Facebook Loses Bid to Knock Out Antitrust Claims by Kickflip
Despite hiring the former head of the U.S. Department of Justice's antitrust division, Facebook Inc. failed to knock out antitrust claims brought by Kickflip Inc. over Facebook's virtual currency service and social gaming network. U.S. District Judge Leonard Stark in Wilmington, Del., denied Facebook's motion to dismiss with this 16-page decision Friday.
Kickflip can continue pressing claims that Facebook monopolized the market for virtual currency by banning Kickflip's Gambit payment service and forcing social gaming developers such as Zynga to use Facebook Credits instead. The company is represented by Newman Du Wors; Strange & Carpenter; and Morris James.
Kickflip sued roughly a year ago, accusing Facebook of exploiting its dominance in the market for social-game networks to force companies to use Facebook Credits. The complaint accused Facebook of blacklisting Gambit in 2009 under the false pretense that the move was needed to maintain the integrity of its social network. Facebook then required social-game developers to use only Facebook Credits to get access to its network, the plaintiff alleged. Facebook Credits charges game developers a fee of 30 percent on virtual currency transactions, while Gambit would have charged about 10 percent and offered a wider range of service, the complaint states.
"Facebook set out systematically to destroy competition in the market for virtual-currency services," Kickflip maintains.
Facebook hired Thomas Barnett, the former head of the DOJ's antitrust division, who is now at Covington & Burling. In their motion to dismiss, Facebook's lawyers at Covington and Ashby & Geddes argued that Kickflip was booted from the social network for running deceptive ads and accessing user information without authorization.
"A website operator does not violate the antitrust laws or the law on tortious interference by protecting its customers against misleading and fraudulent advertisements," they maintained. They also argued that Kickflip lacked standing because it divested the Gambit business in 2009 to a separate corporate entity, Gambit Labs Inc.
In his ruling Friday, Stark refused to dismiss Kickflip's antitrust and tortious interference claims, but in a separate order he opened early discovery to deal with the standing issue.
Kickflip's lawyer Derek Newman at Newman Du Wors called the standing issue a red herring, and said that at worst Kickflip's Gambit subsidiary would be required to join the case as a co-plaintiff.
"Kickflip is celebrating today and looking forward to putting the facts together to win at trial," he said. Newman estimated Kickflip's damages in the tens of millions of dollars, which would be trebled if Kickflip prevails.
"We believe the allegations are without merit and we will continue to defend ourselves vigorously," a Facebook spokesperson said in a statement. Covington's Barnett did not immediately respond to a request for comment.