Arista Records LLC v. Lime Group LLC

Citations: 532 F. Supp. 2d 556; 2007 U.S. Dist. LEXIS 88449; 2007 WL 4267190Docket: 06 Civ. 5936(GEL)

Court: District Court, S.D. New York; December 3, 2007; Federal District Court

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Thirteen major record companies, including Arista Records LLC and Sony BMG Music Entertainment, filed a copyright infringement complaint against Lime Group LLC and its affiliates, alleging violations of federal law and various New York State laws. The defendants, including Lime Wire LLC and its officers, counterclaimed under the Sherman Antitrust Act and Clayton Act, asserting that the plaintiffs conspired to monopolize the digital distribution of copyrighted sound recordings. Additionally, they raised state law claims for conspiracy, deceptive trade practices, and tortious interference. The plaintiffs moved to dismiss these counterclaims under Federal Rule of Civil Procedure 12(b)(6). The court noted that for this motion, all factual allegations in the defendants’ counterclaims were assumed to be true. The background highlighted the dominance of the plaintiffs in the music distribution industry, where they control the majority of recorded music rights and distribution channels. However, technological advancements in the 1990s reduced the costs and barriers for artists to record and distribute music digitally, diminishing reliance on traditional record companies and physical media.

Napster pioneered a file-sharing application allowing users to exchange digital files via centralized servers. Lime Wire developed a similar peer-to-peer (P2P) application enabling direct file sharing without centralized servers. Lime Wire also launched the "MagnetMix" website, initially offering links to licensed copyrighted music for free, but aimed to eventually monetize this content alongside its P2P application. 

In response to changes in music distribution, counter-defendants allegedly engaged in anticompetitive practices to maintain their oligopoly in the digital music market. They formed joint ventures, MusicNet and pressplay, to exclusively license music for online distribution, which facilitated price-fixing and eliminated competition in wholesale pricing, resulting in inflated prices for retailers and consumers. Both joint ventures allegedly coordinated to set fixed prices and restricted retail licensees from negotiating directly with major labels.

Despite eventually divesting from MusicNet and pressplay, counter-defendants allegedly sought to control distribution through P2P companies like iMesh, which was licensed to distribute content and employed approved filtering technology. Counter-defendants purportedly pressured U.S.-based P2P companies to accept iMesh's offers or face litigation from the RIAA.

Lime Wire sought licensing from the RIAA for its hash-based filtering system but was met with rejection; RIAA insisted Lime Wire adopt only acoustic fingerprinting technology. iMesh allegedly pressured Lime Wire by revealing financial statements of a settled company to encourage acceptance of a buyout offer. The record companies purportedly limited licensing to "dead end licenses," which only allow one-time access to digital files, hindering P2P platforms not using iMesh from obtaining licenses due to their decentralized nature. 

Lime Wire developed a P2P application enabling direct file sharing and launched MagnetMix in July 2003 to link to licensed content, intending to educate users about the legality of downloading copyrighted material and promote legal purchases. Lime Wire aimed to implement a hash-based filtering mechanism to prevent illegal downloads, essential for MagnetMix's commercial success. Although some content owners provided their hashes, counter-defendants refused to supply hashes unless Lime Wire obtained a license from Altnet, which claims proprietary rights to the hashing technology. Lime Wire contests the validity of Altnet's patents and accuses counter-defendants of conspiring with Altnet to compel licensing, thereby engaging in anticompetitive practices to harm Lime Wire's position in the digital distribution market.

Additionally, counter-defendants allegedly conspired to coerce advertisers and vendors to cease dealings with Lime Wire, enforcing contract clauses that prohibited Internet Service Providers (ISPs) from collaborating with P2P software providers, including Lime Wire, and refusing to engage with ISPs that had advertising arrangements with Lime Wire.

