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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

SILICON ECONOMICS. INC.,

CIVIL ACT IO N

PlainlilT.

v.

FINANCIAL ACCOUNTING FOUNDATION. and FINANCIAL ACCOUNTING STANDARDS BOARD.

NO.

11-163

Defendants.

MEMORANDUM ON MOTION TO I>ISMISS

B:lylson, J.

August 17,2011

Silicon Economics. Inc. ("'SE''') filed this action seeking damages and clarification of its

ow ner s hip interest in its invention, ·' E<.lrningsPowcr Accounting." which is the subject of U.S.

Pa tent 7.620.573 (t h e "Invention "). SE I claims that the Financial Accollnting Foundation

C'pAF") and the Financial Accounting Stan dard s Board ('rASa:' collec tivel y with FAr,

"Defendants"). have unlawfully cJa.imcd a royalty-free license in the In vention and refu se to

release any ownership interest in the In ven tion.

SE I claims violations of federal antitrust law and

Ca lifornia's Unfai r Competit io n Law.

SEI a lso seeks declaratory relicrunder California law .

Defendants have moved to dismiss pursuant to Federal Rule ofeivil Procedure 12(b)(I)

for lack of standing and under Rule 12(b)(6) for insufficient pleading of cach claim. (Mo l. to

Dismiss. ECF No. 18 .) Atlcr ca refu l consideration or Defendants' Motion <mel the parties'

brieling and oral argument on August 11.2011. the Court will grant Defendants ' Motion ,

allowing SEI leave to amend the ComphJinl.

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  • I. Faclua t and Pruccdunltl-listor y Acco rding to the Co mplaint in this matt e r. FASB is ' ·the principal organization in the private sector for establishing s tanda rds of fi nancia l a ccou ll ting which gove rn th e p repara tion of financial statements by publi c companies in the U nited S t ates." (C ompl. , ECF No. I ~ 9.) FAF is a private. non-governmental. non-profit fo undation that governs FAS B. iliL ' 14.) SE I alleges th at FASH "has at least 90% o f the mark e t lor es tabli s hin g an d decreein g finan ci al accou ntin g standards in th e Unit ed S tate s:' and th e re mainder of the market co ns ists of individu a ls, academics. gove rnment bodies, corpo ration s. and accounting firms that articu late

accounting s tandard s. as well as

the Int e rnati o nal Accounting Sta ndard s Board . lliL.

10.)

SE I is one OfU1CSC oth e r participant s and is attempting to estab li sh more efre c tiv e accountin g s tandard s i n direct co mpetition with FASB. (llL. 13.) To t ha t e nd. SE I dcveloped lhe In vention. an equation tba t " impro v l es .l the acc ura cy o f ne t income mea s ure ment and

e mbra ces mark-to-mark e t a cco unting of asse t and liabilit y valu es Ito 1y ic1dl1 acc urate and c urren t

ba la nce s hee ts:' (1 4J 19.) SE I

..

4"

eOlllends the Inventi o n re so lves the fu nd amen tal acco untin g

prob le m , i.c. e ithe r the balance s heet or th e in co m e s heet can be acc urate a nd useful , but not

both.

(Ill ' i' l 14.

19 .)

Pe rtin en t to thi s liti ga t ion. on

July 6. 2 006. FASB reques t e d p ub lic co mments

"conccming t he most basic objects tor fin a nc ia l reportin g and how to

(Jd . '

120.) FA S B 's in vita ti o n also s ta ted that "all

comments recei ve d

accomp li s h s uch objects." by the FASB a rc

cons id e red public infonna t ion. Those com m ents

will be posted 10 the FASB's website and will

be includ cd i n the project's public record." (kL. 21.) SE I provided com m en ts. includ in g briefing o n th e Inv e nti on. (lei . ' 122.) SE I th e n participated in a round tabl e disc uss ion and SE J' s

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founder. Jo el Jameson ('·Jameso n"). privately mcl with the FASB regarding the In ventio n . (llL.)

Several months later. Jameson became aware of certain terms and co ndition s on FASB's

website. namely:

"Any information or material you transmit

information s uch as personal

by

sending an e-mail

including

... data. comments a nd sugges tion s (whcther in response

. ..

