United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

IN RE: WEBKINZ ANTITRUST

LITIGATION

 /

No. M 08-01987 JSW

ORDER GRANTING MOTION TO

DISMISS

Now before the Court is the motion to dismiss counts one, two, part of five, and seven of

the Plaintiffs’ consolidated amended class action complaint filed by Defendants Ganz, Inc. and

Ganz U.S.A., LLC (“Ganz”). Ganz brings this motion to dismiss: (1) the first count for

violation of the antitrust laws; (2) the second count under California’s Unfair Competition Law;

(3) the fifth count under Illinois’ Consumer Fraud Act or a claim for damages under the

Deceptive Practices Act; and (4) the seventh count under New York’s General Business Law 

§§ 349 et seq., all for failure to state a claim upon which relief can be granted. Having carefully

considered the parties’ arguments and relevant legal authority, the Court hereby GRANTS

Ganz’s motions to dismiss with leave to amend.

BACKGROUND

Ganz develops and distributes toys and other products, including Webkinz, a popular toy

linked to an interactive web site. Associated with each Webkinz toy is a code that enables the 

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 1 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

user to unlock a web site, called Webkinz World, that offers online games and other activities,

allowing the user to take care of a virtual pet by earning points by playing games, which can be

used to buy food, houses, and other items. The code is valid for one year, after which the user

must purchase another Webkinz to continue to have access to the Webkinz World. 

(Consolidated Amended Class Action Complaint (“Compl.”) at ¶ 3.) 

This action arises from alleged illegal acts by Ganz in “(a) conditioning the sale of

Webkinz (the ‘tying product’) on the purchase of unrelated Ganz products from the tied product

markets (the ‘tied Ganz products’) and (b) Defendants’ practice of taking orders for Webkinz,

which they have no intent to, and do not, deliver in a reasonably timely manner.” (Id. at ¶ 2.)

According to the complaint, Ganz initially sold Webkinz through its established network of

small retailers and gift shops. When Ganz first introduced the product the marketplace, it had

no special requirements for purchase, but shortly afterward, began to require that retailers

purchase unrelated products from Ganz’s “core product line” before they could purchase

Webkinz or Webkinz-related merchandise. (Id. at ¶ 5.) In addition to the co-purchasing

requirement, Ganz created a Loyalty Program for Webkinz retailers giving priority shipping for

ordering more than specific levels of core products (the non-Webkinz, or tied Ganz products)

within a twelve-month period. (Id. at ¶ 7.) 

On the basis of these allegations, Plaintiffs assert causes of action for violation of the

Sherman Act § 1 and the Clayton Act § 3, as well as claims for violation of the consumer

protection statutes in California, Connecticut, Florida, Illinois, Massachusetts and New York. 

All claims have been consolidated in this multi-district litigation. 

The Court will address additional facts as necessary in the remainder of this order.

ANALYSIS

A. Legal Standard Applicable to Motion to Dismiss.

A motion to dismiss is proper under Federal Rule of Civil Procedure 12(b)(6) where the

pleadings fail to state a claim upon which relief can be granted. The complaint is construed in

the light most favorable to the non-moving party and all material allegations in the complaint

are taken to be true. Sanders v. Kennedy, 794 F.2d 478, 481 (9th Cir. 1986). The court,

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 2 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

however, is not required to accept legal conclusions cast in the form of factual allegations, if

those conclusions cannot reasonably be drawn from the facts alleged. Clegg v. Cult Awareness

Network, 18 F.3d 752, 754-55 (9th Cir. 1994) (citing Papasan v. Allain, 478 U.S. 265, 286

(1986)). Conclusory allegations without more are insufficient to defeat a motion to dismiss for

failure to state a claim upon which relief may be granted. McGlinchy v. Shell Chemical Co.,

845 F.2d 802, 810 (9th Cir. 1988). Even under the liberal pleading standard of Federal Rule of

Civil Procedure 8(a)(2), a plaintiff must do more than recite the elements of the claim and must

“provide the grounds of [its] entitlement to relief.” Bell Atlantic v. Twombly, 127 S. Ct. 1955,

1959 (2007) (citations omitted). In addition, the pleading must not merely allege conduct that is

conceivable, but it must also be plausible. Id. at 1974.

