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CollegeNet, Inc. v. Common Application, Inc.

United States District Court, D. Oregon

November 28, 2018

COLLEGENET, INC., a Delaware Corporation, Plaintiff,
v.
THE COMMON APPLICATION, INC., a Virginia Corporation, Defendant.

          SARAH J. CROOKS PERKINS COIE LLP, SUSAN E. FOSTER SHYLAH R. ALFONSO DAVID S. STEELE PERKINS COIE LLP, JON B. JACOBS PERKINS COIE LLP ATTORNEYS FOR PLAINTIFF

          THOMAS TRIPLETT RICHARD K. HANSEN SCHWABE, WILLIAMSON & WYATT, P.C., J. MARK GIDLEY WHITE & CASE LLP, HEATHER M. BURKE WHITE & CASE LLP ATTORNEYS FOR DEFENDANT

          OPINION & ORDER

          MARCO A. HERNÁNDEZ UNITED STATES DISTRICT JUDGE

         Plaintiff CollegeNet, Inc., brings this antitrust action for violations of Sections 1 and 2 of the Sherman Act against Defendant The Common Application, Inc. Plaintiff brings seven claims for relief: (1) Horizontal Restraint of Trade in the Admissions Markets; (2) Horizontal Restraint of Trade in the Online College Application Processing Market; (3) Exclusive Dealing; (4) Tying; (5) Monopolization; (6) Attempted Monopolization; and (7) Conspiracy to Monopolize. Defendant moves to dismiss all of Plaintiff's claims and transfer this action to the Eastern District of Virginia. The Court denies Defendant's Motions to Dismiss and Transfer.

         BACKGROUND

         I. The Parties

         Plaintiff CollegeNET is a Portland-based corporation that offers various web-based administrative services to higher education and non-profit organizations, including customized online application forms, processing services, and contact management services. First Am. Compl. (“FAC”) ¶ 6, ECF 75. Defendant The Common Application is a Virginia-based nonprofit corporation comprised of 549 non-profit member colleges and universities. Id. at ¶ 7. It offers a standard college application data service, application forms, and processing services. Id.

         Defendant was formed in 1975 as a limited group of selective colleges seeking to simplify the college admissions process. Id. at ¶¶ 13, 38. The application was initially a paper form that was universally accepted by all member colleges, eliminating the need for applicants to write their basic information more than once. Id. at ¶ 13. According to Plaintiff, Defendant has since “transformed itself into a dominant online college application processing provider.” Id. at ¶ 14. As it grew, Defendant's members began to “understand that Common Application was providing tangible monetary benefits to them at the expense of applicants. What started out as a service to simplify the college application process for students had become a pipeline of applicants” Id. at ¶ 48. According to Plaintiff, membership grew “not to serve students but in part to secure a boost in applications, application fees, and rankings.” Id.

         Plaintiff alleges that Defendant is not a single entity, but rather a “consortium of competitors” that have participated with Defendant as co-conspirators in connection with the alleged antitrust violations. Id. at ¶¶ 8, 84. A majority of Defendant's steering committee or board of directors is made up of admissions officers from member colleges. Id. at ¶ 85. The board discusses and approves membership agreements, Common Application changes, and restraints. Id. at ¶ 86. Each year, member colleges sign an agreement with Defendant to abide by its rules and regulations. Id. at ¶ 88.

         II. Evolution of Defendant's Unlawful Conduct

         Plaintiff alleges various anticompetitive behavior resulting from membership restrictions and restraints, including but not limited to: (a) Tying and Bundling/Forced Purchase Requirements; (b) Exclusivity Restrictions; (c) the “Equal Treatment” Requirement; and (d) Uniformity Requirements. Id. at ¶ 15. Plaintiff suggests that none of these requirements-which Defendant operated without for 25 years-is necessary to achieve any legitimate or procompetitive goal of the Common Application. Id. at ¶ 16. According to Plaintiff, these restraints “have the primary effect of suppressing competition to provide online college application processing services to applicants and colleges, reducing net output, and excluding rival providers.” Id. They “are not ancillary to or reasonably necessary to carry out Common Application's official mission.” Id. at ¶ 159.

         In 2003, Defendant “redefined its ‘equal treatment' requirement.” Id. at ¶ 46. Specifically, it began requiring members to “encourage the use of the Common Application” by “(1) charging an application fee to Common Applicants that was ‘no greater than the fee charged for [their] other accepted applications; (2) providing ‘an equally prominent link to the Common App Online wherever [they] post[ed] a link to another online application; and (3) not ‘explicitly offer[ing] any special benefits to students regardless of the application they choose.'” Id. It also began charging non-exclusive members a higher fee per application than was charged to exclusive members. Id. at ¶ 47.