...

to a specific query o r otherwise) witl be treated as non-confidential and nOIl-

proprietary

....

Unless we agrce in w ritin g in advance. anything you transmit

whether electronically or in hard copy may

be used by the FAF / FASB and its

affiliates for any purpose. including. but not limited to. reproduction. disclosure,

transmission. publication, broadcast and posting. This mean s thallhe may use the idea s, concepts. know-how or techniques you tran s mit

...

FAf-/FASB

,"

(ld:. 23) (the "Webs it e Tcnns"). Unaware of the Website Terms prior to submi tting his

co mment s in July 2006. Jameson contacted FAS13 to clarify and eonlirm FASI3 did not claim any

ownership interest in the In ve ntion . (Jd. 24 .) Afier re ce iving no response for more than two

years. Jameson again

co ntacted FASB through legal co unsel. (~'125.) In response, FASB

"cla im ed that it ha[sl a royalty-free ownership interest in the SEllnvention

. ..

and categorically

refused to release <lny suc h interest." iliL.)

After another few months passed. SEI filed sui t in California federal co urt , but the

compl aint was dbmisscd

for lack of' personal jurisdiction over Defendants.

(llL. ~ 26): see Si l icon

£con., Inc. v. Fin. Accounting Found

..

No. 10-1939.2010 WI

..

4942468, al ·7 (N.D. Cal. Nov.

24.2010). During the co ur se of that liti ga tion . however. counsel for Defendants expressly

disavowed a license to practice the Invention o r any claim or ownersh ip imcrest therein_ a nd

allimled De fendant s have no intention of c1.aiming any ownership interest. (Com pi. ' 127.)

HOespite the se admissions. [Defendants haver refused 10 release rtheir] purported ownership

daims in th e pnv ention]." (.ll:L.)

,

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Still see king

clarit y, SE t filed the in stan t Co mplaint asserting claims for restraint of trad e

and monopoli z ation in violation ofthc Shcnnan Act, 15 U.S.C. §§ L 2: a claim fordcclaratory

relief under 28 -44 .) On

Cali fornia law ; and a claim

lor unl::lir compctition undcr C lIi fornia law. (Comp\. 'i~

I\pril29. 20 11. Defendants fil ed the in s tant Motion to Di s mi ss Plaintiff s C omplaint

With Prejudice for la ck of juri s di ct ion and fo r failure Lo

sta t e a claim upon which re lief can be

g ranted.

SE J also filed a Mot io n for a Preliminary Injun ctio n (MOL , ECF No.6). but agreed thc

Co urt

should fi rs t

rulc on Defcnda n ts ' Moti o

ll to Di s mi ss (Ordcr,

ECF No.

\6 ).

  • II .

.Juri sdi c tion ~lIId S t:tnd a r d of Il c yi c w

A

Juri s di c li o n

. . The Court ha s jurisdiction over SE I's antitrust claims pu rs uan t to 28 U.S.C . §§ 13 31 a nd

1337. and supplemental jurisdiction over it s C alifornia law claims und c r 28 U.S.c. § 1367(a).

SE I contend s venue is proper pursuant to 15 U.S.C. § 22. i n thi s Di s t rict.

Defendan ts ha ve not objected to venue

  • B. S tand ar d o f Rc y i cw

A Rule 12(b) ( I ) motion to di s mi ss fo r la c k of s ubject matter jurisdiction prese n ts either a

facial attack or a fa c \LIal attack.

CNA v.

Uni ted S tates , 535 F.3d

132. 139 (3 d Cir. 2008); see

Fed. R. Civ. P . 12(b)( I). A fa c ia l attack

co nce rn s an alleged pl ead in g defi c ien cy . whereas a

faelllal auack

concerns th e actual failure

ofa plaintilTs cl a im to comport factually with the

jurisdictional

pr e requi s ite s.

CNA. 535 F.3d at 139.

On a facial allack. the Co urt mu st co ns ider th e allegations oft11c co mplain l as true. Morten sen v. First Fed. Say. & Loan A ss' n. 549 F.2d 884 , 891 (3d Cir. 19 77). In cont rast , therc ar e t hree important co nse qu cnccs of a factual attack: (I) there is no presumption oftruthf-u lne ss;

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(2) the plaintiff bears the burden ofpraving subject matter jurisdiction: and (3) the Co urt has

a uthorit y 10 make f:lcLual findings on the issue. and can look beyond th e pleadings to do so.

