Subspace's Antitrust Complaint Fails to Allege Exclusionary Conduct: Amazon

Plaintiff Subspace Omega, a network optimization service provider that closed in 2022, fails to allege exclusionary conduct, said Amazon’s motion Monday (docket 2:23-cv-01772) in U.S. District Court for Western Washington in Seattle to dismiss Subspace’s antitrust suit.

Subspace sued Amazon Web Services in November, alleging it refuses to provide direct internet connections via “peering” (see 2311210060 to link network optimization service providers like Subspace to its network. Subspace alleges AWS took “deliberate and anticompetitive actions” to leverage its “monopoly power” in controlling direct connections to the AWS Network to drive Subspace, and similar network optimization services, out of business.

Monopolization and attempted monopolization claims require “plausible allegations” that the defendant has monopoly power in a properly defined market or “a dangerous probability of achieving monopoly power with the specific intent to monopolize,” said Amazon’s motion. Such claims also must show the defendant engaged in exclusionary conduct and that the plaintiff suffered an antitrust injury due to a reduction in competition “in the market as a whole as opposed to merely harm to the plaintiff’s individual business,” it said. Also, the Foreign Trade Antitrust Improvements Act requires Subspace to show that the alleged exclusionary conduct had a “direct, substantial, and reasonably foreseeable effect” on competition in the U.S., the motion said.

Subspace’s antitrust complaint fails to allege exclusionary conduct, said Amazon’s motion. Subspace says AWS didn’t give it unlimited free connections to AWS’ network “everywhere in the world the way Subspace wanted,” but as a matter of law, that’s “not exclusionary conduct that can support an antitrust claim," it said.

The complaint doesn’t allege antitrust injury to competition in the market as a whole, a “critical element" of an antitrust claim because “the antitrust laws protect competition, not competitors,” said Amazon’s motion. The complaint also fails to allege that AWS has monopoly power in a “properly defined relevant market,” it said. Subspace alleges purported markets limited to AWS include direct peering access to the AWS network and cloud game cloud computing optimization services within the AWS network, but such “'single brand’ markets that ignore AWS’s competitors are heavily disfavored because they fail to include economic substitutes,” it said.

The complaint also doesn’t contain factual allegations supporting conclusory and narrowly defined markets, instead conceding that many networks compete with AWS, there are multiple ways to connect to AWS, and there are various uses for network optimization services, the motion said. Subspace’s “self-serving market definitions ignore all of these facts and should be rejected,” it said.

Subspace also doesn’t allege injury to the U.S., the motion said. The complaint alleges that AWS provided the company free connections in the Middle East “and later refused to provide unlimited free connections in Germany and elsewhere,” and that “somehow” caused it to be unable to provide services to Epic Games in the Middle East, said the motion. But U.S. antitrust laws “exist to protect U.S. competition and require that challenged conduct had a direct, substantial, and reasonably foreseeable effect of harming competition in the United States,” it said.

The 9th Circuit U.S. Appeals Court “made clear that commercial activities taking place abroad are outside the reach of the U.S. antitrust laws unless they directly affect U.S. competition," said the motion, citing McGlinchy v. Shell Chemical Co. Subspace’s argument that AWS caused it to default on providing services abroad “does not allege a direct, substantial, and reasonably foreseeable effect on U.S. competition,” it said.

Subspace’s state antitrust and tort claims also fail along with the deficient federal antitrust claims, and its purported Communications Act claim fails because it “ignores existing law and seeks to apply a proposed regulation that is not yet in force,” the motion said. The plaintiff alleges AWS’ peering arrangement in dispute from 2019-2022 violated Section 201(b) of the Communications Act, but that statute “applies exclusively to telecommunications common carriers,” so the claim fails, it said.

To support its interpretation of the Communications Act, Subspace cites a 2023 FCC proposal seeking to change existing law that’s been in place since 2018, said the motion, citing In the Matter of Safeguarding and Securing the Open Internet, Notice of Proposed Rulemaking. The Open Internet NPRM proposed to reclassify unregulated broadband internet access services as regulated telecommunications services by changing how existing FCC law interprets the Communications Act, said the motion.

Subspace argues that the Open Internet NPRM’s proposed new interpretation of the Communications Act is “reasonable,” so “this Court must defer to” that interpretation, the motion said. “But Subspace fails to disclose that the Open Internet NPRM is not law,” and that the FCC’s final rule, adopted in 2018, was the governing law throughout the period in dispute, the motion said.

In this final rule, known as Restoring Internet Freedom, the FCC determined that under the Communications Act, “internet traffic exchange services, including peering arrangements, are unregulated ‘information services,’ not FCC-regulated common carrier telecommunications services,” the motion said. “Thus, under the existing law applicable to the conduct during 2019 through 2022, any dispute regarding peering arrangements could not violate Section 201(b) because they were not considered a telecommunications common carrier service under the Communications Act,” it said.

“As for the Open Internet NPRM,” said the motion, “if a final rule that changes existing law is adopted in that rulemaking proceeding, it will apply only prospectively.” The FCC’s final rule won’t take effect until at least 30 days after its publication in the Federal Register and even if adopted, “would not apply retroactively.”