The Clerk of the Court is directed to amend the off icial ca ption as set forth above
. * 08
- 56 37
- cv S t a r r v . S o n y B MG U N IT E D S T A T E S C O U R T O F A P P E A LS F OR THE S EC OND C IR C U IT

_______________ August Term, 2009 (Argued: September

21, 2009 Dec ided: J anuar y 13, 2010 Errata Filed: F ebrua ry 19, 2010) Docke t No. 08-5637-c v

_______________ KEV I N S T A RR , M AT T P UTMAN , C I NDY S EL EY , o n b e ha lf of he rs e lf and a ll o the rs sim ila

rl y situated, D AVI D P AS C HK E TT , on behalf of all others similarly

situated, C H RI STO PH ER M I C HAUD , on behalf of himself and a ll others simil arly situated, L I SA O WENS , R I CHARD B EN HAM , o n b e ha lf of himself and a ll others simil arly situated, KEA T ON L ANDRY , in div idu a lly and on be ha lf of a ll others similarly

situated, S H E R I C L ARK , RA C H A EL H A LL and M I TC H ELL H OR TON , Plain tif fs- Ap pe lla nts , —v.— S ONY BMG M US I C E NT ER T AI NMENT , S ONY C O R P O R A TIO N O F A MERI CA , B ER T EL SMANN , I NC ., U N I V ER SA L M US I C G ROUP , T I ME W ARNE R I NC ., former ly

known as AO LTime Warner Cable, Inc., W ARNE R M US I C G ROU P C ORP . , E M I M US I C N ORT H A MERI CA , C A PIT O L R ECOR DS I NC ., doing busine ss as EMIMusic North Amer ica, J OHN D OES 1-100, B ER T EL SMANN M US I C G ROUP , I NC ., BMG M U S IC , BMG M US I C P UBL I SH I NG , d oin gbu sin e ss a s T he RCARe c or d L a be l, C AP I T OL - E M I M U S IC , I NC . and V I RGI N R ECOR DS A MERI CA , I NC ., Defendants-A

ppellees
. *

_______________ B e f o r e : N EW MAN , W AL KE R , and K ATZ MANN , Circuit Judges
.

_______________2

Appea l from a judg ment of the United States District Court for the Southern District of New Y ork (L oretta Pre ska, Judge ), e nte re d O c tob e r 2 1, 20 08 , d ism iss ingPla int if fs -A pp e lla nts ’ Second Consolidated Amende d Complaint (“SCAC”) for fa ilure to state a c laim upon which
re lie f c an b e g ra

nte d. We h old

that th e SCA C c onta ins “ e no ugh f a c tua l matte r ( take n a s tr

ue ) t o sug g est that an a g ree ment was made ,” Be ll A tla nti c Cor p. v . Two mb ly , 550 U.S. 544 (2007), and there fore states a c laim for violation of Section 1 of the Sher man Act. We ther efor e vac ate the judgme nt of the district court a nd rema nd for f urther pr ocee dings c onsistent with thi s opinion.

_______________ G AR Y S. J AC OB S ON (Christopher L ovell, Imtiaz A. S iddiqui, of counsel), L ovell Stewart Ha lebian L L P, New Yor k, NY; J ohn Stoia and Bonny Sweene y , of counsel , Coughlin Stoia Geller Rudman & Robbins L L P, San Dieg o, CA, for

Plain tif fs- Ap pe lla nts
. KEN NE TH R. L OGAN (He lena Almeida , of counsel), Simpson Thacher & Ba rtlett L L P, New Yor

k, NY; Alan M. Wiseman, Mark C. Sche chter , and Thomas A. I saac son, of counsel , Howre y L L P, W ashing ton, DC; P eter T. Ba rbur a nd Rache l G. Skaistis, of counsel , Cr avath, Swa ine & Mo or e L L P, New Y ork, NY, for Defendants-Appe llees
.

_______________ K ATZ MANN , Circuit Judge : This case calls upon us to deter mine whether

an antitrust complaint alleg ing a conspirac y by major re cord la

bels to fix the price s and terms unde r which the ir music would be sold over the Interne t states a cla im for violation of Section 1 of the Sher man Act unde r Bell Atlantic Corp. v. Twom bly , 550 U.S. 544 (2007). We hold that Plaintiffs-Appellants’ Sec ond Consolidated Amended Complaint (“SCAC”) c ontains “enough fac tual matter (taken as true ) to sug g est that an ag ree ment was made ,” id. at 555, and ther efor e states a claim. We vacate the judg ment of the district court and r emand f or fur ther proc eeding s consistent with this opi nion.Th e Sup re me Court ’s mos t r e c e nt i te ra tio n o f t he F e de ra l Ru le s o f C ivi l Pr oc e dure Rul e 1 8(a) pleadingstandard stre sses that “the te net that a c ourt must acce pt as true a ll of the alleg ations contained in a complaint is inapplicable to leg al conc lusions. . . . [ There fore ,] a court consideringa motion to dism iss can choose to beg in by identifying ple ading s that, beca use they are no more than c onclusions, are not entitled to the assumption of truth.” Ashcroft v. Iqbal , 129 S.Ct . 1 93 7, 19 49 -5 0 ( May 18 , 2 00 9) . We a c c e pt t

