A federal judge in Delaware refused on Friday to dismiss a lawsuit filed against Facebook Inc. by a rival in the market for virtual currency used for online games.
U.S. District Judge Leonard Stark’s order keeps alive Kickflip Inc.’s claims: that Facebook illegally monopolized the virtual currency market, and that Facebook’s requirement that social-game developers use its virtual currency amounted to an illegal-tying arrangement.
Stark also declined to dismiss Kickflip’s Delaware common law claim of tortious interference with contractual relations. Kickflip alleged that Facebook used its power to prompt social-game developers to end contractual relationships with the smaller company.
Kickflip claimed that Facebook’s anticompetitive actions destroyed its Gambit game currency business.
According to Kickflip, Facebook first banned Gambit from its platform in 2009. Then in 2011, Facebook began mandating that social-game developers use Facebook’s virtual currency to host their games there.
Kickflip seeks a permanent injunction barring further alleged illegal monopolization and illegal tying, plus treble damages on its antitrust claims.
Of the monopoly claim, Stark wrote that Kickflip “adequately alleges that Facebook engaged in anticompetitive conduct to obtain a monopoly consisting of 90 percent of the market.”
“To the extent Facebook argues Kickflip fails to allege that Facebook’s competitors actually went out of business, the Court is not persuaded that this would be a necessary allegation. Kickflip adequately alleges that Facebook’s conduct injured its competitors,” Stark wrote.
Of the illegal-tying claim, Stark wrote that Kickflip met the three elements required under U.S. Court of Appeals for the Third Circuit case law. First, “Facebook ties virtual-currency services to the distinct product of social-game networks,” he wrote. He cited Facebook’s 90 percent market share. Finally, Stark wrote, Facebook’s conduct eliminated virtual-currency competitors, which allowed Facebook to earn $557 million for that business for half of 2011.
“[F]acebook’s conduct essentially consumed the virtual-currency services market, eliminating it from being a market distinct from Facebook itself,” Stark wrote.
“We’re excited because we think that the court agreed with our analysis of the relevant issues and the way this business worked,” said one of Kickflip’s lawyers, Brian Strange, managing partner of Los Angeles’ Strange & Carpenter. His firm is co-counsel with another Los Angeles firm, Newman DuWors. Morris James of Wilmington, Del., is local counsel.
Facebook’s lawyers at Washington’s Covington & Burling referred questions to the company. In an email, a Facebook representative said, “We believe the allegations are without merit and we will continue to defend ourselves vigorously.”
Ashby & Geddes of Wilmington, Del., also represents Facebook in the case.
Sheri Qualters can be contacted at email@example.com.