Counter-defendants, through the RIAA and other entities, are accused of engaging in unfair business practices against Lime Wire, which include hacking user files, making false claims that Lime Wire promotes child pornography and piracy, threatening P2P software users with litigation based on illegally obtained information, and pressuring artists to refrain from licensing their works to non-affiliated P2P providers. Lime Wire asserts that these actions form part of a conspiracy to eliminate competition and monopolize the digital music distribution market. In contrast, counter-defendants argue that these allegations are a tactical effort to complicate a straightforward copyright infringement case into a false antitrust action. They have filed a motion to dismiss Lime Wire's counterclaims under Federal Rule of Civil Procedure 12(b)(6), challenging the adequacy of Lime Wire's claims. A claim may be dismissed if it does not present sufficient facts to establish a plausible entitlement to relief, as outlined in Bell Atlantic v. Twombly and further clarified by Iqbal. While detailed fact pleading is not necessary, there must be enough factual content to make a claim plausible rather than merely conceivable. The court must assume the truth of the facts alleged in the counterclaim, consider certain documents referenced, and construe the claims liberally, while also noting that conclusory statements cannot replace necessary factual allegations.

Lime Wire claims that counter-defendants have conspired to eliminate competition and monopolize the digital distribution market for copyrighted music in the U.S. It seeks treble damages under the Sherman Antitrust Act and the Clayton Act. Counter-defendants assert several defenses, including Lime Wire's lack of standing due to insufficient antitrust injury, failure to define a relevant market, inadequacy of conspiracy allegations, and reliance on a flawed "shared monopoly" theory.

For a private plaintiff to recover under antitrust laws, they must show "antitrust standing," which includes demonstrating injury-in-fact to their business or property caused by the violation, as well as a specific type of antitrust injury that aligns with the intent of the laws. Antitrust injury must stem from actions that reduce competition and is not merely a result of competitive conduct. To prove antitrust injury, a plaintiff must establish (1) actual injury, (2) caused by the violation, and (3) of a type that the statute aims to prevent. Even with a valid antitrust injury claim, standing can be denied if the plaintiff is not deemed an "efficient enforcer," based on factors such as the directness of the injury, the presence of other potential plaintiffs, the speculative nature of the injury, and the risk of duplicative damages. The relevance of these factors can vary based on the specifics of each case.

Lime Wire alleges that counter-defendants conspired to fix prices for licenses at wholesale and retail levels, using joint ventures MusicNet and pressplay to coordinate this price-fixing among record companies. Although horizontal price-fixing is per se unlawful under the Sherman Act, Lime Wire has not demonstrated that it suffered any actual injury as a result of this arrangement. The allegations indicate that while Lime Wire sought licensed content from independent sources, it did not pursue licenses from the counter-defendants or their joint ventures, undermining its claim of injury-in-fact.

Lime Wire also claims that counter-defendants engaged in retail price-fixing, which could be unlawful under certain circumstances. However, it has failed to establish any actual harm stemming from this alleged agreement. Lime Wire does not allege that the fixed retail prices were predatory, and without such an allegation, it lacks standing to challenge the retail price-fixing. Furthermore, even if the joint ventures' pricing arrangement led to lower retail prices, this would not constitute antitrust injury, as competitive pricing is a fundamental aspect of market competition. If the joint ventures' prices were above competitive levels, it would harm consumers, but Lime Wire, as a competitor, would not suffer injury from a price increase. Overall, Lime Wire's assertions lack the necessary factual basis to claim antitrust injury from the alleged price-fixing schemes.

Matsushita Elec. Indus. Corp. v. Zenith Radio Corp. establishes that competitors cannot challenge minimum price-setting conspiracies. Lime Wire, claiming to be an intrabrand competitor of the joint ventures, fails to allege any attempt to obtain licenses from counter-defendants, rendering it merely a prospective competitor. Consequently, even if other competitors were harmed by the alleged vertical price-fixing, Lime Wire lacks actual injury needed to establish standing as an "efficient enforcer" of antitrust laws.

Additionally, Lime Wire's allegations regarding exclusive distribution agreements and restraints imposed by counter-defendants do not demonstrate any actual injury. It does not claim to have sought licenses from counter-defendants or to have been prevented from negotiating directly with record companies. Although it mentions approaching the RIAA for licenses, it does not provide details on the RIAA's relationship with counter-defendants or its authority to act for them. Claims of coercion from the RIAA and the counter-defendants regarding negotiations and buyout proposals are characterized as preliminary negotiations rather than concrete refusals to deal. Thus, while Lime Wire expresses a desire to operate as a retail distributor, it fails to allege that it sought licenses, which is necessary for establishing injury-in-fact. Other retail competitors who have faced refusals or restrictions may have standing, but Lime Wire, as a prospective distributor, cannot prove it has suffered any injury from the alleged distribution restraints.

