Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca2-23-00763/USCOURTS-ca2-23-00763-1/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 

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CHIN, Circuit Judge, dissenting:

 Defendant-appellee Meta Platforms, Inc. ("Meta"), the social media 

company, operates Instagram, among other popular social networking 

applications ("apps"). According to plaintiff-appellant Phhhoto Inc. ("Phhhoto"), 

"[n]o other platforms rival Meta in the market for personal social networking 

services." J. App'x at 137 (Amended Complaint ("AC") ¶ 156). 

 Launched in 2014, Phhhoto was a social media app that allowed 

users to capture a burst of still photos and then loop them together into a video 

to create a moving image, known as a "phhhoto." At its peak, Phhhoto enjoyed 

"approximately 3.7 million [monthly average users]." Id. at 89 (AC ¶ 6). After 

just over three operative years, however, Phhhoto shut down operations on June 

20, 2017, citing Meta's "fraudulent and anticompetitive conduct" as the reason. 

Id. at 127 (AC ¶ 128). 

 In this case, Phhhoto accuses Meta of violating section 2 of the 

Sherman Antitrust Act ("Section 2"), 15 U.S.C. § 2, based on Meta's allegedly 

anticompetitive behavior toward it. Its claims accrued no later than April of 

2016. Yet, it did not file suit until November 4, 2021, well more than four years 

later. Phhhoto argues, however, that the district court erred when it granted 

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Meta's motion to dismiss on timeliness grounds, declining to equitably toll the 

statute of limitations under a theory of fraudulent concealment.

 Applying a de novo standard of review, the majority concludes "that 

the district court erred at each step of the fraudulent concealment analysis." Maj. 

Op. at 17. While I agree that de novo review applies, I disagree that the district 

court erred. Phhhoto's allegations in the Amended Complaint demonstrate as a 

matter of law that it was on inquiry notice of Meta's anticompetitive conduct -- 

and thus had the requisite information to file suit -- well before October 25, 2017, 

the date on which Phhhoto claims it first began "to discover [Meta's] fraudulent 

and anticompetitive conduct." J. App'x at 50. Phhhoto's allegations further 

undermine its claims as to the other elements of its fraudulent concealment 

claim. I would affirm and, accordingly, I respectfully dissent. 

I. 

 As Phhhoto alleges, "[n]ew entrants in the market for personal social 

networking services" face a challenge because they "must convince users that 

enough of their friends and family members will also engage with the social 

networking platform to make use of the platform worthwhile." Id. at 139 (AC 

¶ 164). Throughout its lifespan as a social media app, Phhhoto relied on various 

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aspects of Meta's ubiquity in the social media universe to build and maintain its 

own user base. There was something in it for Meta, too, in this relationship: by 

offering Phhhoto access to key bits of its own infrastructure, Meta ensured that 

its users did not need to "exit the Meta ecosystem" even when those users 

explored other non-Meta platforms like Phhhoto. Id. at 140-41 (AC ¶ 169). 

 At the beginning of Phhhoto's relationship with Meta, the companies 

shared a "symbiotic relationship." Maj. Op. at 7. But over time, and through a 

distinct set of adverse acts alleged by Phhhoto, Meta dealt several blows to 

Phhhoto's stability as a platform, as it rescinded Phhhoto's privileges and access 

to critical components of Meta's social networking ecosystem.

 The first integration feature that benefited Phhhoto was Meta's "Find 

Friends" Application Programming Interface ("API"). APIs are digital tools that 

facilitate data-sharing, functionality, and overall integration between two 

platforms. The Find Friends API allowed third-party apps like Phhhoto to access 

a user's Instagram friends list. When a user linked her Phhhoto account to her 

Instagram credentials, she could instantly access a list of Instagram friends who 

also had Phhhoto accounts. The Find Friends API thus allowed Phhhoto users to 

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"recreate their social graph" from Instagram, thereby alleviating what Phhhoto 

described as a barrier to entry for new platforms. J. App'x at 109 (AC ¶ 65).

 The second feature was the "iPhone Hooks," which allowed users to 

post their phhhotos, created in the Phhhoto app, directly to Instagram. J. App'x 

at 163-64. Before a user publishes a post to Instagram, she has the option of 

adding a written caption that appears under the post. The caption can contain 

hashtags, which, when clicked, directs users to all other public posts whose 

caption features that hashtag. The iPhone Hooks pre-populated captions of 

phhhotos posted to Instagram with hashtags that attributed the posted content to 

Phhhoto. The benefit to Phhhoto was that, when a user posted her phhhotos 

directly to Instagram, the caption would contain a #phhhoto hashtag, which 

directed traffic to the app and attributed the content to Phhhoto. 