         In 2005-06, Defendant entered into agreements with Naviance and ApplyYourself (“AY”). Naviance is the “largest provider of planning and advising systems for secondary schools” with an “electronic document transmission system . . . integrated into more than 5, 500 schools.” Id. at ¶ 55. Defendant became “tightly integrated” with Naviance's system, and college counselors familiar with Naviance “encourage[d] students to apply to college through the Common App.” Id. Defendant also awarded an “exclusive Online College Application Processing Services contract” to AY from 2007 to 2013. Id. at ¶ 56.

         During this time, Defendant also made several changes to its services and pricing structure. Plaintiff alleges that Defendant's “typical pattern was to begin by offering additional ‘optional' services and then, after a few years, (1) bundle the services with its core offering, (2) make their use mandatory, and/or (3) impose penalties on members who did not agree to use Common Application's services exclusively.” Id. at ¶ 58. In the mid-2000's, for example, Defendant introduced supplemental forms and payment processing services. Id. at ¶ 59. Initially, members could pay for membership, applications, application payment processing, supplemental applications, and maintenance of supplemental applications separately. Id. But, in the late 2000's, Defendant “bundled all of its distinct services (except for payment processing) into a single offering for one all-in fee.” Id. at ¶ 61. In other words, Common Application still charged a membership fee and a fee per application, but the supplemental application and other services were “free.” Id. In addition, members who were fully exclusive and did not use other application providers were charged $4.00 per application processed as opposed to the standard $5.50 fee per application. Id. at ¶¶ 61-62. Defendant also began “restricting member institutions' ability to customize and personalize their Institutional Supplements.” Id. at ¶ 64.

         In 2011, Defendant announced its intent to end its contract with AY and-in 2014 with its fourth-generation system “CA4”-to bring the online processing staff, software, and infrastructure in-house. Id. at ¶ 66. According to Plaintiff, Defendant was equipping itself to “‘handle the full volume of the entire American college application process.'” Id. at ¶ 67.

         Plaintiff alleges that CA4 was a “woefully deficient, technologically backwards, glitch-riddled product that would never survive in a competitive marketplace.” Id. at ¶ 68. By further homogenizing the college application process, CA4 made it “harder for applicants and Colleges to identify good ‘matches.'” Id. at ¶ 79. CA4 eliminated file uploads and used text boxes that were limited to 650 words. Id. Applicants were further limited in the number of versions of essays they could upload and to answering four specific essay prompts. Id. at ¶¶ 80-81.

         In addition, Defendant made further changes to its pricing and membership structure. Under its new three-tiered membership structure, all members had to (1) use Defendant's Common Application for all form and payment processing-including Institutional Supplements-for Common Applicants; (2) accept all Common Applicant evaluation forms (including final transcripts) online, for schools that chose to send them online; and (3) accept the Common Application fee waiver. Id. at ¶¶ 74-75. In addition, “Exclusive I” members had to use the Common Application as their only admission application for full-time, undergraduate, degree-seeking applicants, and “Exclusive II” members had to (1) establish uniform fees for all applicants; (2) use the Common Application as their only transfer application; and (3) use Slideroom.com for their Arts Supplement (if they offered one). Id. at ¶¶ 76, 77. According to Plaintiff, the “penalties” for choosing to be a Non-Exclusive versus Exclusive II member are “extreme.” Id. at ¶ 78.

         Since 2000, Defendant's membership has grown substantially, reaching 549 members in the 2014-2015 academic year. Id. at ¶ 44. With that growth, its total revenue increased from $339, 046 in 2003 to $14.5 million in 2013. Id. It processed 3.45 million applications in the 2013-2014 application cycle. Id. at ¶ 82. In addition, in 2014 Defendant eliminated its “holistic admission membership requirement, ” allowing “virtually any College . . . to join Common Application.” Id. at ¶ 83.

         III. Anticompetitive Effects and Injury

          Plaintiff alleges that Defendant's agreements and the challenged restraints have had various anticompetitive effects. They have harmed competition in the Admissions and Online College Application Processing Markets. Id. at ¶ 149. They have resulted in lower “Net Output, ” defined as the net value derived from Online College Application Processing services including (1) quality, functionality, features, ease of use and level of innovativeness of Application Processing services; (2) the ability of applicants and Colleges to find good matches; (3) the ability to predict yield or matriculation; and (4) the amount of time and money spent by Colleges and applicants using these services. Id. at ¶¶ 21, 151, 153-56. According to Plaintiff, the equal treatment requirement in particular has reduced competition among members to offer better alternatives to the Common Application. It amounts to a group boycott and an agreement to suppress demand for application services. Id. at ¶¶ 151-52. Plaintiff alleges that Defendant has impermissibly tied its Standard College Application Data service to its Online Application Processing service through its “one-price-for-all-services model.” Id. at ¶ 153. The exclusivity provisions have also foreclosed rival providers by making it “prohibitively expensive for members to use and offer to applicants those rivals' services.” Id. at ¶ 154. The uniformity requirements have similarly reduced Net Output by decreasing the value that applicants derive from the application process and limiting their ability to find a good match. Id. at ¶ 155.