B. Plaintiffs’ Antitrust Cause of Action.

Tying arrangements are traditionally defined as “an agreement by a party [the seller] to

sell one product but only on the condition that the buyer also purchases a different (or tied)

product, or at least agrees that he will not purchase that product from any other supplier.” 

Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 461-62 (1992). In order to

prevail on a traditional tying claim, a plaintiff must plead and prove: (1) that there exist two

distinct products or services in different markets whose sales are tied together; (2) that the seller

possesses appreciable economic power in the tying product market sufficient to coerce

acceptance of the tied product; and (3) that the tying arrangement affects a not insubstantial

volume of commerce in the tied product market. See Paladin Associates, Inc. v. Montana

Power Co., 328 F.3d 1145, 1159 (9th Cir. 2003) (citing Eastman Kodak, 504 U.S. at 461-62

(quoting Northern Pacific R. Co. v. United States, 356 U.S. 1, 5-6 (1958)). 

Defendant moves to dismiss the antitrust cause of action on the basis that Plaintiffs fail

to define a relevant market and fail to allege a valid antitrust injury. The Court shall address

each argument in turn.

1. Defining the Relevant Tied Product Market.

In order to prevail on their antitrust claims of illegal tying, Plaintiffs must establish the

relevant markets in which to evaluate Webkinz’s alleged market power. See County of

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 3 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

Tuolumne v. Sonora Community Hospital, 236 F.3d 1148, 1157-58 (9th Cir. 2001). In other

words, in order to state a valid antitrust claim under the Sherman Act, a plaintiff must allege

that the defendant has market power within a “relevant market.” The “plaintiff must allege both

that a ‘relevant market’ exists and that the defendant has power within that market.” Newcal

Industries, Inc. v. Ikon Office Solution, 513 F.3d 1038, 1044 (9th Cir. 2008). There is no

requirement that these elements of an antitrust claim be pled with specificity. Id. at 1045 (citing

Cost Mgmt. Servs. v. Washington Natural Gas Co., 99 F.3d 937, 950 (9th Cir. 1996)). An

antitrust complaint therefore survives a Rule 12(b)(6) motion unless it is apparent from the face

of the complaint that the alleged market suffers from a fatal legal defect. Id. Accordingly,

because “the validity of the ‘relevant market’ is typically a factual element rather than a legal

element, alleged markets may survive scrutiny under Rule 12(b)(6) subject to factual testing by

summary judgment or trial.” Id. (citing High Technology Careers v. San Jose Mercury News,

996 F.2d 987, 990 (9th Cir. 1993) (holding that the market definition depends on a “factual

inquiry into the ‘commercial realities’ faced by consumers”) (quotations omitted)). 

However, a complaint may be dismissed pursuant to Rule 12(b)(6) “if the complaint’s

‘relevant market’ definition is facially unsustainable.” Id. (citing Queen City Pizza, Inc. v.

Domino’s Pizza, Inc., 124 F.3d 430, 436-37 (3d Cir. 1997)). The relevant market must be a

product market, whose boundaries are defined not by the consumers but by the products or

producers themselves. Brown Shoe v. United States, 370 U.S. 294, 325 (1962). Second, the

market must encompass the product at issue as well as all economic substitutes for the product. 

Id. “The outer boundaries of a product market are determined by the reasonable

interchangeability of use or the cross-elasticity of demand between the product itself and

substitutes for it.” Id. The relevant market must include “the group or groups of sellers or

producers who have actual or potential ability to deprive each other of significant levels of

business.” Thurman Industries, Inc. v. Pay ‘N Pak Stores, Inc., 875 F.2d 1369, 1374 (9th Cir.

1989). 

“A product market includes the product at issue and its substitutes,” and requires the

Court to consider whether two products are reasonably interchangeable. Independent Ink, Inc.

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 4 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

v. Trident, Inc., 210 F. Supp. 2d 1155, 1168 (C.D. Cal. 2002) (citing, inter alia, Brown Shoe,

370 U.S. at 325). The focus of this inquiry is the product’s “price, use and qualities.” United

States v. Oracle Corp., 331 F. Supp. 2d 1098, 1131 (N.D. Cal. 2004) (quoting United States v.

E.I. du Pont de Nemours & Co., 351 U.S. 377, 404 (1956)). Using these factors, products may

be considered “reasonably interchangeable,” where there is cross-elasticity of demand, i.e. if

customers would switch to alternatives in response to a price increase in the alleged

monopolist’s product. Rebel Oil, Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1436 (9th Cir.