hat invit atio n h e re , a

nd do no t in c lud e tho se alleg ations in the SCAC that “ar e no more than conc lusions.” 3 BACK GR OUND Th e SCA C c onta ins the fo llo wi ngno n- c on c lus or y fa c tua l a lle g atio ns , whic h w e mus t
acc ept as true . 1 Def endants produc e, license and distribute music sold as dig ital files (“D igital Music” )
on lin e via the Inte rn e t ( “ Inte rn e t Mu sic ” ) a nd on c omp a c t di sc s ( “ CD s” ). To g e the r, de fe nd ants EMI , Sony

BMG Music E ntertainment (“ Sony BMG” ), Univer sal Music Group Rec ording s, Inc. (“ UM G” ), and

War ne r M us ic Gr ou

p Co rp . ( “ WMG ” ), c ontr ol o ve r 8 0% of Di g ita l Mu sic so ld t o end purc haser s in the United States. Initially , defe ndants Be rtelsmann, Inc. (“ Be rtelsmann”) , WMG, and EMIag ree d to launch
a ser vice c alled MusicNe t. Defe ndants UMG and Sony Corporation (“ Sony ”) a g ree d to launch a
se rv ic e c a lle d D ue t, l ate r r e name d p re ssp lay . A ll d e fe nd ants signe d d istri butio n a g re e me nts wi th Mu sic Ne t or

pr e ssp lay and so ld m us ic dir e c tly

to c on sume rs ov e r t

he Inte rn e t thro ugh th e se venture s (the “joint venture s”). B oth the joint ventures and the Re cordingIndustry Association of Am e ri c a (“ RIAA ” ) p ro vid e d a

fo rum and

me ans thr ou g h whic h d e fe nd ants c ou ld communicate a

bout pricing , terms, and use restric tions. To obtain Interne t Music from all major re cord la bels, a c onsumer initially would have ha d to su bs c ri be to b oth

Mu sic Ne t and

pr e ssp lay , at a

c os t of a pp ro ximate ly

$2 40 pe r ye ar. B oth service s require d consumers to a g ree to unpopular Dig ital Rights Manag ement ter ms (“DRMs”).4

For example, pressplay

prohibited consumer s from copy ing mor e than two song s from any pa rt ic ula r a rt ist onto a CD e a c h mo nth . M us ic purc ha se d f ro m Mu sic Ne t and

pr e ssp lay wo uld often “ expire” unless re purcha sed: A MusicNe t consumer would ne ed to re purcha se music ea ch y ear and a pr essplay

consumer who unsubscribed w ould immediately lose ac cess to all of the music he or she had purc hased. MusicN et and pr essplay also did not allow consumers to tra nsfer song s from their c omputers to portable dig ital music play ers like the iPod. One industry commentator obse rved that MusicNet and pr essplay did not offer

rea sonable pric es, and one pr omi ne nt c omp ute r i nd

us tr y ma g a zine c on c lud e d th at “ no bo dy in t he ir ri g ht m ind

wi ll w ant t o use” the se ser

vices. SCAC ¶ 77. Mo re ov e r, the pr ic ingof

CD s a c c ounte d f

or c os ts s uc h a s c op yingthe c omp a c t di sc s; producingthe CD ca se, labe ls and anti-shoplifting pa ckag ing; shipping , both to the distributor and then to re cord store s; labor, such a s shelving CDs a nd staffingcash r eg isters; and dama g ed and unsold inventory . All of these c osts were eliminated with Interne t Music. SC AC ¶ 71. Howeve r, these dr amatic c ost reductions we re not a ccompa nied by dramatic price reduc tions for Interne t Music, as would be e x pecte d in a competitive mar ket. Eventually , defe ndants and the joint venture s beg an to sell Interne t Music to consumers thr ou g h e nti tie s th e y

did no t own o r c ontr ol. Ho we ve r, the e nti tie s c ou ld o nly se ll d e fe nd ants ’
mus ic if the y c ontr a c te d w ithMu sic Ne t to pr ov ide Inte rn e t Mu sic fo r t he same pr ic e s a

nd wi th the same re str ic tio ns a s Mu sic Ne t it se lf or oth e r M us ic Ne t li c e ns e e s. I f t he lic e ns e e atte mpt e d to lic e ns e mus ic fr om a