CNA, 535 F.3d at 14 5. Derendants app ear to be making a facial attack <lgainst SE I's complaint.

In th e ir Opening Brief. Derendants assume the veracity ofSEl"s allegations and challenge the

s uOi c ie ncy of those a ll egatio ns. (Opening Br

..

ECF No. 19 a t 7-9); see also Danvers Motor Co,

v. Ford Motor Co., 432 F.3d 286. 292 (3d CiT. 2005) (evaluating sufTic icncy or plaintiffs ractual

allegations in co mplaint on standi ng challenge).

As ror De fe ndant s' Motion pursuant to Rule 12(b)(6). the co urt must accept as true all

well-p leaded factual allegations and mllst cons tru e them in the light 1110st favorable

to the non-

moving party. Phillips v. Coun ty of Allegheny, 515 F.3d 224. 228 (3d Ci r. 2008).

According to the T hjrd C ircuit. Twombly v. Bell Atlantic Corp

..

550 U.S. 5 44 (2007).

and Ashcroft v. Iqbal , 129 S. C t. 1937 (2009), cswb li s h a three-pronged approach for eva luatin g

the s uflici e ncy of pleadings in a ll civi l actions: first, the court must id en tify the clements the

plaintiff must plead to state a cla im ; second.

the co urt asks whether the comp laint sels forth

factual allega tion s o r co nclu sory statemen t s;

third. irlhe comp laint se ts forth factual allegations,

t he eourt must assume their veracity and draw reasonable inferences in favor o r the non~moving

party. but then must dctcnnine whether th e ractual a ll egations plausibly give ri se to an

e ntitl ement to relief See Santiago v. WanninsterTwp

..

629 F.3d 121. 130 & n.7

(3d C ir . 2010);

~ Iqb al 129 S. Ct. at 1950, 1953. For the second step, the court should separate the

factual and

legal dements or the c laim s. must accept the well-pleaded facts as tru e. and ma y disregard any

legal co nclu sio ns. Fowler v. UPMC Shadyside. 578 F.3d 203. 2 10-11 (3d CiT. 2009).

The plajntiWs complai nt must contain a shor t and plain s tat cment of the claim showing

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that the pleader is ent itl ed to re li ef. W. I>e nn Alleghe n v Ilcahh Sys. v. U PM C, 627 F.3d 85. 98 ( 3d eir. 20 I 0). The complaint must state factual allegations that. taken as a whole. render the

p laintio-s entit lemcnt to relicfpla u s ible . III Thi s

does not impose a probability requirement. but

instead calls for enough facts to raise a reasonab le expectation lhat discovery will revea l evidence

o f the neccssary

elements . liL A claim has facial plausibility when the plaintiffplcads factual

co nl e nt that allows the court to reasonably inter that the defe nd ant is liable for the mi sco ndu c t

alleged. Gelman v. S tat e Fa rm Mut. AlIto.lns. Co

.. "[JJudgi n g the s uffi ciency ofa pleading is a

583 r.3d 187 , 190 (3d Ci r. 2009).

context-depende nt exerc ise.

So me claims

req uir e more factual explication than others to state a plausible claim for relief:· U PM C, 627 F.3d at 98 (revers in g district court's applicat io n of h eig h tened scru t i ny in antitrust contex t ) (ci tati on omitted).

Accordingly. th e Court considers th e p urp oses of Defcndants' Motion.

factual allegations in SE I 's comp lai n t as tnl e fo r all

III.

Discussion

Defendants arguc th e Co urt s h o uld di s mi ss SE I's Comp laint because SE llack s s tandin g

under Article III and ha s I~lilcd to sufficiently plead its claims fo r relier.

Defendants a.lso ar g ue

the Co urt shou ld decline to exercise supp lemen tal jurisdiction over SE I ' s state law claims if the Court dismisses SEI's federa l claims.

A.