1995); see also AD/SAT, A Division of Skylight, Inc. v. Associated Press, 181 F.3d 216, 227 (2d

Cir. 1999) (citing United States v. Grinnell Corp., 384 U.S. 563, 571 (1966)) (“Cross elasticity

of demand exists if consumers would respond to a slight increase in the product of one product

by switching to another product.”). 

Third, it is legally permissible to premise antitrust allegations on a submarket, whereby

the antitrust plaintiff alleges restraint of trade within or monopolization of a small part of the

general market of substitutable products. Newcal Industries, 513 F.3d at 1045. “In order to

establish the existence of a legally cognizable submarket, the plaintiff must be able to show (but

need not necessarily establish in the complaint) that the alleged submarket is economically

distinct from the general product market.” Id. There are several “practical indicia” of an

economically distinct submarket: “industry or public recognition of the submarket as a separate

economic entity, the product’s peculiar characteristics and uses, unique production facilities,

distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.” 

Brown Shoe, 370 U.S. at 325. 

In the consolidated amended complaint, Plaintiffs set out four submarkets that they

contend Ganz’s core line of tied products fall within: (1) the “Plush market” which is “a distinct

submarket within the general toy market” comprising “plush toys that do not have an online

gaming component”; (2) the “Souvenirs and Novelties market” which consists of “items [in]

souvenir and novelty shops that are designed and manufactured to be bought and/or given as

gifts for personal reasons or special events”; (3) the “Home Decorative Accessories market”

which consists of “products designed and manufactured to be bought to decorate the interior of

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 5 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

a home [such as] picture frames, tableware, and ceramics”; and (4) the “Seasonal Decorations

market” which consists of “products designed and manufactured to be bought for holidays, such

as Christmas and Thanksgiving [such as] ornaments, decorations, and keepsakes.” (Compl. at

¶¶ 81, 83, 84, 85.) 

In the complaint, Plaintiffs allege that the submarkets are sufficiently distinct from other

product markets and that the relevant industry recognizes these markets as submarkets within

the more general market of substitutable products. (See id. at ¶¶ 81-85.) In Station Enterprises,

Inc. v. Ganz, Inc., 2009 WL 2926572, *7 (E.D. Mich. Sept. 10, 2009), decided at summary

judgment on other grounds, the district court implicitly accepted the very same product market

definitions. “On a motion to dismiss, the court need not engage in extensive analyses of

reasonable interchangeability and cross elasticity of demand.” Bansavich v. McLane Co., 2008

WL 4821320, *3 (D. Conn. Oct. 31, 2008) (citations omitted); see also Newcal Industries, 513

F.3d at 1045 (holding that the validity of the relevant market is typically a factual rather than a

legal analysis). At this procedural stage and as currently pled, the Court does not find

Plaintiff’s submarket definitions to be “facially unsustainable” and does not grant the motion to

dismiss on this ground. See Newcal Industries, 513 F.3d at 1045; see also Delano Farms Co. v.

California Table Grape Commission, 623 F. Supp. 2d 1144, 1176-77 (E.D. Cal. 2009) (holding

that market definition is a “deeply fact-intensive” inquiry and that it is not appropriate to “delve

into a factual inquiry” on effective substitutes on a motion to dismiss). 

2. Plaintiffs Do Not Allege Anticompetitive Effect in Tied Market.

Although the Court finds that, on the basis of the allegations in the complaint, the tied

submarkets are not facially unsustainable, Plaintiffs do not sufficiently allege anticompetitive

effect in those alleged tied markets. Plaintiffs must plead a “pernicious effect on competition

and lack of ... any redeeming value.” In re eBay Seller Antitrust Litig., 545 F. Supp. 2d 1027,

1033-34 (N.D. Cal. 2008) (citing Northern Pacific Ry. Co. v. United States, 365 U.S. 1, 5

(1958)). In order to make out a cognizable claim for anticompetitive tying, “[t]he injury is

reduced competition in the market for the tied product.” Rick-Mik Enters. v. Equilon Enters.,

LLC, 532 F.3d 963, 971 (9th Cir. 2008). As the Supreme Court has stated, “the justification for

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 6 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

the challenge [against ties] rested on either an assumption or a showing that the defendant’s

position of power in the market for the tying product was being used to restrain competition in

the market for the tied product.” Id. at 971 (citing Illinois Tool Works Inc. v. Independent Ink,

Inc., 547 U.S. 28, 34 (2006)). “Thus, ‘in all cases involving a tying arrangement, the plaintiff

must prove that the defendant has market power in the tying product.’ And to prove it, it must

first be properly alleged.” Rick-Mik, 532 F.3d at 971-72 (citing Illinois Tool Works Inc., 547

U.S. at 46).