no the r c omp any , d e fe nd ants fo rc e d th e m to pa y pe na lti e s o r t e rm inate d th e ir licenses. In addition, eac h defe ndant was pa id shares of the total reve nue g ener ated by a joint venture licensee , rathe r than on a per songbasis, linking ea ch def endant’ s financia l interest in theTh e a lle g atio n th at de fe nd ants a g re e d to thi s p ri c e fl oo r i s o bv iou sly c on c lus or

y , a nd is 2 not acc epted a s true. 5 joint venture to the total sales of a ll labels rather than to its own market shar e. Def endants a lso used Most Favor ed Nation clauses (“ MFNs” ) in their license s that had the e ff e c t of gua ra nte e ingthat th e lic e ns or

wh o s ig ne d th e c la

us e re c e ive d te rm s n o le ss f avo ra ble than the ter

ms offer ed to other lice nsors. Def endants attempted to hide the MFN s beca use they knew they

would attrac t antitrust scrutiny . For example, EMIand MusicNe t had a “ side letter” ag ree ment which assur ed that EMI ’s cor e ter ms would be no less favor able than B erte lsmann’s
and WMG ’s . “ EM ICEO Rob Gl a se r d e c ide d to put th e MF N i n a se c re t si de le tte r b e c a

us e ‘there are leg al/antitrust rea sons why it would be bad idea

to have MF N clause s in any , or
c e rt a inl y a ll, of the se a g re e me nts .’ ” SCA C ¶ 95 . U MGa lso us e d M F N c la us e s in its lic e ns e
a g re e me nts . AJanu ary

12 , 2 00 6 a

rt ic le in t he Wal l Str e e t Jour

na l c on fi rm e d th at de fe nd ants
us e d M F Ns , a

nd , a c c or din gto Jon atha

n Po tte r, the e xec uti ve dir e c tor of the Di g ita l Mu sic As so c iatio n, “ se lle r- sid e MF Ns are inh e re ntl y pr ic e -i nc re a sin gand

anti c omp e tit ive .” SCA C ¶ 97. Edg ar B ronfman, Jr., the cur rent CEO of WMG, explained pressplay ’s pricingscheme as fo llo ws : Pressplay has what we ca ll an aff

iliate model wher e we deter mine the price , and we offe r a pe rc e nta g e of

that pr ic e to t

he re ta ili ngpa

rt ne r . . . . T he re a so n w e ’v e c ho se n th at, fr ank ly , is be c a

us e we are c on c e rn e d th at th e c ontin uin gde va luatio n o f m

us ic wi ll proce ed unaba

ted unless we do some thing a bout it. SCAC ¶ 86. Af te r s e rv ic e s o the r t

ha n d e fe nd ants ’ j oint ve ntu

re s b e g an to dis tr ibute de fe nd ants ’ Interne t Music, defe ndants “a g ree d” to a wholesa le price floor of a bout 70 cents per

song , which 26

the y e nf or c e d in pa rt thr ou g h M F N a g re e me nts . T he MF N a g re e me nts , s ig ne d b y Inte rn e t Mu sic reta ilers and de fenda

nts, specified that the reta ilers had to pay eac h defe ndant the same amount per song . Wherea s eMusic, the most popular online music ser vice se lling Interne t Music owned by independe nt labels, curr ently char g es $0.25 per

songand plac es no re strictions on how purc ha se rs c an u

plo a d th e ir

mus ic to d ig ita l mu sic pla y e rs (l ike the iPo d) or

burn to C Ds , de fe nd ants ’ who le sa le pr ic e is m or e tha n d ou ble , a bo ut $ 0. 70 pe r s on g . M or e ov e r, a ll d e fe nd ants ref use to do business with eMusic, the #2 Interne t Music retailer behind only

the iTunes Store. Finally , the SCAC allege s that defe ndants’ pric e fixing is curr ently the subject of: 1) a pe nd inginv e sti g atio n b y

the Of fi c e of the Ne w Y or

k St ate Attor

ne y Ge ne ra l r e g ard ingwh ole sa le pr ic e s c ha

rg e d f or Inte rn e t Mu sic ; 2) a

De pa rtme nt o f Jus tic e (“ DO J”) inv e sti g atio n into collusion and price fix ing be gun in March 2006; a nd 3) a D OJ investigation into whether defe ndants misled DOJ about the for mation and oper ation of MusicNe t and pre ssplay
. Ba sed on all of these fac tual alleg ations, plaintiffs alleg e that def endants e ng ag ed in a continuing c onspiracy

to “re strain the ava ilability and distribution of Interne t Music, fix and maintain at ar

tificially high a nd non-compe titive levels the price s at which they sold I nterne t Music and impose unre asonably restric tive terms in the purc hase a nd use of Interne t Music.” SCAC ¶ 126. They

also alleg e that they

wer e injured by

paying mor e for

Interne t Music and CDs than they would have in the a

bsence of an illeg al agree ment. Fr om Dece mber 29, 2005 through J uly 2006, plaintiffs filed ac tions in various state and fede ral c ourts, alleg ing de fenda nts had agree d to fix the price of Dig ital Music. The Judi cial Panel on Multidist rict L itigation tra nsfer red a nd centr alized twenty -eight actions to the Southern Di str ic t of