         Plaintiff has also been injured by the restraints. Plaintiff alleges that it has lost over 200 college customers to Common Application in the last 10-15 years. Id. at ¶ 37. Prior to the alleged restraints, Plaintiff asserts that it hosted Common Application Institutional Supplements and supported Common Application member colleges in other ways. Id. Plaintiff attributes its losses to these restraints. Id.

         According to Plaintiff, members receive certain benefits from the restraints. Id. at ¶ 157. The restraints allow them to spend less on online application processing services without a reduction in applicants. Id. at ¶ 157(a). They boost their application numbers, fees, and rankings. Id. at ¶ 157(c). Plaintiff alleges that early members in particular have a “significant financial interest and have invested substantial time and effort” in the commercial joint venture such that they are motivated to prevent competition. Id. at ¶ 157(b).

         IV. The Relevant Markets

         Plaintiff alleges that there are four relevant markets in which to analyze the effects of Defendant's allegedly unlawful restraints: “(1) the market for applicants to Colleges (the “Student Application Market”); (2) the market for admission to Colleges (the “College Admissions Market”) ((1) and (2) collectively, the ‘Admissions Markets'); (3) the Online College Application Processing Market and each of its submarkets; and (4) the College market for Standard College Application Data Services.” Id. at ¶ 90. In the alternative, Plaintiff contends that the Admissions Markets may be limited to Elite Colleges, defined as top-50 universities and top-50 liberal arts colleges by U.S. News & World Report. Id. at ¶¶ 18, 91.

         Plaintiff contends that the Online Application Processing Market is a distinct product market. Id. at ¶ 92. It is limited in geographic scope to the United States, and suppliers include: Defendant, Plaintiff, Applications Online LLC (“AOL”), XAP Corporation, Hobsons U.S., and AY. Id. at ¶¶ 33, 93. Plaintiff alleges that the market does not include applications to graduate programs (which cost more and are not a reasonable substitute for the college product) or student information systems (“SIS”) (which are more limited products and require significant investment from the college). Id. at ¶¶ 96-106. Plaintiff alleges that barriers to entry are high because of the high fixed costs involved in entering the industry and the difficulty obtaining and retaining customers due to Defendant's entrenchment and exclusivity agreements. Id. at ¶¶ 107-10. Plaintiff also alleges that Defendant's exclusivity agreements, equal treatment requirements, bundling/forced purchase requirements, and tying behavior disincentivize offering other applications and have made switching costs high. Id. at ¶¶ 110-13. Plaintiff contends that Defendant's share of this market is 60%: “In 2014-15, an estimated 9.4 million undergraduate applications will be submitted, with 5-6 million processed online by third-party providers, and approximately 3.6 million of which will be processed by Common Application.” Id. at ¶ 115.

         The Standard College Application Service Market is a distinct product market. Unlike the Online Application Processing Market, “which includes full application form development and processing, ” the Standard College Application Data Service “provides a generic, text-based data entry form for applicants to input their background information required by more than one College.” Id. at ¶ 118. Plaintiff alleges that there are no reasonable substitutes for access to this product, which generates an “applicant pipeline.” Id. at ¶ 121. Competitors in this market include AOL (provider of the Universal College Application) and Defendant. Id. at ¶¶ 24, 122. Plaintiff alleges that Defendant's share of this market is 90%. Id. at ¶ 122.

         The Student Application Market and College Admissions Markets are also distinct product markets. Id. at ¶ 124. They are supplied by Online Application Processing providers. Id. at ¶ 125. The Student Application Market is limited to applications for admission to full-time, four-year degree programs at Colleges (“regionally accredited, non-profit, undergraduate colleges and universities”). Id. at ¶ 124. Similarly, the College Admissions Market is comprised of full-time, four-year College degree programs. Id. Plaintiff contends that graduate programs; part-time or two-year programs; programs at non-regionally accredited, for-profit schools; or non-US institutions are not substitutes for Colleges and thus excludable from these markets. Id. at ¶ 127. Plaintiff contends that Defendant will process 40-45% of College applications in 2014- 15 year and therefore controls at least 40-50% of the Student Application Market. Id. at ¶ 129. Plaintiff alleges that this number is an understatement of Defendant's market power, or “their ability to reduce Net Output without losing applicants” as a result of the network effects of its applicant pipeline. Id. at ¶ 130. There are also high barriers to entry in this market. Id. at ¶ 131.