Sianding

Defendants contend that SE I has failed to es ta b li sh an act ua l case or controversy exists in this mailer because it cannot sa t isfy the "i njury-i n -face and "fairly traceablc" clemen ts of co n s tituti onal s tand ing. As stich , they argue th e Court lacks jurisdictio n over thi s casco SEI

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opposes Defendants' Motion and argucs its claims arc justiciable because Defendants' rcfllsal to

release its claimed ownership interest in SEI's patent has created uncertainty regarding SE l" s

ownership interest. In reply , Oerendants contend any alleged harm is only theoretical because

they have not made any use of the Invention and that SE I has failed to sufficiently allege any

harm. The Court agrees with Defcndants.

In its Opposition, SEI can nates Defendant s' Article III and California declaratory relief

arguments , but California law regarding declaratory relief is inapposite to the question of Article

111 standing. Article II I of the Const itution l imits the exercise of federal judicial powe r to

adjudication of actual cases or controversies. Toll Bros., Inc. v. Twp. of Readington. 555 F .3d

131, 137 (3d eif. 2009). This limitat ion is enforced through several justiciability doctrines.

including, standing, Illootness, ripeness, the po1iticnl-qucstion doctrinc , and the prohibi tion 011

advisory opinions. kL.

Pcrhap s the Illo s t important of these doctrines is standing. Id . The "irreducible

constitutional

minimum" of Article II I s tanding consists of three elements: ( I) the plaintiff must

have suffered <1 concrete. particularized injury-in-fact , which must be al!tual or imminent, not

co njectural or hypo t hetica l; (2) the injury must be (airly traceab le to the challenged actio n of the

defendant. and not the re su lt of independent action of some third party not before the Court: and

(3) the plaintifTmust <11so establish tbat a favorable decision would likel y redress the alleged

inJUry.

kL. at 137 -38. Defendants argue SE I ha s failed to establish the !irsl two elements.

SEt a s the party invoking federal jurisdiction. bears the burden of establishing Ihesc

clements.

Sec Lujan v. Defenders of Wildlifc . 504 U.S. 555. 561 (1992).

Each clement must be

su pported in the sa me way as any other matter on which SEI bears the burden of proof, i.e. "with

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the manner and degree of evidence required at the successive stages of the litigation:' llL. On a motion to dismiss, allegations may suffice because they are assumed true. Id. Thus, to slate an inj ury · in-fact sufficient to survive a motion to dismiss , SET must sufficient ly plead that it ha s sutTered some concrete harm beca use of Defendants' conduct. See N.J. Physicians. Inc. v. President of the United States. ~ F.3d ~, No.1 0-4600,2011 WL 3366340. at ·3 (3d C ir. Aug. 3. 20 II) (noting "standing cannot be inferred argumentatively from avemlcnts in the p leadin gs bu rather must affi rmativel y appear in the record'") (quotations omitted).

To sat isfy

the injury·in.fact element. the plaintirfmust have s uffered a palpable and

distinct harm that aflects the plaimiffin a persona l and individual way . Id. at ·3; Toll Bros., 555

F.3d at 138. In an action ror declaratory relief. the plaintiff need not suffe r the full harm

expected, so long as there is a s ub stanti al con tr oversy, betwee n parties ha vi ng adverse lega l

inte re s ts, of suffic ien t immediacy and reality to warralll issuance of a

declaratory judgment.

Khodara Envti., In c. v. Blakev, 376 F.3d 187, 193-94 (3d Cir. 2004): 51. Thomas-51. John Hotel & Tourism Ass'n v. Virgin Islands. 2 18 F. 3d 232. 240 (3d C ir. 2000) .

The inju ry Illust be conc rete and particularized, and act ual o r imminent. Lujan, 504 U.S.

at 564 n.2: N.J. Physici<lns. 20 11 WL 3366340. at·3 (stating plaintifTmust sufficie ntl y allege

both elements to establish s tanding). Int entions, wi thout concrete plans. do not support a finding of actual o r imminent injury. Lujan. 504 U .S . at 564 n .2 If there is no actual injury. the injury

mu st be at least immin ent. l4. Although an clas t ic co ncept. it cannot be stretched beyond its purpose which is to cnsure the alleged injury is not too speculative b ut is "certainly imp e ndin g." 1fL Allegations of injury are insufficient when the pluintiffal1eges injury at some future time and the acts necessary to make the injury happen are at least partly within the pll.lintiWs control. llL.