Ne w Y or k, be fo re Judg e L or e tta

Pr e sk a . In Apr il 2 00 7, pla int if fs fi le d a F ir st7

Consolidated Amended Complaint. Pursuant to the district court’s orde rs, def endants then pr ov ide d p la int if

fs wi th a le tte r s umm ari zingthe g ro un ds on wh ic h th e y

int e nd e d to mov e to dismiss the Fir st Consol idated Amende d Complaint. P laintiffs filed a Sec ond Consolidated Amended Complaint (“SCAC”) in June 2007. The SCAC brought c laims under Section 1 of the Sherman Ac t and state a

ntitrust and unfair a

nd dece ptive trade prac tices statutes. It also broug ht state c omm on

law c la ims fo r u

nju st e nr ic hme nt. On

July 30 , 2 00 7 d e fe nd ants mov e d to dis mis s the SCAC, pursuant to Fede ral Rule of Civil Procedure 12(b)( 6). At oral a rgument, plaintiffs reque sted leave to amend par ag raph nine ty -nine of the SCAC to a lle g e a

pa ra lle l pr ic e inc re a se . T he pr op os e d ame ndme nt a lle g e d th at: By ear ly 2005, Def

endants Sony

BMG’ s, Capitol-EMIMusic’s, UMG’s a nd WMG’s direc t costs had g one substantially down bec ause e ach of

these De fenda

nts’ digitization costs of the initial cata loginghad bee n completed, tec hnologic al improvements (inc luding incre ased c omputer proc essingpower and spee d) had r educe d the re maining c osts of digitizing new

rele ases, the r eturn a

nd store cr edit and other

costs alleg ed in ¶ 71 rema ined at zero or vir

tually zero despite substantially highe r sales volumes, a

nd the fix ed costs of e ach of

these De fenda

nts’ digital business pe r unit of sales volume ha d declined by

approximately

two-thirds. Nonethe less, these De fenda nts then eng ag ed in or about May

2005 in the para llel, highly unusual behavior of ea ch ra ising pric es fr om the 65 cents pe r songlevel to at or a bout 70 cents per

song. . . . Th e se pa ra lle l, h ig hly

un us ua l in c re a se s in

pr ic e s whe n d ir e c t c os ts h a d s ub sta nti a lly decr ease d, enfor ced by

MFNs, we re similar to De fenda nts’ causing , as alleg ed in ¶¶ 74- 75 , th e joi nt v e ntu

re s, via MF Ns and

oth e r m e ans , to inc re a se the pr ic e s o f I nte rn e t Mu sic during2002 to 2003 to unreasona bly high le vels despite substantial re ductions in the dir e c t c os ts o f I

nte rn e t Mu sic re lativ e to C Ds
. Third Consolidated Amendment Complaint ¶ 99. By Memorandum a

nd Orde r date d October

9, 2008, the district court grante d the defe ndants’ motion to dism iss, holding that the complaint did not state a c laim under Be ll At lan ticCor

p. v . Two mb ly . The district cour t first found that plaintiffs did not challeng e the
e xiste nc e or

c re atio n o f t

he joi nt v e ntu

re s, and the op e ratio n o f t

he joi nt v e ntu

re s th e re fo re did8

not yield an infe renc e of illeg al agree ment. At the same time, the district c ourt held that plaintiffs’ “ba ld alleg ation that the joint ventures we re shams is conclusory and implausible.” In re Digital Music Antitrust L itig. , 592 F. Supp. 2d 435, 442 (S.D.N.Y. 2008) . Acc ordingto the district court, plaintiffs did not challeng e the joint venture s’ “e x plicit ag ree ment,” and a ny inf e re nc e “ of

su bs e qu e nt a g re e me nt b a se d o n p ri or , unc ha lle ng e d e xplic it a g re e me nt i s
unrea sonable.” Id. at 443. The district c ourt went on to hold that other c ircumstance s alleg ed by plaintiffs wer e “e quivocal” a nd did not just ify

the infer ence of agree ment, and the imposition of the unpopular D RMs and pricingstructure was not ag ainst defe ndants’ individual economic se lfinterest whe n viewed a g ainst the bac kdrop of wide sprea d music piracy
. Id. at4 4 4
- 4 5
. F i n a l l y, the district court de nied plaintiffs’ motion to amend par ag raph nine ty -nine of the SCAC as futile. Id. at 445 n.14. This appea l followed. DI SCU SSIO N We review de novo a