Lime Wire claims that counter-defendants denied it "reasonable access" to hashes of copyrighted works unless it first obtained a license from Altnet, which allegedly owns the rights to the hash-based filtering technology. This mandatory licensing scheme is argued to have caused direct antitrust injury to Lime Wire by increasing its operational costs and hindering its competitive ability in the digital distribution market. The counter-defendants assert that Lime Wire has not demonstrated how their actions harmed its P2P service or MagnetMix. However, Lime Wire contends that MagnetMix was designed to acquire and sell licensed, rights-managed copyrighted content, and that access to hashes was crucial to prevent illegal downloads through its software. Without these hashes, users could bypass legal purchases, undermining MagnetMix's business model. The counter-defendants' licensing regime is said to have raised costs for Lime Wire and similar businesses, limiting their competitiveness against other retailers selling the same music. Citing relevant case law, the document emphasizes that while antitrust laws mainly protect interbrand competition, they also address intrabrand restraints, which can significantly influence consumer welfare by exerting downward price pressure.

Counter-defendants control a significant portion of the copyrighted sound recordings market in the U.S., influencing intrabrand competition among retail distributors and impacting consumer prices. Lime Wire alleges that the counter-defendants' mandatory licensing requirement not only harmed its business but also reduced competition by limiting the ability of P2P retailers using hash-based filtering technology to compete effectively. Despite counter-defendants potentially establishing a legitimate business purpose for this requirement, Lime Wire's allegations are deemed sufficient to claim an antitrust injury at this stage. Lime Wire asserts that the record companies’ refusal to grant it reasonable access to their hashes directly hindered its development as a viable digital music distributor, essentially excluding it from the market due to the record companies' dominance. This exclusion aligns with the purpose of antitrust laws, which aim to prevent such injuries. Lime Wire is considered an "efficient enforcer" of antitrust laws and belongs to the identifiable class of persons motivated to uphold public interest in antitrust enforcement. While Lime Wire alleges further anticompetitive conduct by counter-defendants, these claims do not provide sufficient grounds for antitrust standing. Notably, Lime Wire states that counter-defendants pressured ISPs to avoid dealings with P2P companies and rejected ISPs that collaborated with Lime Wire.

Lime Wire's allegations suggest potential antitrust injury due to counter-defendants' actions impacting P2P retailers and ISPs, leading to a loss of advertising revenue. However, the court finds that Lime Wire fails to demonstrate how its alleged injuries align with the antitrust laws' intent to protect competition rather than individual competitors. The court notes that the allegations, including claims of hacking and false accusations against Lime Wire, pertain to the company itself rather than market competition. As such, these allegations do not constitute antitrust injuries under federal law, although they may support state tort claims. Most of Lime Wire's claims do not show an adverse effect on competition or cognizable harm, limiting its standing to challenge only the counter-defendants' licensing regime for hash-based filtering technology. Furthermore, counter-defendants argue that Lime Wire has not defined a coherent relevant market, which is necessary to sustain a claim under Sections 1 and 2 of the Sherman Act. Lime Wire's assertions of multiple overlapping markets lack factual support and a clear rationale, undermining its claims.

Counter-defendants do not contest Lime Wire's designation of the United States as the relevant geographic market, focusing instead on whether Lime Wire has sufficiently alleged a relevant product market. A relevant product market is defined by products that are reasonably interchangeable based on price, use, and qualities, as established in PepsiCo, Inc. v. Coca-Cola Co. The court emphasizes that market definition involves a fact-intensive inquiry, making it hesitant to dismiss cases for failing to plead a relevant product market. 