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Nonet hel ess. "[!"Injury-ill-fact is not Mount Everest." ' Danvers , 432 F.3d at

294. The con tours of

th e requirement. though not precisely defined. arc very generous. req uir ing only allega ti ons of some specific. identifiable tr ifle or injury . ~ (cit in g Bowman v. Wilson , 672 F.2d 11 45. 1151 (3d C ir. 1982 ».

In

its Complaint. SE I alleges Defendants have ere med uncertainty regarding SE J' s

exclus i ve rights in the invention , whic h has harmed SEI's replllation <Uld goodw ill. (Compl. ' l

32.) SE J raises tw o other all eged injuries in it s Opposition - SE l' s dispute w ith Defe nd ants has

impeded its ability to seek financing and has

had "subs tanti al and immediate impa c l o n th e

business of SEI" - but "liJt is axioma ti c that the com pl aint may not be ame nded by the briefs in opposition to a motion to dismiss. " (Opp'n at 5, 7); see Pennsylvania ex reI. Zim m erman v.

Pepsico, Lnc.,

Injury

836 F .2d 173. 181 (3 d Cir. 1988) (quota ti ons omitted). to repu ta tion . includin g cOlll m e rc i al reputation , m a y co nst itut e

a cognizable injur y-

in-ract for Article 111 s tan ding. See Foretich v. U nit ed States, 35 1 F.3d 11 98, 12 11 (D .C. C ir.

2003) (ci tin g Meese v. Keene. 481 U.S . 465. 473-77 (1987)): GTE Sy lva ni a In c. v. Co ns um cr

Prod. Sa fe t y Co mm ' n. 404 F. Sup p . 352. 366 (D. Del.

1975).

As for the alleged ' ·u n certa int y. · '

t he Cou rt linds a decision from th e Easte rn District of Virginia in stru ct iv e on th e issllc.

In Robi s haw Engine cring, In c. v. U nit cd StalCS, a patent-holder. who was nc go ti a tin g a

license agreement with the Uni ted States Army, filed s uit agai n st thc U nited States claiming that the A rm y's assertion of a royalty-free license put a cloud o n the patent and dimini shed its market

va lu c. 891 F. S upp . 1134. 1137 (E.D. Va. 1995). Judge E

lli s acknow ledged that patents

represen t legal rights. namciy the right to exclude parties other {han th e gove rnm e nt. ~ at 1149. He a lso recognized the "simple truism t hat the value of any legal ri g ht depends on {he lik e lih oo d

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ofsllccessFul1y enforcing il. liL Thus. any cloud or uncertainty regarding enforceability

diminishes the property 's market value, and any party who seeks ajudicial declaration to

cl iminate that uncertainty can point to the diminution in value as an injury-in-facl. liL But if that

uncertainty is always deemed suffic ient. stand in g would become a meaningless requirement. &

To exclude the possibility of rendering standing meaningless , Jud ge Ellis detemlincd that

sta ndin g requires the cloud or uncertainty to consist of a sufficiently immediate, definite. and

concrete threat to the legal right at issue . liL T hu s, the question is whether the defendant has

taken definite and co ncrete steps to asser t a claim or ha s at least threatened to assert a claim

advcrse to the plaintilrs interests. Id. at 1150. In Robi shaw, the Army took no firm position ,

only suggesti ng that it may have a royalty-free license. Id. The refo re

.

./udge Ellis co nclud ed the

p lai nt i (fhad failed to s ulIlcie ntl y allege an injury-in-fact based on a cloud on its patent. liL SE I

has s imilarl y fail ed to s llili cic ntl y allege an injury in fact.

As for the alleged harm

to

reputatio n and goodwill. SEI offe rs on ly bald assertions of

it~ury. SE I has not orfe red any factual allegatio ns o n which it bases it s con t ention it has suffered

harm t o reputation or goodwill. Failin g to meet it s burd en

of alleging stand in g aI this

stage of the

lit igat ion. the Court will dismiss SE I's Complaint w ith out prejudice t o SE I ame ndin g its

Complaint. !