dis tr ic t c ourt ’s dis mis sa l of a c omp la int

fo r f a ilure to s tate a

c la im under F eder al Rules of Civil P roce dure Rule 12( b)(6) , acc eptingall fac tual alleg ations as true, but “g iving no e ffe ct to leg al conc lusions couched a s fac tual alleg ations.” Port Dock & Stone Corp. v. Oldcastle Northeast, Inc. , 507 F.3d 117, 121 ( 2d Cir. 2007). We review the denial of leave to amend a c omplaint for abuse of discre tion, unless the denial was ba sed on an interpre tation of law, in which c ase the leg al conc lusion is reviewed de novo
. J

on es v . N. Y

. S tate Di v . o f M ili tar yan d Na v al A

ffa irs , 166 F.3d 45, 49 ( 2d Cir. 1999). Gene rally , “[w]hi le a c omplaint attacked by a Rule 12(b) (6) motion to dismi ss does not
ne e d d e ta ile d f

a c tua l a lle g atio ns , a

pla int if f’ s o bli g atio n to pr ov ide the g ro un ds of his entitle[m ent] to relief re quires more than labels a nd conclusions, and a

formulaic r ecitation of the9

elements of a

cause of ac tion will notdo.” Twom bly , 550 U.S. at 555 (interna l quotation marks omitted) (alter ation in orig inal) (c itations omi tted). Instead, “ [f] actua l alleg ations must be enoug h to raise a

rig ht to relief a

bove the spe culative leve l, on the assumption that all the alleg ations in the complaint are true (e ven if doubtful in fa ct).” Id. (c itatio ns omi tte d) . Wh at is require d are “enough fac ts to state a claim to re lief that is plausible on its face .” Id. at5 7 0
. In the words of

the Supreme Court’s most re cent iter ation of this standard, “ [a] claim has fa cial pla us ibi lity wh e n th e pla int if

f p le a ds fa c tua l c onte nt t

hat a llo ws the c ourt

to d ra w the re a so na

ble infere nce that the defe ndant is liable for the misconduct alleg ed.” Ashcroft v. Iqbal , -- U.S. -- , 129 S.Ct . 1937, 1949 (2009). “ [W ]here the we ll-pleade d fac ts do not permit the court to infer more than the mere possibili ty of misconduct,” how ever , dismiss al is appropr iate. Id. at 1950. U n d e r S e c t i o n1 o f

th e S h e r m anA c t , “ [ e ] v e r

y c o n tr a c t , c o mb i n at i o n. . . , o r c o n s p i r a c y, in restra int of trade or

commerc e amongthe seve ral States, or w ith foreig n nations, is . . . ill eg al.” 15 U.S.C. § 1. The cruc ial question in a Section 1 ca se is there fore whether the cha lleng ed conduct “ stem[s ] from independent de cision or from a n ag ree ment, tacit or e x press.” The atre Enters., Inc. v . Paramount Film Distrib. Corp. , 346 U.S. 537, 540 (1954). Althoug h para llel business behavior “ is admissibl e cir cumstantial evidenc e fr om which the fa ct finder may infer ag ree ment,” it does not itself constitute a violation of the Sherma n Act, bec ause it is “consistent wi th c on sp ir a c y , b ut j us t a s mu c h in lin e wi th a

wi de sw ath o f r atio na l and c omp e tit ive bu sin e ss strategy unilatera lly

prompted by

common perc eptions of the mar ket.” Twom bly , 550 U.S. 553- 54 (interna l quotation marks omitted). Whil e for purposes of a

summary judgme nt motion, a Section 1 plaintiff must offer evidenc e that “te nd[s] to rule out the possibilit y that the def

endants we re a ctingindepende ntly ,”10

id. at5 5 4 (c i t i n g Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 4 75 U. S. 5 74 (1 98 6) ), to survive a motion to dismiss under Rule 12( b)(6) , a plaintiff ne ed only alleg e “e noug h fac tual matter (ta ken as true ) to sug g est that an a g ree ment was made .” Id. at 55 6; see also In reElevator Antitrust Liti g. , 5 0 2 F. 3 d

4 7 , 5 0 (2 d

C i r. 2 0 0 7 ) ( p er

cu ri am ) ( qu o t i n g Twom bly fo r t he same proposition). As the Supreme Court c larified in Twom bly : As kin gfo r p la

us ibl e g ro un ds to i nf

e r a n a g re e me nt d oe s n ot i mpo se a pr ob a bil ity re qu ir e me nt at th e ple a din gsta g e ; it sim ply c a lls fo r e no ugh f

a c t to ra ise a

re a so na ble expectation that discovery will revea l evidence of illeg al agree ment. And, of c ourse, a well-plea ded complaint may proce ed eve n if it strikes a savvy judge that actua l proof of th o s e f a c t s i s i mp r o b a

b l e , an d th ata r e c o v e r y i s v e r y r e m o t e an d

un l i k e l y. Id. at 556 (footnote a

nd internal quotation marks omitted). Thus , a n a lle g atio n o f p ara lle l c on du c t c ou ple d w ithon ly