Lime Wire claims that the relevant product market is the digital distribution of copyrighted music over the internet. Despite minor inconsistencies in terminology within the filings, these are deemed "mere technical defects" and insufficient for dismissal. Lime Wire distinguishes this digital market from physical music products, highlighting differences in consumer preferences and the advantages of digital formats, which support a plausible claim that consumers would not switch to physical products in response to price changes.

Lime Wire's First Count alleges a conspiracy in restraint of trade under Section 1 of the Sherman Act. To establish this claim, the plaintiffs must provide allegations that plausibly suggest an agreement, as outlined in Bell Atlantic v. Twombly. Merely consistent allegations of an antitrust conspiracy are inadequate; the complaint must present enough factual material to imply that an agreement to engage in anticompetitive conduct exists. The Twombly ruling does not require a heightened pleading standard but mandates that claims must be plausible rather than merely conceivable.

Lime Wire has established antitrust standing solely regarding its challenge to the counter-defendants' mandatory licensing regime for hash-based filtering technology. The Court's focus is limited to whether Lime Wire has presented sufficient facts that suggest a conspiracy among the counter-defendants to impose this licensing requirement. The counter-defendants argue that Lime Wire has failed to provide any plausible allegations of conspiracy, while Lime Wire asserts that the record companies' denial of "reasonable access" to their hashes contradicts their economic self-interest, indicating concerted action.

However, similar to the plaintiffs' claims in Twombly, Lime Wire's allegations rely on conclusory statements or mere parallel conduct without specific factual support. The allegations lack clarity regarding which of the thirteen counter-defendants conspired, the timing and location of any agreement, and the nature of interactions among the record companies and Lime Wire. Lime Wire only claims to have approached the RIAA for approval of its filtering system but fails to detail the relationships between the counter-defendants and the RIAA, or the RIAA's authority to act on their behalf. Consequently, the assertion that the record companies used the RIAA for concerted action is deemed conclusory.

Furthermore, even if the RIAA had been authorized to act for all counter-defendants, Lime Wire's claims do not allege that the RIAA enforced the mandatory licensing scheme, asserting instead that the counter-defendants themselves compelled Lime Wire to license with Altnet. The allegations do not suggest that the refusal to provide reasonable access to hashes was anything but independent decisions by each company, which viewed Lime Wire as a vehicle for significant copyright infringement.

The Sherman Act generally allows manufacturers to exercise independent discretion in their business dealings without infringing antitrust laws. Lime Wire alleges that counter-defendants conspired to compel it and other P2P companies into licensing agreements with Altnet. However, an alternative explanation exists: the record companies may have independently decided that Altnet legitimately owned the patents related to hash-based filtering technology. This independent decision-making could negate the existence of a conspiracy, as their actions may have been motivated by lawful goals to avoid potential litigation for patent infringement. 

Despite Lime Wire's beliefs of a conspiracy, the record companies' insistence on licensing appears to be a reasonable precaution rather than a coordinated effort to restrict access. The allegations do not convincingly demonstrate a "meeting of the minds" among the counter-defendants to impose a licensing regime. Consequently, Lime Wire's claims do not cross the threshold of plausibility required to suggest illegal concerted action under the Sherman Act. Additionally, Lime Wire's claims of monopolization under Section 2 of the Sherman Act rely on a theory of "shared monopoly," asserting that the counter-defendants collectively acted as a single monopolist. However, Section 2 claims typically challenge individual firms' market dominance rather than collective actions, complicating Lime Wire's allegations. Thus, the claims must be dismissed for lacking factual support.

In Spectrum Sports, Inc. v. McQuillan, the court addressed the viability of claims under Section 2 of the Sherman Act based on shared monopolies. The excerpt notes that while some commentators have proposed that a shared monopoly could be actionable under Section 2, no cases have upheld such claims. The Second Circuit has explicitly rejected the shared monopoly theory in attempted monopolization claims, establishing that defendants' market shares cannot be aggregated for this purpose. Numerous district courts have similarly upheld the view that shared monopoly allegations fail to state a claim under Section 2. 