LLP v. Patten,

The cases SE J rel ies on do not persuade the Co urt otherwise. In Leonard Carde r, Faith & Sa nd rord. the Caliro rnia COLIrt of Appea ls fo un d an act ual controve rsy

just i fyi ng ju ri s dicti on ove r the claim ror state- law declaratory relief.

116 Cal. Rptr. 3 d 652, 653

(Cal. Ct. ApI'. 20 I 0). Two law finns were disputing the allocation oflegal fees fro m settle m ent

o f a class action . liL a1 654. The money was held in

tru s t and the de rend ant claimed it \

....

as owed

forty percent based on a prior agreement. Jd . The plaintiff d isputed the ex is te nce of the agreeme nt and sent a check for the sig nificantly lower lodestar amou nt , with a note that the

payment was memo lille to

in "final settlement.·· liL Befo re cashing the check, the defendant amended the

re n ect the payment w a s "c redi t toward final sett lemc nt. "

Id.

Unlikc in this

case.

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  • B. Antitr u st Claims

Defendants offer two arguments in favor of dismissal of SEI' s antitrust claims.

First.

they contend they are not engaged in trade or commerce and. therefore , the Sherman Act does not

apply to them. Defendants also argue SE I has failed to

sufficiently plead a relevant product

market because no market exists; it has nol sufficiently pled an antitrust injury because

Defendants and SEI do not compete; Defendants maintain a monopoly through the Securities and

Exchange Commiss ion ("SEC ') not any anti-competitive conduct in violation of § 2: and

Defendants have engaged in unilateral conduct, not any combination in violation of § I.

In response. SE I focli ses on establishing that Defendants ' non-profit statliS is not

dispositive of the trade or commerce issue. Furthe r, SE I contends there is commerce involved

because Defe ndants allegedly misappropr iated SE I's patent and SEI is

a conune rcial e ntity. As

for the substance of

the claims , SEI argucs it sufflcicntly pled antitrust

injuries ofreduccd

innovation and excluded competition. As for the relevant market. SEI argues the Court must also

co ns ider potential markets , and SEI could po tentially compe te with Defendants. For its § 2

claim, SEI conte nds Defendants are

unlawfully maintaining their monopoly by taking SE l 's

each party had taken a firm position on the amount due the defendant , which created an o ngoing

controversy warran ting declaratory relief.

See id . at 656-57.

In Principal Life I nsurance Co. v. Robinson , the Ninth Circui t concluded an actual

d ispute existed regarding the calcu lation of rent unde r a lease agreement. 394 f

3d

665. 668 (9th

Cir. 2005). The plai ntiff had previously attcmpted 10 sell its intercst in the lease. but the

dispute

regarding the rent calc ul at ion unden11ined the

deal.

.kL. The Ninth Circuit found this past

dilliculty sugges ted the plaintilTwould continue

to have difficulty, which warranted declaratory

relicf.

Id. at 672. SE1, however , has not alleged any such past difJiculties or expcriences with the

Invention , making only conclusory assertions that its tit le is uncertain and that is has suffered

harm to reputation and goodwilL

Without more facts , SEI 's circumstances are distinguishable

fro m those in Leonard Carder and Principal Life.

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property. and fo r the § I claim. SEl argues the Website Tcnns may loml an agreement in

restraint of trade and both parties to an agreement need not s hare anti-competitive intent.

1.11 reply. Defendants argue they are not e ngaged in trade o r commerce because their

accounting standards arc freely available to anyone in the world and arc available without cha rge

aJld without paymcnt to Dcfendants. save for sa les of bounded vo lullle s and unrelated licen si ng

arrangements. They further contend that the challenged conduct i.e. adop tion of and adherence

to the Website Terms. is not motivated by co mmer cia l objectives or advantages despite receipt of

gove nuncnt funds. In

addition. Defendant s argue they are not participants in th e commercial

market for accounting standards and SEI only a ll eges injuries to itself rath e r than 10 competition.

Further. Defendants maintain th ey did no t engage in concerted act ion . but unilaterally adopted

the Website Terms.

  • I. "Trade or Comm erce "

The purpose of antitrust law is 10 regulate commcrce. which entails detennining the

applicability

of antitrust laws by considering the natur e of the activity being cha llenged. not the

nature of the

organization e ngaged in the activity.