a ba re a sse rt ion

of c on sp ir a c y

is not sufficient to state a

Section 1 claim. Id. Instead, a lleg ations of par allel conduc t “must be place d in a context that raises a sug g estion of a pr ece ding a g ree ment, not merely para llel conduct that could just as well be indepe ndent ac tion.” Id. at 557. Examples of a par allel conduc t
a lle g atio n th at w ou ld s uf

fi c e un de r t

his sta nd ard inc lud e “ pa

ra lle l be havio r t

hat w ou ld p ro ba

bly not result from cha

nce, c oincidence , independe nt responses to common stimuli, or mere interdepe ndence unaided by an adva nce unde rstandingamongthe par ties.” Id. at 556 n.4 (interna l quotation marks omitted). In Twom bly , plaintiffs broug ht a Section 1 claim ce ntere d around the marke t for loca l te le ph on e se rv ic e . In 1 98 4, a sy ste m of

se ve n r e g ion a l lo c a l- te le ph on e -s e rv ic e mon op oli e s, called B aby

Be lls, was cre ated, a long w ith a separ ate, c ompetitive market for long- distance telephone se rvice from which the reg ional Ba by Be lls were e x cluded. Id. at 549. I n 1996,11

Congr ess withdrewapprova l for the r eg ional Ba by Be ll monopoli es in ena ctingthe Telec ommunications Act of 1996, which r equire d the B aby Be lls to share their loca l networks with competitors (ca lled “CL ECs”), in exchang e for authority to enter the long- distance se rvice marke t. Id. Not surprising ly , the B aby Be lls vigorously

litigated the ir “shar ing” obligations under the Act. Id. Not satisfied with the B aby Be lls’ effor

ts at sharing , the plaintiffs in Twom bly
su e d, a lle g ingthat th e B a by B e lls e ng a g e d in

pa ra lle l c on du c t in

the ir re sp e c tiv e re g ion s, including making unf

air a g ree ments with the CL ECs for ac cess to B aby Be ll networks, providing CL ECs inf

e ri or c onne c tio ns to t

ho se ne tw or

ks , a nd ov e rc ha rg ingthe CL ECs , a ll i n o rd e r t o inhibit t he g rowth of CL ECs and preve nt them from competingeff ectively with the Ba

by Be lls. Id. at 550-51. The complaint also alleg ed that the B aby Be lls’ failure to c ompete with one another , coupled with a statement from one Ba by Be ll’s CEO that competingin the territory of another Ba by Be ll “might be a

g ood way

to turn a quick dollar but that doe sn’t make it rig ht,”
su pp or te d th e a lle g atio n th at th e B a by B e lls e nte re d into a

c on sp ir a c y

to p re ve nt e ntr

y int o th e ir local mar kets and a g ree d to refr ain from c ompeting w ith one another
. Id. at 551. The Supreme Court held that the ultimate conspirac y alleg ation was mer ely

a “le g al conclusion[] restingon the prior a lleg ations,” id. at 564, and the a ctual fa ctual alleg ations in the complaint wer e insuffic ient beca use they did not “invest[] either the action or ina ction alleg ed with a plausible sug g estion of conspira cy .” Id. at 56 6. I t w a s n atur a l f or e a c h B a by B e ll t o r e sis t the competition from the CL ECs that the 1996 Act mandated, and “ nothing in the c omplaint intimates that the resistance to the [C L ECs] was a ny thing more than the natur al, unilatera l
rea ction of ea ch [Baby

Be ll] intent on keepingits reg ional dominance.” Id. at 566. As to the Ba by Be lls’ failure to e ncroa ch on ea ch other s’ terr itory , g iven that prior to the12

Telec ommunications Act of 1996 monopoly was the nor

m, rather than the exception, “a

natura l explanation for the noncompe tition allege d is that the former Gover nment-sanc tioned monopolist s were sitti ngtight, expectingtheir neighbors to do the same . . . . [T]he complaint its e lf [g ave ] re a so ns to b e lie ve that th e [B a by B e lls ] wo uld

se e the ir be st i nte re sts in k e e pin gto their old turf.” Id. at 568. Applying the languag e and r easoningof Twom bly to t he fa c ts o f t

his c a se le a ds us to conclude respe ctfully

that the district court e rre d in dismi ssing the c omplaint for fa ilure to state a Section 1 claim. The pr esent c omplaint succee ds where Twombly’s failed be cause the complaint alleg es spec ific fa cts sufficie nt to plausibly sug g est that the par allel conduc t alleg ed wa s the result of a n ag ree ment amongthe def endants. As discusse d above, the complaint contains the fo llo wi ngno n- c on c lus or

y fa c tua l a lle g atio ns of

pa ra lle l c on du c t. F ir st, de fe nd ants a g re e d to launch MusicNe t and pre ssplay , both of which c harg ed unre asonably high pr ices a