Lime Wire argued that while shared monopoly claims may not support monopolization or attempted monopolization claims, conspiracy claims related to shared monopolies have gained some recognition. The Supreme Court's decision in American Tobacco Co. v. United States has led certain courts to reconsider the shared monopoly theory in conspiracy contexts. Some district courts indicated that the theory could be viable if the conspiracy aimed to create a single monopolistic entity or if competitors sought to allocate market shares. However, the court found that the allegations in Lime Wire's First Amended Complaint (FAC) did not sufficiently claim that the counter-defendants intended to form a monopolistic entity or allocate market shares. Furthermore, the FAC lacked adequate factual support for a conspiracy claim. Consequently, the court determined that Counts Two through Four of the FAC, asserting claims under Section 2, should be dismissed.

Counts Five and Seven of the First Amended Complaint (FAC) allege violations of New York's Donnelly Act, which prohibits conspiracy in restraint of trade, and deceptive trade practices, respectively. Count Eight presents a common law claim for tortious interference with prospective business relations. Counter-defendants seek dismissal of these claims, arguing that the dismissal of Lime Wire's federal antitrust counterclaims removes the court's subject matter jurisdiction over the state law claims. However, Lime Wire asserts that the court retains the discretion to exercise supplemental jurisdiction over its state law claims, even without the federal claims.

Under 28 U.S.C. § 1367(a), district courts possess supplemental jurisdiction over claims related to those within original jurisdiction if they share a common nucleus of operative facts. While the state law claims do not relate to the federal copyright claims, they are factually connected to Lime Wire's federal antitrust counterclaims. The Donnelly Act claim entirely overlaps with the federal antitrust claim, as both require the same basic elements of proof under New York law. Additionally, the claims for deceptive trade practices and tortious interference are based on similar factual allegations regarding the counter-defendants' anticompetitive behavior.

The argument that the dismissal of Lime Wire's federal counterclaims strips the court of jurisdiction over the state law claims is countered by established precedent, which holds that a Rule 12(b)(6) dismissal of a federal claim does not affect a court's ability to exercise supplemental jurisdiction over related state law claims.

The district court did not abuse its discretion in considering the merits of a state law counterclaim related to federal antitrust counterclaims, despite the dismissal of the federal claims. Under 28 U.S.C. § 1367(a), the court retains supplemental jurisdiction over state law claims that are part of the same case. In exercising this discretion, the court must evaluate the four grounds listed in § 1367(c) to determine if it should decline jurisdiction. It is noted that if any factor under § 1367(c) applies, the court should only decline jurisdiction if it finds that doing so would not promote economy, convenience, fairness, and comity.

The court should exercise supplemental jurisdiction over Lime Wire's Donnelly Act claim as it overlaps entirely with the dismissed federal claims. However, the remaining state law claims do not raise novel or complex issues, nor do they substantially predominate over the federal claims. Additionally, although Lime Wire's state law antitrust claim might have had potential predominance, the remaining claims are not more complex than the federal copyright claims brought by the record companies. 

The court retains original jurisdiction over the federal copyright claims despite dismissing the federal antitrust counterclaims. The only remaining ground for declining supplemental jurisdiction is exceptional circumstances under § 1367(c)(4), which requires the court to articulate the exceptional nature of the case in conjunction with the considerations of economy, convenience, fairness, and comity.

A district court may decline supplemental jurisdiction under 28 U.S.C. § 1367(e)(4) only in "unusual" circumstances. This case qualifies as such due to the lack of a "common nucleus" of facts between Lime Wire's state law counterclaims and the federal copyright claims asserted by the record companies. The record companies accuse Lime Wire of creating unauthorized reproductions and profiting from infringement, while Lime Wire's counterclaims allege that the record companies engaged in anti-competitive practices, such as imposing high prices and spreading false information about Lime Wire. The factual relationship between these claims is minimal, indicating that Lime Wire could not have pursued its state law counterclaims independently in federal court without linking them to dismissed federal antitrust claims. Allowing these state claims to proceed in federal court now would create an anomalous situation and encourage strategic manipulation of jurisdiction. Factors such as fairness, judicial economy, and convenience further support the decision to decline supplemental jurisdiction. Additionally, despite ongoing discovery, Lime Wire has requested an extension, highlighting that its claims are not fully developed, which reinforces the fairness of rejecting jurisdiction at this stage.