 On March 31, 2015, Meta abruptly revoked Phhhoto's access to the 

Find Friends API. Phhhoto alleges that Meta withdrew access "because [it] 

viewed Phhhoto as a potential competitive threat." Id. at 109 (AC ¶ 66). Phhhoto 

further alleged that the loss of the Find Friends API had a "negative[] impact [on] 

how potential investors perceived Phhhoto." Id. (AC ¶ 65). A few months later, 

on August 9, 2015, Meta also suspended the use of the iPhone Hooks for all thirdCase 23-763, Document 118, 12/10/2024, 3638189, Page4 of 18
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party apps, explaining that the pre-populated captions featuring the hashtags 

looked "spammy" on the Instagram feed. Id. at 111 (AC ¶ 71). Phhhoto alleges, 

however, that the "spammy" rationale "was pretextual." Id. (AC ¶ 72). 

 In addition to these integration features, Phhhoto and Meta nearly 

entered into a partnership. Earlier, on February 26, 2015, Meta's Strategic 

Partnerships Manager contacted one of Phhhoto's founders, Champ Bennett, to 

discuss integrating Phhhoto's moving photo technology into Facebook's 

newsfeed. The project was never memorialized in a contract, however, and after 

some delays related to "legal conversations," Meta apparently abandoned the 

integration project in June of 2015. J. App'x at 166-67.

 On October 22, 2015, Phhhoto was set to launch for Android devices. 

That morning, however, Meta issued its own announcement: it was launching 

Boomerang -- what Phhhoto describes as "a slavish clone of Phhhoto." Id. at 112 

(AC ¶ 77). 

 On March 15, 2016, Meta issued a press release announcing a change 

to the order in which it sorted user's posts on Instagram. Until then, Instagram 

delivered content to users chronologically -- the most recent posts appeared at 

the top of the feed, and users scrolled down to see older content. Meta's switch 

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to the so-called "algorithmic newsfeed" discarded the chronological sorting in 

favor of an algorithm-driven shuffling that presented posts to users "based on the 

likelihood you'll be interested in the content, your relationship with the person 

posting and the timeliness of the post." Id. at 114-15 (AC ¶¶ 86-87). 

 Shortly thereafter, in April 2016, Phhhoto noticed that its "new user 

registrations declined precipitously." Id. at 116 (AC ¶ 91). Its ranking among 

photo and video platforms in "the Apple App Store dropped from 11th place to 

41st place." Id. The change was abrupt and unprecedented; "Phhhoto had never 

before experienced such a significant decline in its ranking." Id. Prompted by 

this sudden decline in popularity, Phhhoto "worked tirelessly" to determine the 

reason behind the sharp decline. Id. (AC ¶ 92). Phhhoto claims it focused its 

efforts on problems with its own code, in reliance on Meta's press release 

statement: that "[t]he order of photos and videos in your feed will be based on 

the likelihood you'll be interested in the content, your relationship with the 

person posting and the timeliness of the post." Id. at 116-17 (AC ¶ 92). 

 On October 25, 2017, after Phhhoto shut down operations, Bennett 

"sought to connect Phhhoto's remaining Instagram followers to Hypno, a 

company that "had little social media presence." Id. at 119 (AC ¶ 104). Bennett 

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posted the same promotional video to Hypno's Instagram account and Phhhoto's 

Instagram account. Phhhoto claims that, after posting the same video from both 

accounts, "the post from the old Phhhoto account appeared to vanish from 

Bennett's own Instagram feed." Id. at 120 (AC ¶ 105) (emphasis in original). This, 

Phhhoto alleges, was the moment at which it discovered that Meta was engaging 

in anticompetitive conduct -- namely, through suppressing Phhhoto's content on 

the algorithmic feed. 

II. 

 The district court did not err in concluding as a matter of law that 

the statute of limitations should not be subject to the extroardinary remedy of 

equitable tolling, as Phhhoto failed to sufficiently plead that it met the requisite 

elements of fraudulent concealment. 

A. Elements of Fraudulent Concealment 

 To succeed on a fraudulent concealment claim, a plaintiff must 

establish: "(1) that the defendant concealed from him the existence of his cause of 

action, (2) that he remained in ignorance of that cause of action until some point 

within four years of the commencement of his action, and (3) that his continuing 

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ignorance was not attributable to lack of diligence on his part." New York v. 