nd contained simil ar D RMs. S econd, none of the de fenda nts dramatica lly

reduc ed their pr ices for

Interne t Mu sic (a s c omp are d to CD s) , d e sp ite the fa c t th at a ll d e fe nd ants e xpe ri e nc e d d ra matic c os t
re du c tio ns in p ro du c ingInte rn e t Mu sic . T hir d, wh e n d e fe nd ants be g an to se ll Inte rn e t Mu sic throug h entities they

did not own or control, they maintained the same unre asonably high pr ices and DRMs as MusicNe t itself. Fourth, de fenda nts used MFNs in their lice nses that had the e ffe ct of guara nteeingthat the licensor who signe d the MFNrec eived ter ms no less favora

ble than te rm s o ff e re d to oth e r l ic e ns or s. F or e xamp le , b oth

EM Iand UM G u se d M F N c la

us e s in the ir lic e ns inga g re e me nts wi th M us ic Ne t. F if th, de fe nd ants us e d th e MF Ns to e nf or c e a wh ole sa le price floor of a

bout 70 cents per

song . Six th, all defe ndants ref use to do business with eMusic, the #2 Inte rn e t Mu sic re ta ile r. Se ve nth , in or a bo ut M ay 20 05 , a ll d e fe nd ants ra ise d who le sa leBe cause the proposed a mendment to para g raph nine ty -nine of the SCAC contained, 3 alongwith the rema inder of the complaint, “enough fac t to raise a r easona ble expectation that discovery will revea l evidence of illeg al agree ment,” Twom bly , 555 U.S. at 556, the district court err ed in deny

ing the motion to amend on the g round of f utilit y . See Kassner v . 2nd Ave

. Delicatesse n Inc. , 496 F.3d 229, 244 ( 2d Cir. 2007). Ther efor e, we include the a lleg ations c o n t a i n e d i np r o p o s e d

p ar a g r a p hn i n e ty - n i n e w i th i no ur d i s c u s s i o no f

th e S C A C a s a

w h o l e . In so do ing , w e re

je c t de fe nd ants ’ a

rgume nt t hat th e pr op os e d ame ndme nt w ou ld h ave be e n f uti le be c a us e it a lle g e d th at pr ic e s r os e in o r a bo ut M ay 20 05 , b ut c os ts d e c lin e d f our ye ars e arl ie r, in 2001. As ca

n be see n above, pa

ragraph se venty -one of

the orig inal complaint alleg ed that initial c os ts o f d istri butin gInte rn e t Mu sic fe ll b e c a us e the pr ic e of

dis tr ibutin gCD s a c c ounte d f or c os ts such as c opying the compac t discs, producingthe CD ca se, and la bor, all of whic h wer e eliminated in distributing Interne t Music. In contra st, the proposed amendment to para g raph nin e ty -n ine a lle g e d th at by May 20 05 the c os ts o f d ist

ri butin gInte rn e t Mu sic ha d f a lle n b e c a us e the dig itiz ation costs of the initial Interne t catalog ing ha d been c ompleted and tec hnologic al imp ro ve me nts (i nc lud inginc re a se d c omp ute r p ro c e ssi ngpo we r) ha d r e du c e d th e re ma ini ngc os ts of dig iti zingne w r e le a se s. Th e se are no t th e same c os ts t hat are a lle g e d to have de c re a se d in para g raph se venty -one of the orig inal complaint.

13 pr ic e s f ro m a bo ut $ 0. 65 pe r s on gto $ 0. 70 pe r s on g . T his pr ic e inc re a se wa s e nf or c e d b y MF Ns
. 3 Mo re imp or

tantl y , th e fo llo wi nga lle g atio ns , ta ke n to g e the r, pla c e the pa ra lle l c on du c t “ in a conte x t that raises a

sug g estion of a pr ece ding a g ree ment, not merely para llel conduct that could just as well be indepe ndent ac tion.” Twom bly , 550 U.S. at 557. First, def endants c ontrol over 80% of Dig ital Music sold to end purchase rs in the United States. See7 Phill ip E. Aree da and He rber

t Hovenkamp, An tit

ru st La w (her einaf

ter “ Are eda & Hovenkamp”) § 1431a (2d ed. 2003) (“ [E] mpirical studies consider ing ma ny industries have sug g ested that nonc ompetitive pricing[t hat may

be the r esult of price coordination] is likely to appea r whe n the four le ading firms ac count for some 50 to 80 perc ent of the ma rket.” ). Second, one industry commentator noted that “nobody

in their rig ht mind” would want to use MusicNe t or pressplay , sug g estingthat some form of a g ree ment amongdefe ndants would have been ne eded to r ender the enter prises profitable. See id. § 1 41 5b (“ Som e a c ts, or fa ilure s to a c t, c ann ot b e pr of ita bly c ontin ue d unle ss ri va ls b e have in p ara lle l.” ); In re Flat Glass Antitrust L itig. , 385 F.3d 350, 360- 361 (3d Cir.14