Discovery in the case has not been completed, and the court has not invested substantial judicial resources in reviewing evidence or conducting a trial. The general principle noted is that if all federal claims are dismissed before trial, state claims should also be dismissed. The court declines to exercise supplemental jurisdiction over remaining state law counterclaims due to the proximity of state courts that can adjudicate such claims without inconvenience to the parties.

Lime Wire has requested permission to amend its First Amended Counterclaim (FAC) to address deficiencies. Under Federal Rule of Civil Procedure 15, leave to amend should generally be granted, but the court has discretion to deny it for reasons like futility or undue delay. Counter-defendants argue that granting leave would be futile since an amendment would not survive a motion to dismiss. An amendment is considered futile if the proposed claim would fail under Rule 12(b)(6).

Despite having previously amended its counterclaims and receiving extensive discovery (over one million pages of documents and significant data), Lime Wire has not presented any new facts that could support its claims, particularly regarding a conspiracy among counter-defendants. The court will deny Lime Wire's motion for leave to replead without prejudice, as there is no indication of additional facts that could substantiate its claims. The court emphasizes that it cannot grant an unlimited opportunity to amend without a clear basis for doing so, nor can it determine that the proposed repleading would certainly fail.

Lime Wire must include a proposed pleading with any future motion to replead, indicating additional facts it would allege. The court has granted the counter-defendants' motion to dismiss Lime Wire's counterclaims, resulting in the dismissal of claims one through five with prejudice and claims six through eight without prejudice, allowing potential refiling in New York State court. Lime Wire's request for leave to replead is denied without prejudice. The document references the major record labels involved, clarifying that terms like "distribution companies," "record companies," and "counter-defendants" are interchangeable. It also mentions previous legal precedents regarding copyright infringement related to similar file-sharing services like Napster. Lime Wire denies copyright infringement allegations, asserting that users voluntarily install its application and agree not to infringe copyrights. The text discusses joint ventures for music content involving major labels and notes the ambiguity in licensing agreements. Additionally, it mentions filtering mechanisms to prevent unauthorized downloading of copyrighted songs and defines hashes as unique identifiers for digital files.

Lime Wire developed a filtering system to block copyrighted files using unique hashes but did not solicit licensed content from counter-defendants. The company aimed to create a robust mechanism for preventing the download of copyrighted works while facilitating competitive access to these works for users of its application. Under the Sherman Act, there are prohibitions against anticompetitive behavior, and private parties can seek damages and injunctive relief under the Clayton Act. Counter-defendants claim Lime Wire lacks standing in antitrust matters due to not being an active business in the digital distribution market. Lime Wire counters that counter-defendants' anticompetitive actions prevented its market entry. Under Section 4 of the Clayton Act, hindering a business's engagement is as unlawful as driving it out of business. To assert a claim, a party must demonstrate intention and preparedness to enter the market. Lime Wire claims it took affirmative steps, including creating a P2P application and securing licenses, indicating its readiness to operate as a distributor. Thus, Lime Wire can assert damages under Section 4, despite being a prospective distributor. The discussion includes distinctions between horizontal and vertical restraints in antitrust law, emphasizing that the Sherman Act prohibits "unreasonable restraints" rather than all restraints of trade.

The "rule of reason" is the standard used to evaluate whether a practice constitutes an unreasonable restraint of trade, requiring a comprehensive analysis of the circumstances surrounding a case (CDC Techs. Inc. v. IDEXX Labs. Inc. 186 F.3d 74, 80). Certain practices are classified as unlawful per se, negating the need for such analysis; these include horizontal agreements among competitors to fix prices or divide markets (Leegin, 127 S.Ct. at 2713). In the context of Lime Wire's case, allegations that counter-defendants refused to grant licenses for their music catalogs at high prices are not considered because they are not included in the First Amended Complaint (FAC). The court only evaluates claims explicitly stated in the complaint (Brass v. Am. Film Techs. Inc. 987 F.2d 142, 150). 