Hendrickson Bros., 840 F.2d 1065, 1083 (2d Cir. 1988). 

B. Application 

 Phhhoto is not entitled to the judicial remedy of equitable tolling 

under a theory of fraudulent concealment because (1) it fails to plausibly allege 

that Meta's March 2016 press release was concealing; (2) Phhhoto's own 

allegations undermine its claim that it had no notice of a potential antitrust claim 

until October 25, 2017; and (3) Phhhoto fails to allege that it acted with 

reasonable diligence. 

1. Concealment 

 To plead the first element of fraudulent concealment, Phhhoto must 

plausibly allege that Meta "concealed . . . the existence of [its] cause of action." Id. 

Phhhoto can meet this burden by showing either that Meta took affirmative steps 

to conceal its wrongdoing or that the wrongdoing was self-concealing. Id. But it 

must plead elements of fraudulent concealment with particularity, in accordance 

with the heightened pleading standards set forth in Rule 9(b) of the Federal 

Rules of Civil Procedure. See Armstrong v. McAlpin, 699 F.2d 79, 88 (2d Cir. 1983). 

Phhhoto contends that Meta engaged in fraudulent concealment when it issued a 

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press release in 2016 that announced a new algorithm for displaying posts. As 

the district court concluded, however, Phhhoto failed to plausibly allege that 

Meta's public announcement about the algorithm was fraudulent in any respect. 

Nor does it make sense, as Phhhoto asserts, that the change in algorithm was 

"self-concealing." Appellant's Br. at 33. 

 Fraudulent concealment requires proof of a "trick or contrivance 

intended to exclude suspicion and prevent inquiry." Wood v. Carpenter, 101 U.S. 

135, 143 (1879). Phhhoto has not plausibly explained how the statements in 

Meta's 2016 press release constituted fraudulent concealment. This was a press 

release publicly announcing a new feed that would display posts based on 

metrics that measured user interest, relationship, and timeliness. Even 

considering the press release in the light most favorable to Phhhoto, Phhhoto 

fails to plausibly allege that there was anything in the press release that was false, 

fraudulent, or misleading. Phhhoto fails to explain how the announcement 

affirmatively concealed wrongdoing. 

 Apparently, Phhhoto contends that Meta concealed the 

"anticompetitive element in the algorithm's operation . . . by making false public 

statements representing how the algorithm worked." Appellant's Br. at 30. 

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Phhhoto contends, essentially, that Meta intended to harm Phhhoto and that the 

press release should have disclosed these facts. But this was a press release and 

Phhhoto -- and the public -- was being given notice of the change in the display 

procedures. There is nothing fraudulent about that notice. And Meta made no 

representation that Phhhoto would do better under the new algorithm. 

 Instead, Phhhoto itself acknowledges that "its own content might be 

promoted or demoted by Meta's algorithm." Phhhoto Inc. v. Meta Platforms, Inc., 

No. 21-cv-06159 (KAM) (LB), 2023 WL 2710177, at *16 (E.D.N.Y. Mar. 30, 2023). 

But the suggestion that Meta should have disclosed to Phhhoto and others that 

its new procedures might give it a competitive advantage makes no sense. 

 Moreover, Phhhoto fails to explain "why Meta's algorithm, 'if 

actually implemented as Meta had described,' would have optimized 'Phhhoto 

users' posts, rather than disfavored those posts." Phhhoto, 2023 WL 2710177, at 

*16 (citing J. App'x at 115-16 (AC ¶ 89)). As Meta points out, "Phhhoto does not 

allege that Meta said that Phhhoto's content was not being disfavored by the new 

algorithm." Appellee's Br. at 26. In my view, it is not enough that Phhhoto 

alleges that it was enjoying millions of users on a monthly basis -- it does not 

follow that, just because an app has many users, its posts would perform just as 

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well or better with Instagram's new algorithm. On this record, I disagree that 

Phhhoto has adequately pled fraudulent concealment. 

 2. Notice 

 Phhhoto fails to allege sufficient facts supporting the second prong -- 

that Phhhoto remained in ignorance of its cause of action until October 2017. 