In the consolidated complaint, Plaintiffs allege that as a result of Ganz’s practice of

requiring retailers to purchase from their core line of products when placing orders for the

Webkinz products the plaintiff retailers are unable to purchase those same type of products from

other producers – Ganz’s competitors – and are therefore unable to provide those choices to

consumers. However, the complaint does not allege that consumers are unable to purchase the

competing manufacturers’ products from other retailers. 

This case is readily distinguishable from the central case relied upon by Plaintiffs, In re

Hypodermic Products Antitrust Litig., 2007 WL 1959224 (D.N.J. June 29, 2007). In

Hypodermic Products, plaintiffs alleged that the dominant manufacturer of hypodermic needles

and medical products engaged in exclusionary practices that constrained the purchasing ability

of the end users of the products – hospitals and other health care providers. Id. at *1-3. The

complaint also asserted that, as a result of the anticompetitive behavior of the dominant

manufacturer, actual or potential competitors were not able to increase their market share

sufficiently to achieve economies of scale, resulting in lower costs and therefore higher prices

to end users on a marketwide basis. Id. at *4. Here, the allegation is that there is a restriction

on retailers or dealers, not on end users or consumers. There is no inference that competing

manufacturers of the core product lines are excluded or injured by consumers being unable to

purchase their products. There is no allegation or necessary inference that competing sellers

have been foreclosed from carrying competing products or that consumers are not able to have

access to the tied products markets. There is no allegation that Ganz dominates the tied product

submarkets and no inference or allegation that prices, output or general market competition has

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 7 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

 Plaintiffs argue in their opposition that the “Complaint’s anticompetitive allegations

are clear, and affect the tying and the tied markets. The harm in the tying product caused by

Defendants’ acts is, like the tied product markets, one that affects a substantial volume of

commerce, resulting in higher prices and restricted output affecting consumers.” (Opp. Br. at

12.) This is stated as a legal conclusion in the motion briefing. However, the effect of

increased prices or restricted output is not actually supported by any facts currently alleged

in the complaint. For this reason, the Court grants Plaintiffs leave to amend their complaint

to set out such facts, if available.

8

been affected by Ganz’s alleged exclusionary practices. The only allegation of injury is that

Plaintiffs, particular retailers with limited shelf space, are unable to stock competing products.1

3. Claim of Antitrust Injury.

Only individuals who possess antitrust standing by virtue of having suffered such injury

may sue to redress an antitrust violation. Associated General Contractors of California, Inc. v.

California State Council of Carpenters, 459 U.S. 519, 529-535 (1983); see also Cargill, Inc. v.

Monfort of Colorado, Inc., 479 U.S. 103, 113 (1986) (“a private plaintiff must allege threatened

loss or damage ‘of the type the antitrust laws were designed to prevent and that flows from that

which makes defendants’ acts unlawful.’”) (citing Brunswick Corp. v. Pueblo Bowl-O-Mat,

Inc., 429 U.S. 477, 497 (1977)). In order to survive a motion to dismiss under Rule 12(b)(6),

“an antitrust complaint ‘need only allege sufficient facts from which the court can discern the

elements of an injury resulting from an act forbidden by the antitrust laws.’” Cost Mgmt.

Servs., 99 F.3d at 950 (citing Newman v. Universal Pictures, 813 F.2d 1519, 1522 (9th Cir.

1987)). “Where the defendant’s conduct harms the plaintiff without adversely affecting

competition generally, there is no antitrust injury.” Paladin Assocs., Inc. v. Montana Power

Co., 328 F.3d 1145, 1158 (9th Cir. 2003). In order to state a claim under Section 1 of the

Sherman Act, the plaintiff must allege injury to competition generally, not merely to

competitors. See, e.g., Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d 729, 734 (9th Cir.