Lime Wire's assertion that counter-defendants pooled their copyrights to fix prices categorizes retail distributors as intrabrand competitors, while interbrand competition includes retailers selling music from independent labels (Reading Int'l, Inc. v. Oaktree Capital Mgmt. LLC, 317 F.Supp.2d 301, 320). A prospective competitor may challenge anticompetitive conduct that has harmed its market entry ability but cannot file an antitrust suit for conduct that has not yet resulted in injury-in-fact. The court may consider information from public websites if its authenticity is uncontested (Doran Precision Sys. Inc. v. FAAC, Inc. 423 F.Supp.2d 173, 179 n. 8). Lime Wire's claims about counter-defendants threatening P2P users and pressuring artists are deemed conclusory and lack factual support, thus failing to state a valid antitrust claim (Twombly, 127 S.Ct. at 1970 n. 10). Additionally, cross-elasticity of demand is defined regarding consumer behavior in response to price changes of different products.

Lime Wire contends it is not obligated to define a relevant market for its per se Sherman Act claims of "price fixing" and "group boycott." However, the court notes that in per se antitrust cases, a plaintiff is typically excused from this requirement. Despite this, Lime Wire has not demonstrated standing to contest the alleged price-fixing schemes of the counter-defendants. The mandatory licensing regime imposed by the counter-defendants does not qualify as a "group boycott," which involves an unlawful agreement among competitors to limit trade with others. Instead, it aims to impose favorable terms on vertically related buyers and raises different policy considerations. Consequently, such actions are assessed under the rule of reason, necessitating Lime Wire to plead a relevant market to withstand the counter-defendants' motion to dismiss.

Section 1 of the Sherman Act prohibits any contract or conspiracy that restrains trade among states, but Lime Wire cannot leverage allegations regarding a business combination among the counter-defendants, such as MusicNet and pressplay, due to a lack of standing to challenge related restraints. The FAC alleges that counter-defendants denied Lime Wire reasonable access to their copyrighted works and conspired with Altnet to compel Lime Wire to license their content. Lime Wire's reliance on the Primetime 24 case is misplaced, as the plaintiff in that case provided specific facts suggesting a conspiracy, which is absent in Lime Wire's allegations.

Sellers of hashes, as counter-defendants, would generally prefer a larger pool of buyers to increase competition and drive up prices, countering any significant market power from individual buyers. Their refusal to sell hashes without a license from Altnet could suppress prices, which contradicts any incentive to collude. A record company would only require licensing if it believed Altnet's patents were valid; otherwise, it would pursue a broader buyer base for better pricing. Lime Wire alleges that joint ventures among distribution company executives facilitated discussions on pricing, but the mere opportunity for conspiracy does not imply actual collusion. The Sherman Act prohibits monopolization or attempts thereof. The Ninth Circuit has not definitively ruled on the viability of shared monopoly theory. Lime Wire has retracted its claim under the Crawford-Feld Act. Under 28 U.S.C. § 1367(c), a district court may decline supplemental jurisdiction over a state law claim under certain conditions, including if all original jurisdiction claims are dismissed. However, applying this rule literally could produce an unusual outcome when state law counterclaims share facts with a defendant's federal counterclaims rather than the plaintiff's federal claims.

A federal counterclaim can be heard in federal court even if it is not part of the same case as the plaintiff's federal claim, as per 28 U.S.C. § 1367(a). A defendant with a state law counterclaim that cannot be independently brought in federal court might utilize a related federal counterclaim to establish jurisdiction, provided both claims share a "common nucleus" of facts. Dismissal of the federal counterclaim does not negate the court's original jurisdiction over the plaintiff's federal claim, making § 1367(c)(3) inapplicable in this situation. This interpretation allows defendants to strategically file federal counterclaims to access federal court for state law claims. However, the court does not need to determine the validity of this interpretation, as it finds that, under § 1367(c)(4), it should not exercise supplemental jurisdiction over Lime Wire's remaining state law claims. Lime Wire's defense of "copyright misuse" lacks clarity regarding how its factual basis relates to its state law counterclaims, and it has not demonstrated any such connection. Additionally, within the Second Circuit, copyright misuse is not firmly recognized as an affirmative defense.