1B Phillip E. Arceda & Il e rbert HovenkaJllp ,

AntitnJst Law

~ 260, nt

158, 161 (3d cd, 2006); sec Apex Hosiery Co, v, Leader , 310 U,S, 469 ,

  • 493 n, IS, 495 (1940); sec a lso United States v, Brown Univ"

5 F.3d 658, 665 (3d C ir , 1993)

( findin g antitrust law s apply to non-profit o rganizations engaged in commerce). Thus. the

threshold issue is whether the antitrust laws even apply to thc challe nged conduct. Brown Univ ..

5 F.3d at 665.

Il is axiomatic that

antitrust law s rcgul<llc on ly transactions that arc comme rcial in nature.

Id. Co urt s classify a transaction as commercial in nature based on the natu re of the challenged

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conduct in light or th e totality orthe surrounding circumstances. ld a t 666; see Arecda &

..

Ilovenkamp , supra' i 262a. at 177 (endo rsing object iv e test w hi ch asks whcther antitru s t

de rend ants are likely to receive direct economic benefit as a result of an y reduction in

com peti t ion in markct in which targct firms operate). An efrec t on prices is not essential. Klor 's,

In c. v. Broadway-Hale Sto res, In c., 359 U .S. 207. 2 13 n.7 ( 1959). The T hird Ci rcuit's ap proach

does not encompass restraints that result in incidental economic effects. See Pocono In v itati on al

S port s Camp, In c, v, NCAA, 317 F, Supp, 2d 569, 584 (E,D, Pa. 2004) (I3rod)', J.).

On a moti on to dismiss, th e Cour t should determine whether the cha ll enge d co ndu ct is

com mer cial based o n the faClual a lle ga ti ons in the complaint. See Ha milton C ha pt e r of Alpha

Delta Phi. Inc. v. Hamilt on Co lI

..

128 F.3d 59, 66 (2d Cir.

1997).

in lhi s case, SE I is cha ll enging

Defendants '

adoption o r and a dh e re nce to the Website T e rm s. pa rti c ul a rl y the reserva ti on of

right s to use any submi ucd idcas for any purpose , a nd subseq u en t refusal to release any

ownership int e rest. (CampI. ~'I 20, 27.f SE I alleges that Defendants have unlawfully clai m ed a

propri e t ary int e res t for the purpose of exclud in g SE I as a co m pet it or in the market for

es tabli shi ng accounting s ta nd a rd s in the United States. M ~ 37.) SE I con t e nd s Dere ndant s'

cond uct lessens co mp etition, discourages public co mm ent. d isco ur ages innovation , and

e ntr enc hes Defendants' monopoly. (ld 'i~ 38 , 40 .)

..

It is important at the outset to define the apparent scope or SE l' s antitrust claims against

Defendants.

SEI is not challenging FASB's conduc t in setting standards , w hi ch is a m arc

common subject of

antitrust review.

Instead, SE I is challe nging Defendant s' Website Te rm s

  • 2 As no ted below. Defendants' counsel's unconditional recantation oran ownersh ip interest a t o ral argument must be given some weight in assessing Plaintiffs all egations, which will pr esumably be clarified in an amended complaint.

-13-

which apply to

voluntary submiss io ns of solicited com m ents.

Federal co urt s have ex per ience with the " trad e or commercc" iss ue , particularly in the

context of the NCAA's regulation of s tudent athletic s.

Co urts have concluded that when the

challenged conduct con sists of academic rule s or player-eligibility requirements. the conduct is

non-commercial in natur e. E. g. , Smith v . NCAA. 139 F.3 d 180. 18 5-86 (3d Ci r. 1998) (holding

S herman Act d oe s not apply to NCAA rules and cJigibility requirements that primarily see k t o

ensure rair competition in collegiate s port s.

not to provid e the NCAA with a commercial

advantage). rcv ' d on other grounds. NCAA v . Smith, 525 U.S. 4 59 (1999) ; Pocono Invitational ,

3 17 F. Supp. 2d at 583-84 (co ncludin g rules relating to recruitment at s ummer camps are lik e

eligibility rule s and were enacted in sp irit or promotin g

amateurism in keep ing with NCAA ' s

ge neral goals): Collcgiatc Athletic Placement Serv o Inc. V. NCAA. No. 74-1144. 1974 WL 998 ,

at *4-5 (O.N.J . Aug.