Indeed, Phhhoto's own allegations demonstrate that it had notice of its claim by 

no later than April 2016. Once the "plaintiff ha[s] notice of th[e] possibility" of its 

claim, the "plaintiff is charged with whatever knowledge an inquiry would have 

revealed." Stone v. Williams, 970 F.2d 1043, 1049 (2d Cir. 1992). I agree with the 

majority that, to find inquiry notice as a matter of law on a motion to dismiss, 

there must be "uncontroverted evidence clearly demonstrat[ing] when the 

plaintiff should have discovered the [challenged] conduct." Staehr v. Hartford Fin. 

Servs. Grp., 547 F.3d 406, 427 (2d Cir. 2008). Unlike the majority, however, I think 

there are such facts alleged in Phhhoto's Amended Complaint itself. 

 For instance, Phhhoto alleged a "precipitous" "decline" in users, a 

"never before experienced" reduction in its App Store rankings, and "sudden[] 

unpopular[ity]" shortly after the algorithmic feed was rolled out. J. App'x at 116-

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17 (AC ¶¶ 90-92). This steep decline in business occurred in the context of a 

litany of Meta's other adverse actions, including: 

• March 31, 2015: Meta abruptly revokes Phhhoto's access to Instagram's 

Find Friends API; 

• June 8, 2015: Meta stops responding to Phhhoto about the integration 

project; 

• August 9, 2015: Meta withdraws access to the iPhone Hooks for thirdparty applications; 

• October 22, 2015: Meta announces its new app Boomerang, a clone of 

Phhhoto; 

• March 15, 2016: Meta announces change to the Instagram algorithm; 

and

• April 2016: Phhhoto notices steep drop in new user registrations.

These facts surely put Phhhoto on inquiry notice that Meta might be taking 

action against it.

 Phhhoto states in a conclusory fashion that it relied on the 

representations in the March 2016 press release to rule out anticompetitive 

behavior stemming from the algorithmic feed. I agree with the district court that 

Phhhoto presents "[n]o plausible facts . . . [to] explain why the Phhhoto founders 

would rule out [the aforementioned] external possibilities and ignore its duty to 

inquire." Phhhoto, 2023 WL 2710177, at *18. 

 The majority suggests that Meta's creation of Boomerang, in the 

context of the parties' relationship, did not contribute to placing Phhhoto on 

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notice of anticompetitive behavior. See Maj. Opp. at 39. As the majority 

recognizes, however, the law requires only a "'probability' of wrongdoing to 

trigger inquiry notice." Id. at 38. Phhhoto's business decline occurred only a few 

months after Meta rolled out a product nearly identical to Phhhoto's, and just 

one month after Meta changed its algorithm. Particularly because Phhhoto's 

business success was reliant on the underlying platform created by Meta, Meta's 

creation of Boomerang was another incident among many that reasonably placed 

Phhhoto on notice that Meta was engaging in anticompetitive behavior. 

 Phhhoto's other allegations about Meta's pattern of anticompetitive 

behavior further undermine its claim that it had no reason to believe Meta was 

engaged in anticompetitive conduct until Bennett's happenstance discovery in 

October 2017. Its Amended Complaint, which spans almost 70 pages, explains in 

detail the sudden and inexplicable actions Meta took -- rescinding access to social 

networking infrastructure that Phhhoto relied on, introducing a competitor on 

the day that Phhhoto planned on rolling out its Android capabilities, and letting 

a business relationship go cold over seemingly nothing. And Phhhoto alleges 

that, from its inception, it was reliant on critical support from Meta through APIs 

and other tools. Based on these factual allegations, I agree with the district court 

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that it is implausible that Phhhoto had no reason to suspect wrongdoing until 

October 2017. 

 The Fourth Circuit's reasoning is persuasive on this point: "[w]here a 

plaintiff knows of a pattern of particular actions that a defendant has taken 

against him," that plaintiff "is on inquiry notice of his claim" even if "the pattern's 

precise scope might be unclear and its exact legal ramifications uncertain." GO 

Computer, Inc. v. Microsoft Corp., 508 F.3d 170, 179 (4th Cir. 2007); see also Klein v. 

Bower, 421 F.2d 338, 343 (2d Cir. 1970) ("[T]he statutory period . . . [must] not 

await [plaintiff's] leisurely discovery of the full details of the alleged scheme."). 

 The majority reasons that Meta "offered plausible, non-exclusionary 

justifications" for some of its changes, and therefore Phhhoto cannot be charged 

with notice. Maj. Op. at 32. For example, the majority notes that Meta explained 

its decision to withdraw the iPhone Hooks capability by stating that the prepopulated hashtags felt "spammy." Id. (quoting J. App'x at 111 (AC ¶ 71)). But 

Phhhoto specifically alleged that Meta's "professed . . . rationale" for 

withdrawing the iPhone Hooks access was "pretextual." J. App'x at 111 (AC 

¶ 72). 

