Because the agreement at issue in California Dental, in which three quarters of the states dentists agreed to restrict price advertising, was not obviously anticompetitive but in fact might plausibly be thought to have a net procompetitive effect, or possibly no effect at all on competition, the Court remanded the case for a fuller consideration of the issue. Id. at 771, 790. Polygram Holding, Inc. v. FTC, 416 F.3d 29 (D.C. Cir. 2005), provides another example of appropriate quick look review. There, the D.C. Circuit cautioned against extending application of the per se rule even where [a]n agreement between joint venturers to restrain price cutting and advertising with respect to products not part of the joint venture looks suspiciously like a naked price fixing agreement between competitors, which would ordinarily be condemned as per se unlawful. Id. at 37. Instead, the court applied a quick look analysis to the agreement, in which two recording companies agreed to suspend advertising and discounting of their respective previously-released Three Tenors albums while jointly promoting an upcoming Three Tenors album.15 The court explained that [i]f, based upon economic learning and the experience of the market, it is obvious that a restraint of trade likely impairs competition, then the restraint is presumed unlawful. Id. at 36.

The case was brought under Section Five of the FTC Act, but the analysis was the same as it would be under Section One of the Sherman Act. Polygram Holding, Inc. v. FTC, 416 F.3d 29, 32 (D.C. Cir. 2005)
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The allegations in the Complaint do not support extension of the quick look doctrine to the challenged conduct. The challenged conduct does not, on its face, restrict price or output. The Complaint does not allege that the conduct suppressed wages or benefits for any individual, and it concedes that the alleged agreement might not have harmed anyone. (See Compl. 1.) Moreover, the Complaint makes clear that whatever effect the alleged restraint may have had, it was not a naked restrainti.e., it did not represent the sum total of interaction between the alleged participants. Rather, according to the Complaint, the alleged restraint arose from Mr. Cooks personal interests in serving on eBays Board. (See id. 12.) This context provides the type of pro-competitive explanation that does not exist in a quick look case. The alleged agreement might plausibly have produced a net pro-competitive effect or no effect by eliminating a point of friction between the senior management of eBay and a Director. The legal context further weighs against application of the quick look doctrine. The Complaint implicitly concedes that Mr. Cooks presence on eBays Board of Directors was perfectly lawful. Per the express terms of Section Eight, any agreement between eBay and Intuit could, at most, have a trivial impact on competition in any relevant market. This Complaint asks the Court to replace that Congressional judgment with a contrary judicial inference. But it contains no allegations to support the exercise of that inference in these circumstances. The Court should decline that invitation by dismissing the Complaint. 4. The DOJs Remedies in Related Consent Decrees Demonstrate The Inconsistencies Created By Presuming Illegality Simply From The Existence Of An Agreement Between Firms Regarding Hiring Practices.

The remedies secured by the DOJ are the proverbial nail in the per se and quick look case. As the Complaint alleges, the DOJ obtained consent decrees with several employers, including Intuit, prohibiting those companies from entering into agreements to refrain from recruiting or hiring employees of other companies (the Consents). (Id. 9.) Those Consents explicitly permit such agreements in a long list of circumstances. This list of exceptions precludes application of the per se rule or quick look doctrine because, by definition, categories of conduct that are subject to per se or quick look treatment can have no exceptions.
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The Consents leave each defendant free to enter into such agreements that are 1. contained within existing and future employment or severance agreements with the Defendants employees; 2. reasonably necessary for mergers or acquisitions, consummated or unconsummated, investments, or divestitures, including due diligence related thereto; 3. reasonably necessary for contracts with consultants or recipients of consulting services, auditors, outsourcing vendors, recruiting agencies or providers of temporary employees or contract workers; 4. reasonably necessary for the settlement or compromise of legal disputes; or 5. reasonably necessary for (i) contracts with resellers or OEMs; (ii) contracts with providers or recipients of services other than those [already enumerated] above; or (iii) the function of a legitimate collaboration agreement, such as joint development, technology integration, joint ventures, joint projects (including teaming agreements), and the shared use of facilities. Final Judgment at 45, United States v. Lucasfilm Ltd., No. 1:10-cv-02220 (D.D.C. June 3, 2011). (See also Brown Decl. Ex. A at 56.). The rationale for many of these exceptions is straightforward. Agreements between firms to restrict recruiting or hiring are essential in many contexts. See Brian R. Henry & Joseph M. Miller, Sorry, We Cant Hire You . . . We Promised Not To: The Antitrust Implications of Entering Into No-Hire Agreements, 11 ANTITRUST 39, 40 (Fall 1996);16 David K. Haase & Darren M. Mungerson, Agreements Between Employers Not to Hire Each Others Employees: When Are They Enforceable?, 21 LAB. LAW. 277 (2006) (noting that suppliers of services or temporary employees often require the recipient to execute a no-hire agreement because the hiring of one of the temporary employees could unfairly . . . benefit the recipient by eliminating the supplier as