1987) (affirming dismissal of antitrust action and holding that “[w]hile appellant clearly pleads

injury to itself, its conclusion that competition has been harmed thereby does not follow.”)

Plaintiffs repeatedly assert that they were harmed because they were unable to stock

their stores’ shelves with other competing products from the tied submarkets. (See, e.g., Compl.

at ¶¶ 5, 12, 15, 30-36, 91, 95, 97.) Plaintiffs’ claimed injury is the money they spent on tied

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 8 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9

products as a condition for purchasing the Webkinz products. However, that expenditure is the

result not of foreclosed business opportunities in the tied markets, but from Plaintiffs’ efforts to

maximize their profits in the tying market, by satisfying consumer demand for the Webkinz

products. Plaintiffs do not allege that Ganz’s conduct has in any way affected the price of the

tied products or even the overall price for the bundled goods. The injury currently alleged by

Plaintiffs does not amount to recognizable harm to competition. See Rutman Wine, 829 F.2d at

734 (“[w]hile appellant clearly pleads injury to itself, its conclusion that competition has been

harmed thereby does not follow.”)

 Plaintiffs merely state that the conduct by Ganz caused harm to competition generally,

but do not allege specific facts supporting such conclusory legal claims. (See, e.g., Compl. at ¶¶

12, 89, 97.) In affirming the district court’s dismissal of a Sherman Act Section 1 claim for

failure sufficiently to allege an unreasonable restraint of or injury to competition, the Ninth

Circuit held that “[i]n order successfully to allege injury to competition, a section one claimant

may not merely recite the bare legal conclusion that competition has been restrained

unreasonably. Rather, a claimant must, at a minimum, sketch the outline of the antitrust

violation with allegations of supporting factual detail.” Les Shockley Racing, Inc. v. National

Hot Rod Ass’n, 884 F.2d 504, 507-08 (9th Cir. 1989) (citing Rutman Wine, 829 F.2d at 736). 

Plaintiffs summarily assert that consumers have been harmed, but do not allege facts

demonstrating that consumers have suffered any injury as a result of limited choices of the tied

products in Plaintiffs’ stores. On behalf of actual consumers, Plaintiffs merely plead that 

the illegal tying arrangement caused harm to consumer-purchasers of Plaintiffs’

customers by reducing consumer choices of products. The tying arrangement

forced Plaintiffs and other members of the class to spend limited financial

resources on unwanted “core” product rather than more popular products offered

by Ganz competitors and fill their limited shelf space with unwanted product.

(Compl. at ¶¶ 97, 117; 14 (“Defendants’ actions have caused injury to the ultimate

consumer/purchasers of Plaintiffs’ products by reducing the choices available to them.”); 120

(“Ganz’ tying arrangement has limited consumer choice.”).) Conclusory allegations of

anticompetitive effect are insufficient without supporting facts as to how competition in the tied

markets has actually been reduced or harmed. Plaintiffs’ factual allegations do not support the

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 9 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

 With the exception of Plaintiff in Comstock v. Ganz, Inc., C 08-5106 JSW,

consolidated with this matter, Plaintiff members do not allege a breach of contract. Ganz

contends, however, that the unfair competition claims are “fundamentally contractual in

nature.” (Reply at 16.) 

10

contention that the availability of competitive products to consumers was significantly reduced

in the four large submarkets – the Plush market, the Souvenirs and Novelties market, the Home

Decorative Accessories market, and the Seasonal Decorations market – merely because

consumers were limited in their selection of some of those products on specific Plaintiffs’ store

shelves. There is no factual allegation to support the contention that there was a lack of choice

in the large four submarkets for consumers; there is merely an allegation that Plaintiffs’ choices

of products within those markets with which to stock their limited shelf space, was restricted. 

See, e.g., Bansavich, 2008 WL 4821320 at *4 (dismissing claim where “complaint set forth

allegation supportive of an injury to plaintiff’s business, but antitrust injury must represent an

adverse effect on competition as a whole in the relevant market rather than to plaintiff.”). As

there is no specific factual allegations regarding the alleged injury suffered by consumers or

competition in the tied markets generally, the Court GRANTS Defendants’ motion to dismiss

with leave to amend.