22, 1974 ) (finding NCAA policy again st for-profit companies that find

athletic scholarships for s tudent- at hlete s was motivated by intent to ensure academic standards

and amateuri s m , not by anti-competitive Illotive o r intent ).

But when the challenged co nduct rcs train s revenue , output , or sa laric s. the rules are

almost always cOlllmercial.

E.g

..

NCAA v. Bd . of Regents ()f Univ . of Okla

..

468

U.S. 8 5. 11 3

( 1984) (finding NCAA' s te lev is ion plan amounted to unlawful hori zo ntal re straint on memb e rs'

ability to se ll tele vision rights to their ga m es because it operated to raise prices and reduce

output): Law

V. NCAA , 34 F 3d 10 I O. 101 2 (10th Cir. 1998) (affinning injun c tion against

NCAA's enforccment of rule that limited sa lari es of entry-level coaches as unlawful horizontal

restraint on trade ). The Co urt find s the se c a ses usefu l in thi s case because they suggest a

s pec trum of conduct to evaluate De fend ants' alleged co nduct.

  • - 14 -

Compared to this range of conduct. SE I has not sufficiently alleged that Defendants '

co nduct is commerc ial in nature . Considering the totality or c ircumst ;mces and SEl's allegations ,

FASB sough t volun ta ry comments from the public in an efTort to establish and promulgate

acco untin g standards for public companies within the United States. wh ic h is FAS B' s exclusive

prerogative. ) Defendants also adopted the Website Terms to reserve FASB's right to us e any

submissions for any purpose. including reproduction. disclosure. and pub l ication. SE l' s

allegat io ns do not suggest cond uct that is commerc ia l in natur e - there is no sale , no exc hange.

and no production. Compare. e.g. , Brown lJniv ., 5 F.3d at 668 (dete rminin g financial assistance

for studen ts is part and pa rcel of price·setti ng process and. thus , is a comme rcial transaction).

wi th . e.g. , Apex Hos ierv . 310 U.S. at 501·02 (co ncludin g labor union strike intended to co mp el

company to acce de to demands nol trade or comme rce despite delaying interstate s hipment or

goods); Mar jori e Webster Junior Co il., In c.

v. Middle S iai es Ass ' n of Coils. & Secon dary Schs. ,

  • 432 F.2d 650 , 654-55 (D.c. C ir . 1970) (finding non-profit organiza ti on's decision to deny

accreditation to for.profit school not commc rcia l absent intent or purpose to affect commercial

aspects).

The SEC has recognized FAS B as the only en tity \vhose work· product can be recognized as "genera ll y accepted" for the purpose of public companies' financial reporting. Commission Sta te ment of Po!icy Rcaffirming the Status of the FASB as a Designated Pri vatc-

J

Sector Stan dard Se ll e r, 68 Fed . Reg. 23 , 333. 23.333-34 (May 1. 2003); see Sa rb a nes·Ox ley Ac t

o r 2002 , Pu b. L. No.

107-204, § 108,

116 S Ial. 745 , 768-69 (codi fi ed a l 15 U.s.C . § 77s).

Congress also ens ur ed FASB would remain independent from the targets of its standards by c re ating an independent source of funding f-or FASI3 so that it no longer had to depend on volu nt ary contributions or sales of its standards. Donna M. Nagy, Playing Peckaboo wilh Co ns tituti o nal Law: The rCADB and Its Public / Private Stat us. 80 Notre Dame L Rev. 975. 987·

  • 89 (2005): sec

Sarbanes-Oxley Acl § 109 (codified al 15 U.S.C . § 72 19).

-15-

SEI contends FASS's conduct is commercial because SE I itself is a comme rcial

enterp ri se and Defendants misappropriated its patented Invention. But it is

the naturc or lh e

cond uct thai controls. not the nature orlhe organizalions. The a lle ged conduct enab les FASS to

solicit voluntary submissions or accounting-standard proposals. and then perform its function of