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 And perhaps most crucially, Phhhoto's own allegations show that 

the algorithm was not self-concealing. Phhhoto fails to support its contention 

that it could not discover or was not on notice of the algorithmic suppression 

despite noticing such a dramatic drop in user engagement shortly after the 

algorithm changed. 

 3. Reasonable Diligence 

 Phhhoto argues that it plausibly alleged that it acted with reasonable 

diligence, which "is a prerequisite to the applicability of equitable tolling." Koch

v. Christie's Int'l PLC, 699 F.3d 141, 157 (2d Cir. 2012). Again, Phhhoto's own 

allegations belie this point. As noted above, Meta abruptly revoked Phhhoto’s 

access to the API; Meta stopped responding to Phhhoto about a possible joint 

project; Meta withdrew access to the iPhone Hooks; Meta launched Boomerang -- 

a purported clone of Phhhoto's product; Meta announced the change to its 

algorithm; and Phhhoto's new registrations dropped precipitously. All of these 

adverse actions occurred within a span of thirteen months; Phhhoto surely 

should have investigated. 

Phhhoto "hypothesize[s] various reasons the app may have 

suddenly dropped in popularity," but fails to allege why it did not investigate the 

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algorithm. J. App'x at 117 (AC ¶ 93). Given Phhhoto's heavy reliance on Meta's 

infrastructure to conduct its own platform, Phhhoto has failed to plausibly allege

that it acted with the requisite diligence.

 The majority agrees that "Phhhoto presumably could have made the 

first discovery -- in which Phhhoto's post vanished from the Instagram feed -- in 

the period between April 2016 and October 2017." Maj. Opp. at 46. The majority 

then reasons that had Phhhoto performed the experiment earlier, it would still 

not have been put on notice of Meta's anticompetitive behavior. I disagree. This

discovery, along with the many prior anticompetitive incidents by Meta, in my 

view, should have led Phhhoto to discern Meta's probable involvement in an 

exclusionary scheme. By not performing the simple experiment of observing a 

Phhhoto post from a user account earlier, Phhhoto failed to exercise reasonable 

diligence. 

 As to Phhhoto's second "accidental" observation involving the 

metrics discrepancy, I disagree that this observation was the necessary catalyst 

for Phhhoto to be placed on notice of Meta's anticompetitive behavior, and that 

Phhhoto did not need to perform this experiment purposefully. First, as 

mentioned above, Meta's earlier conduct was sufficient to place Phhhoto on 

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notice of its claim. Second, although the majority "express[es] no view that the 

exercise of reasonable diligence invariably would require an antitrust plaintiff in 

Phhhoto's position to undertake a comparison of the sort that occurred here by 

chance," this reasoning undercuts the high standard equitable tolling requires 

and disregards the effortlessness of performing such a simple experiment. Id. at 

47. Phhhoto did not need to create another company, or wait to create another 

company, to accomplish what it purportedly found by accident; Phhhoto could 

have simply created a second account under a different username to compare 

metrics. Bennett could have -- and should have -- posted a video to Phhhoto's 

Instagram account and a different Instagram account long before October 25, 

2017. Performing this experiment strikes me as the bare minimum exercise of 

reasonable diligence, especially in consideration of the context of the parties' 

relationship. 

 Finally, I respectfully disagree with the majority's statement that 

"the allegations concerning Phhhoto's diligence can be disputed and potentially 

disproven in the discovery process." Id. at 48. There is no factual dispute here. 

Whether Phhhoto's alleged facts met the diligence prong is a legal inquiry, and I 

fail to see how further discovery could suddenly demonstrate that Phhhoto acted 

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with diligence. And certainly not under the high standard that requires Phhhoto 

to have pled particular facts demonstrating how it sufficiently met the diligence 

prong to warrant the district court's tolling of the statute of limitations. 

Accordingly, Phhhoto has not plausibly alleged that it acted with due diligence, 

or that discovery could lead to a different conclusion.

III. 

 The district court's judgment should be affirmed because it correctly 

dismissed Phhhoto's Amended Complaint as time-barred after concluding that 

the extraordinary measure of equitable tolling was unwarranted as a matter of 

law. This was the right result. I therefore dissent from the majority's decision to 

vacate and remand. 

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