C. Plaintiffs’ State Law Causes of Action.

1. Count Two Under California’s Unfair Competition Law.

Plaintiffs assert a violation of California’s Unfair Competition Law, California Business

and Professions Code §§ 17200 et seq. (“UCL”), by alleging that Ganz’s failure to deliver

Webkinz products in a “reasonably timely manner” constituted an “unfair” and “fraudulent”

business practice. (See Compl. at ¶ 125.) Ganz moves to dismiss Plaintiffs’ second count on

the basis that Plaintiffs are neither consumers nor competitors of Ganz, but rather are retail

businesses that contracted to purchase Ganz products and merely claim that the delivery of the

merchandise was not timely. Although, for the most part,2

 Plaintiffs do not allege a breach of

contract, Ganz contends that the claim relating to late delivery is essentially a breach of each of

the Plaintiff members’ contracts with Ganz and California law does not encompass such

business-to-business contract claims. See Linear Tech. Corp. v. Applied Materials, Inc., 61 Cal.

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 10 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11

App. 4th 115, 135 (2007) (“[W]here a UCL action is based on contract not involving either the

public in general or individual consumers who are parties to the contract, a corporate plaintiff

may not rely on the UCL for the relief it seeks”); see also Rosenbluth International, Inc. v.

Superior Court, 101 Cal. App. 4th 1073, 1077 (2002) (holding that “a UCL action based on a

contract is not appropriate where the public in general is not harmed by the defendant’s alleged

unlawful practices.”). 

In response, Plaintiffs contend that the standing requirement under the UCL is satisfied

here because the Linear Tech and Rosenbluth cases are readily distinguishable based on the

large size and sophistication of the litigants in those matters who were powerful and

sophisticated plaintiffs unlike the small mom and pop merchants here who were “victimized by

a pernicious and illegal scheme.” (Opp. Br. at 20; citing In re Yahoo! Litigation, 251 F.R.D.

459, 475 (C.D. Cal. 2008) (distinguishing Linear Tech and Rosenbluth on the basis that

plaintiffs in those cases were sophisticated businesses and individually capable of seeking relief

for their injuries).) 

The Court finds that the central issue presented under California law is whether the

public at large, or consumers generally, are affected by the alleged unlawful business practice of

defendants. The relative size of the plaintiff companies and whether or not there is a contract

for the plaintiffs to rely upon is secondary to the analysis of whether, as a result of the alleged

unfair or fraudulent business practice, consumers are adversely affected. The California UCL

grants standing to companies of varying size, to defend the rights of the general consuming

public against unfair and fraudulent business practices. Similar to the analysis below on the

basis of Illinois and New York state law, the claim under California’s UCL as currently pled is

invalid as it fails to state a connection to the protection of the general public. The second count

pleads harm only to the Plaintiffs and Class members and alleges only that the conduct has a

tendency to cause injury to their business interests under the contracts each plaintiff presumably

has with Ganz. The allegations of the current complaint fundamentally sound in contract and

do not allege facts sufficient to demonstrate a connection to the protection of the public. The

Court finds the allegations to be insufficient to establish the requisite public or individual

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 11 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12

consumer interest as required under California law. Accordingly, the motion to dismiss count

two under California’s Unfair Competition Law is GRANTED with leave to amend to set out

the requisite factual connection to the general public or to individual consumer’s interest.

2. Count Five Under Illinois Consumer Fraud Act and Damages Under the

Deceptive Practices Act.

Ganz moves to dismiss the part of Plaintiffs’ fifth count under the Illinois Consumer

Fraud and Deceptive Practices Act, 815 Ill. Comp. Stat. Ann 505/1 et seq. (“Illinois Consumer

Fraud Act”), on the basis that the transactions at issue are beyond the scope of the statute

because they are business-to-business transactions and do not implicate consumer protection

concerns. 

The elements of a claim under the Illinois Consumer Fraud Act are: “(1) a deceptive act

or practice; (2) an intent by defendants that the plaintiff rel[y] on the deception; and (3) that the

deception occurred in the course of conduct involving a trade and commerce.” In re Albergo,

656 N.E.2d 97, 105 (Ill. 1995). Further, a “complaint alleging a violation of consumer fraud

must be pled with the same particularity and specificity as that required under common law

fraud.” Connick v. Suzuki Motor Co., 675 N.E.2d 584, 593 (Ill. 1996). Also, as “its name

indicates, the Consumer Fraud Act is primarily concerned with protecting consumers.” 

Industrial Specialty Chems. v. Cummins Engine Co., 902 F. Supp. 805, 811 (N.D. Ill. 1995). 