         The College Admissions Market is the market for admission to full-time, four-year College degree programs. Id. at ¶ 138. For the reasons discussed in the preceding paragraph, this market excludes other degree programs, and Defendant has similar market share and market power. Id. at ¶¶ 139-40. Plaintiff contends that the ability of Defendant to offer a product with “inferior functionality” at a high cost with limitations on Colleges' advertising opportunities and the ability of applicants to find a good College (without losing users) is direct evidence of Defendant's “unconstrained exercise of their market power.” Id. at ¶ 137.

         V. Procedural History

         Plaintiff filed this case in the District of Oregon on May 8, 2014. Compl., ECF 1. On May 15, 2015, the Court granted Defendant's first Motion to Dismiss Plaintiff's claims for failure to plead antitrust injury. Opinion & Order, ECF 96. On appeal, the Ninth Circuit reversed the decision of the district court and remanded this case for further proceedings. Mandate, ECF 112. On July 12, 2018, Defendant filed its Motion to Dismiss, and on August 3, 2018, Defendant filed its Motion to Transfer. Def. Mot. Dismiss, ECF 137; Def. Mot. Transfer, ECF 146.

         STANDARDS

         I. Motion to Dismiss

          A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of the claims. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party.” Am. Family Ass'n, Inc. v. City & Cnty. of S.F., 277 F.3d 1114, 1120 (9th Cir. 2002). To survive a motion to dismiss, a complaint “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face[, ]” meaning “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). In other words, a complaint must contain “well-pleaded facts” that “permit the court to infer more than the mere possibility of misconduct[.]” Id. at 679.

         However, the court need not accept conclusory allegations as truthful. See Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (“[W]e are not required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint, and we do not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations.”) (internal quotation marks, citation, and alterations omitted). A motion to dismiss under Rule 12(b)(6) will be granted if a plaintiff alleges the “grounds” of his “entitlement to relief” with nothing “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action[.]” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)[.]” Id. (citations and footnote omitted).

         II. Motion to Transfer Venue

         28 U.S.C. § 1404 governs motions to transfer venue: “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” The purpose of the § 1404(a) is to “prevent the waste of time, energy and money and to protect litigants, witnesses, and the public against unnecessary inconvenience and expense.” Van Dusen v. Barrack, 376 U.S. 612, 616 (1964) (internal citation and quotation marks omitted). The decision whether to transfer venue lies in the discretion of the district court. 28 U.S.C. § 1404; Jones v. GNC Franchising, Inc., 211 F.3d 495, 498 (9th Cir. 2000) (Under section 1404(a), "the district court has discretion to adjudicate motions for transfer according to an individualized, case-by-case consideration of convenience and fairness.") (internal quotation omitted).

         The burden is on the moving party to demonstrate that the balance of conveniences favoring the transfer is high. The defendant must make “a clear showing of facts which . . . establish such oppression and vexation of a defendant as to be out of proportion to plaintiff's convenience, which may be shown to be slight or nonexistent.” Dole Food Co. v. Watts, 303 F.3d 1104, 1118 (9th Cir. 2002).

         DISCUSSION

         I. Judicial Notice

         Both parties filed requests for judicial notice.[1] Typically, “when the legal sufficiency of a complaint's allegations is tested by a motion under Rule 12(b)(6), review is limited to the complaint.” Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). “Indeed, factual challenges to a plaintiff's complaint have no bearing on the legal sufficiency of the allegations under Rule 12(b)(6).” Id. However, without turning a motion to dismiss into a motion for summary judgment, the Court may consider “material which is properly submitted as part of the complaint, ” documents not physically attached to the complaint if their authenticity is not contested and they are relied on in the complaint, and documents that are subject to judicial notice. Id. at 688-89.

         Courts may take judicial notice of information “not subject to reasonable dispute because it (1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b). Courts may take judicial notice of SEC filings, press releases, or contents of a website, when they are “matters of public record.” See Lee, 250 F.3d at 688-89; see also Nw. Pipe Co. v. RLI Ins. Co., No. 3:09-CV-01126-BR, 2014 WL 1406595, at *5 (D. Or. Apr. 10, 2014). When a court takes judicial notice of a public record, “it may do so not for the truth of the facts recited therein, but for the existence of the ...


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