Henry and Miller observe that No-hire agreements that are ancillary to the sale of a business are supported by a valid procompetitive rationalea buyer has a legitimate concern that a substantial portion of the assets it purchases not disappear shortly after the transaction closes. Moreover, the increased stability of the assets fostered by the agreement increases the value of the business, aids in assuring the viability of an existing market participant, and provides an incentive for companies to invest in human capital. Brian R. Henry & Joseph M. Miller, Sorry, We Cant Hire You . . . We Promised Not To: The Antitrust Implications of Entering Into No-Hire Agreements, 11 ANTITRUST 39, 40 (Fall 1996).
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the middle man). It would, for example, be next to impossible for a firm contemplating acquiring another firm to get accurate information about the performance of the employees of the acquisition target if the target could not prevent the potential acquirer from hiring away its employees in the event that the deal did not go forward. See, e.g., Eichorn, 248 F.3d at 14546 (holding that non-hire agreement at issue was not an unreasonable restraint of trade and collecting cases upholding covenants not to compete and no-hire agreements arising out of sales of business or termination of employment). But the need for exceptions fitting these and other circumstances precludes application of the per se rule or quick look doctrine. The per se rule and quick look doctrine reflect categorical judgments. They render broad swaths of conduct illegal upon proof of its existence based on a conclusion that the conduct always produces the effect that antitrust law exists to prevent (i.e., suppress output/demand and, by doing so, raise/lower prices). The per se rule and quick look doctrine do not accommodate exceptions. They exist to provide a short and easy leap from proof of conduct to proof of violation. They are, by design, inflexible. See BMI, 441 U.S. at 17 ([I]t seems to us that the per se rule does not accommodate itself to such flexibility . . . .). The exceptions laid out in the Consents establish that no categorical conclusion has been reached about agreements between companies not to recruit or hire one anothers employees. Indeed, DOJ said as much to the Supreme Court in its Amicus Curiae brief in American Needle when it argued to the Court that a hypothetical agreement among NFL teams not to hire one anothers coaches could well be lawful, explaining that analysis of such an agreement would depend on factors such as . . . the rationale for its adoption, and the nature of its effect on competition. Brief for the United States as Amicus Curiae Supporting Petitioner at 20 & n.10, Am. Needle, No. 08-661, 2009 WL 3070863 (Sept. 25, 2009). In short, such agreements are subject to scrutiny, if at all, under the rule of reason. See, e.g., Coleman v. Gen. Elec. Co., 643 F. Supp. 1229 (E.D. Tenn. 1986), affd without op., 822 F.2d 59 (6th Cir. 1987) (no-hire agreement upon sale of a business); Cesnik v. Chrysler Corp., 490 F. Supp. 859, 861 (M.D. Tenn. 1980) (same).
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VI.

CONCLUSION Coming as it does after an extended investigation, this Complaint represents the DOJs

best effort to allege facts sufficient to state a claim under Section One. Because it does not, this Court should dismiss the Complaint with prejudice. Although the Complaint purports to allege a conspiracy, it focuses exclusively on conduct that took place among directors and officers of a single company who necessarily share a unity of purpose. At the same time, the Complaint says nothing about eBays (or Intuits) ability to affect competition, price, or output in any relevant market. Nor does it allege any facts establishing that the alleged agreement had any effect on competition, price, or output. Moreover, it recognizes that the policy, whatever effect it had (or, more likely, did not have) on the market as whole, related to Mr. Cooks service on eBays board. These facts do not support any kind of antitrust claim, let alone a per se violation of Section One or a case under the quick look doctrine. The per se rule and quick look doctrine do not exist to short-circuit analysis of practices that have no demonstrable or even theoretical effect on price or output. Where the DOJ cannot articulate how a practice affects price or output, or where more information is needed before that practices effect can be determined, the per se rule and quick look doctrine do not apply. The Complaints silence regarding the alleged agreements impact on competition in a properly-defined market perfectly illustrates why the per se rule and quick look doctrine have no place in this case. Without resort to legal short cuts, the DOJs allegations amount to nothing. The DOJ should not be allowed to proceed beyond the pleadings because after three years it cannot explain how eBays policy harmed anyone. eBay respectfully requests that the Court dismiss the Complaint without leave to amend.

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DATED: January 22, 2013

THOMAS P. BROWN SAMUEL C. ZUN EMILY DODDS POWELL PAUL HASTINGS LLP

By: 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Case No. CV12-5869-EJD-PSG

/s/ Thomas P. Brown THOMAS P. BROWN

Attorneys for Defendant eBay Inc.

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MOTION TO DISMISS