Under the Act, a “consumer” is defined as one “who purchases or contracts for the purchase of

merchandise not for resale in the ordinary course of his trade or business but for his use or that

of a member of his household.” 815 Ill. Comp. Stat. 505/1(e). Plaintiffs bringing a claim under

the Act need not be consumers, but the Act does not authorize a suit by a non-consumer where

there is no injury to consumers. Although those bringing Consumer Fraud Act claims need not

be consumers, they must allege “a sufficient consumer protection nexus.” Nakajima All Co. v.

SL Ventures, Corp., 2001 WL 641415, *4 (N.D. Ill. June 4, 2001). 

Again, for the reasons explained above, the Court finds that Plaintiffs’ allegations

regarding the practices affecting consumer choice are unpersuasive. In addition, the allegations

in the complaint regarding the restrictions on consumer choice focus on the alleged tying

arrangement and not on the delays in delivery which form the basis of Plaintiffs’ claims under

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 12 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

13

the Consumer Fraud Act. (See Compl. at ¶¶ 12-15, 96-97.) Plaintiffs do not make the

allegation that Ganz’s conduct in late deliveries made the Webkinz product any less available to

consumers. In fact, Plaintiffs contend that those products were instead sold at mass

merchandisers such as Target or Wal-Mart, instead of by the small shops like those operated by

Plaintiffs. (See id. at ¶¶ 101, 107.) The only relevant contention that the delays in delivery

affect consumers are stated as legal conclusions, without supporting facts. (See id. at ¶ 149

(“Defendants’ general course of conduct had an impact on the public interest because the acts

were part of a generalized course of conduct affecting numerous consumers. Defendants’

practices were consumer oriented and also directed to the market generally or implicated

consumer protection concerns.”) The Court finds such conclusory allegations to be insufficient

to set out the requisite consumer protection nexus as required under Illinois law. Accordingly,

the motion to dismiss the claim under the Illinois Consumer Fraud Act is GRANTED with leave

to amend to establish a sufficient factual predicate supporting a consumer protection nexus.

In addition, Plaintiffs are not entitled to damages under Illinois’ Deceptive Practices Act

and any such claim for money damages is dismissed. See Greenberg v. United Airlines, 206 Ill.

App. 3d 40, 45-46 (1990). Both parties agree that only injunctive relief is available under this

statute.

3. Count Seven Under New York General Business Law.

Ganz similarly argues that Plaintiffs’ seventh cause of action under New York’s

Consumer Protection From Deceptive Acts and Practices statutes should be dismissed for

failure to state a claim because Plaintiffs fail to allege that the challenged act or practice was

consumer oriented. Similar to the law in Illinois, under New York law, the “statute’s consumer

orientation does not preclude its application to disputes between businesses per se, but it does

severely limit it. ... The threshold requirement of consumer-oriented conduct is met by a

showing that ‘the acts or practices have a broader impact on the consumer at large’ in that they

are ‘directed to consumers’ or potentially affect similarly situated consumers.’” Cruz v. NYNEX

Information Resources, 703 N.Y.S.2d 103, 107 (2000) (citations omitted). 

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 13 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

14

Again, Plaintiffs fail to allege injury, impact or direction to consumers or to the public

interest. The complaint merely states a legal conclusion that “Defendants’ acts and practices, as

alleged herein were: consumer oriented as Plaintiff and Class members could not supply

consumer demand, among other things; materially deceptive or misleading to a reasonable

person or consumer, and had a broad impact on consumers at large an the public interest.” (See

Compl. at ¶ 165.) Again, the Court finds such conclusory allegations to be insufficient to

establish the requisite consumer orientation as required under New York law. Accordingly, the

motion to dismiss count seven under New York’s Consumer Protection From Deceptive Acts

and Practices statutes is GRANTED with leave to amend to establish a sufficient factual

predicate.

CONCLUSION

For the foregoing reasons, the Court GRANTS Defendants’ motion to dismiss with

leave to amend. Plaintiffs shall file an amended consolidated complaint, if any, by March 12,

2010. Defendants shall have twenty days thereafter to file their responsive pleading. 

IT IS SO ORDERED.

Dated: February 17, 2010 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

Case 3:08-cv-05106-RS Document 37 Filed 02/17/10 Page 14 of 14