Cardroom International v. Mark Scheinberg, et al: Antitrust Allegations Nixed by Court

scales-justiceContinuing on with the matter of the proposed final decision in the California civil case of Cardroom International LLC v. Mark Scheinberg, et al, we’ll look today at how presiding judge Elizabeth White dismissed the antitrust violations alleged by Cardroom and its owner/attorney, Cyrus Sanai.

Cardroom Intl’s lawsuit against several owners and corporate entities of PokerStars and the old Full Tilt (today also owned by PokerStars, and referred to in the action as Tiltware), alleged antitrust violations by the two companies in addition to the civil RICO complaint, through which Cardroom Intl. and Sanai sought to attach a trebled-damages amount of $30 million from the gigantic “Black Friday” settlement paid by PokerStars to the US Department of Justice in 2012.

In last night’s lead story, in which we broke the news of the pending final decision in the case, we focused on the arguments given in Judge White’s decision pertaining to the rejection of the civil RICO claims.  Today, it’s a deeper examination of why the antitrust allegations in the Cardroom Intl. action were also ruled meritless.

In the three recent hearings in the case in May and June, the cases two antitrust allegations were discussed, and both dismissed as being unsupported by the facts.  The twinned allegations cited Florida’s antitrust statutes and California’s Cartright Act as applicable statutes, respectively.

However, Judge White side with the defendants’ argument that “no conduct prohibited under antitrust laws has been, or can be, alleged.”  White also refers to oral arguments offered by Sanai in the June 7 hearing as well as an attempt on the same date to introduce additional evidence, apparently in an attempt to introduce a pre-UIGEA conspiracy by Stars and Tilt to dominate the US airwaves with their own poker programming.

Judge White shot down the argument, noting both that the universe of available broadcast networks was not limited to ESPN and FOXSports, two networks that reached reciprocal agreements with Stars and Full Tilt.  White also noted that Sanai’s theory misplaced the relative applicability of seller-side and buyer-side market power, and that the specific network’s willingness to enter into deals with the major poker sites to offer related free-to-play sites was in no way an antitrust violation.

Sanai’s and Cardroom International’s assertion that networks such as ESPN were therefore obligated to do business with CI, and that any exclusive deals such networks reached with other sites were therefore a per se antitrust violation, was dismissed out of hand as well.

The following passages from White’s proposed decision show how some of the strained logic used in support of the case’s allegations was dissected, then dismissed:

[Plaintiff] alleges that Defendants conspired to create poker television programs and used their dominant position in real-money play to require their software system be used for fantasy poker play offered on the websites of broadcast and cable networks in the United States with Defendants’ purchase of airtime or advertising time on such networks.  Plaintiff that this made it impossible for Plaintiff to license its software to such media companies.  Plaintiff also alleges that “[t]he sale of combined package of television programs and compulsory acceptance of an exclusive license was an unreasonable restraint on its own, and … was a per se violation of the antitrust laws….

At the June 7, 2013 hearing, Plaintiff argued that it properly alleged an antitrust conspiracy.  Plaintiff is incorrect as it has not plausibly alleged an antitrust conspiracy.  Notwithstanding Plaintiff’s repeated attempts at the hearings to supplement its SAC [Second Amended Complaint] with unpled factual allegations, the SAC does not allege facts sufficient to render its conspiracy allegations plausible, nor has Plaintiff articulated any reason why participation in such a conspiracy would be in [Primary Defendant] Tiltware’s interest.

The decision continues with an explanation of why the deals the sites reached with the braodcast networks were not anti-competitive, in that involved no restraints such as price-fixing or market allocation, conditions that would have had to have been employed by the broadcast networks themselves, not Stars or Full Tilt.

White ultimately cited three main arguments for why the Cardroom International antitrust allegations against PokerStars, Full Tilt, and several of its owners failed a “rule of reason” analysis, and therefore must be dismissed:

First, Plaintiff has failed to adequately plead a relevant market.  The one market that is pleaded with particularity — real-money, peer-to-peer online poker — contains no alleged geographic boundaries.  The SAC hints at a fantasy-poker market, but it is unclear from the SAC whether this market refers to the sale of fantasy poker playing opportunities to consumers or to the sale of advertising on fantasy poker websites.

Second, Plaintiff’s theory of anticompetitive effects is that Tiltware and PokerStars used their combined market power in the “real money” online poker market, to coerce media companies into licensing Tiltware and/or PokerStars’ software as a condition of Tiltware and/or PokerStars’ purchase of airtime from the media companies, thereby foreclosing these companies to Plaintiff.  This theory, however, would not require Tiltware and/or PokerStars to have seller-side market power in the “real money” market, but would instead require one or both companies to have buyer-side market power in the market for the purchase of airtime from media companies.  As Defendant pointed out at oral argument on May 8, 2013, Plaintiff’s focus on the purchase of airtime for poker programs is an artificially limited market which is not defined in terms of the reasonable interchangeability of substitute products, i.e., other purchasers’ non-poker programs or advertisements.

Third, in the absence of such market power, any agreement between Tiltware and PokerStars, even if proven, could not have prevented Plaintiff from bringing its own software to market.  The success of other online poker business, such as Zynga, illustrates that Tiltware and PokerStars did not foreclose competition as a matter of law.

All of the above gets to the nub of White’s ruling, that it was in the power of the various broadcast and cable networks themselves to choose (or choose not) to do business with Cardroom International, and that the ability of Stars and Tilt to land major deals with ESPN and FOXSports did not unfairly constrain CI’s ability to reach similar market deals elsewhere.

As we noted last time, Cardroom International and Sanai filed an immediate objection to the proposed ruling.  Assuming the objection is denied, and taking into account the delaying and complicating nature of Sanai’s legal efforts in the Stars/Tilt legal matters, some form of appeal seems all but inevitable.  We’ll have a look inside Sanai’s already-filed written objection in the very near future.


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