2004) (“ Evidence that the def endant a cted c ontrary

to its i ntere sts means evidenc e of c onduct that would be irrational assuming that the de fenda nt operated in a compe titive market. In a
c omp e tit ive ind

us tr y , f or e xamp le , a

fi rm wo uld c ut i ts p ri c e wi th t

he ho pe of

inc re a sin gits marke t share if

its competitors were setting pr ices a bove mar g inal costs.”). Thir d, the quote fr om Edg ar B ronfman, the curr ent CEO of WMG, sug g ests that pressplay was for med expressly

as an eff ort to stop the “continuingdevaluation of music.” Four th, defe ndants attempted to hide their MF Ns bec ause the y knew they

would attrac t
anti tr us t sc rutiny . F or

e xamp le , E MI

and Mu sic Ne t’ s MF N, wh ic h a ssu re d th at E MI ’s c or e te rm s would be no less fa

vorable than B erte lsmann’s or WMG’s, was c ontained in a se cre t side letter. “EMI CEO Rob Glaser de cided to put the MF N in a sec ret side letter beca use ‘ther e ar e leg al/antitrust rea sons why it would be bad idea

to have MF N clause s in any , or ce rtainly all, of the se a g re e me nts .” SCA C ¶ 95 . A c c or din gto t

he e xec uti ve dir e c tor

of the Di g ita l Mu sic As so c iatio n, se lle r- sid e MF Ns are “ inh e re ntl y pr ic e -i nc re a sin gand

anti c omp e tit ive .” SCA C ¶ 97. Fifth, whe rea s eMusic cha rg es $0.25 per

song , defe ndants’ wholesa le price is about $0.70 per song . See7 Are eda & Hovenka mp § 1415b (“[O]ne cannot prof itably incre ase its price
a bo ve that c ha

rg e d b y ri va ls unle ss t

he y fo llo w the pr ic e -r a ise r’ s le a d. ” ). Sixth, de fe nd ants ’ price -fixing is the subject of a pendinginvestigation by the New York State Attorne y

Gene ral and two sepa

rate investigations by

the Depa rtment of Just ice. F inally , defe ndants raise d wh o l es al e p ri ce s fr o mab o u t$ 0
. 6 5 p er s o n g t o $ 0
. 7 0 p er

s o n g i no r ab o u tM ay

2 0 0 5 , ev en th o u gh
e arl ie r t hat y e ar d e fe nd ants ’ c os ts o f p ro vid ingInte rn e t Mu sic ha d d e c re a se d s ub sta nti a lly du e to
c omp le tio n o f t

he ini tia l di g ita l c ata log ingof a ll Inte rn e t Mu sic and

te c hn olo g ic a l im

pr ov e me nts15

that reduc ed the c osts of digitizing newrele ases. SeeRichard A. Posner , Antitrust Law 88 (2d ed. 2001) ( “Simultaneous price inc rea ses . . . unexplained by any incre ases in cost may

there fore be g ood evidenc e of the initiation of a price- fix ing sc heme.” ). Th is c omp la int

do e s n ot r e se mbl e tho se our s ist e r c ir c uit s h ave he ld f a il t o s tate a

c la im under Twom bly
. See, e .g. , Ri c k -M ik En te rs. , I nc . v . E qu ilo n E nte rs. LLC , 532 F.3d 963, 975- 976 (9th Cir. 2008) (dismissing Section 1 pric e fixing complaint under Twom bly wher e complaint
a lle g e d o nly

that de fe nd ant c on sp ir e d w ith“ nume ro us ” ba nk s to fi x the pr ic e of

c re dit and de bit
c ard pr oc e ssi ngfe e s and

re c e ive d k ic kb a c ks fr om “ nume ro us ” ba nk s a s c on sid e ratio n f

or its
un lawf ul a g re e me nt) ; Kendall v. Visa U.S.A., Inc

. , 518 F.3d 1042, 1048- 50 (9th Cir. 2008) (whe re pla intiffs alleg ed no fa cts to support their theory that defe ndant banks c onspired or a g ree d wi th e a c h o the r, dis mis sin gSe c tio n 1 c la im b e c a us e pla int if

fs ple a de d o nly

le g a l c on c lus ion s, and “f ailed to plead the nece ssary evidentiar

y fac ts to support those conclusions”). Def endants’ a

rguments that plaintiffs have f ailed to state a

claim ar e without merit. De fe nd ants fi rs t argue that a pla int if f s e e kin gda

ma g e s und e r S e c tio n 1 of the She rm an a c t mu st alleg e fa cts that “tend[] t o exclude independe nt self-intere sted conduc t as an e x planation for defe ndants’ par allel beha

vior.” Appe llee’s B r. 15-17. This is incorr ect. Althoug h the Twom bly court a cknowledg ed that for purposes of summar

y judgme nt a plaintiff must prese nt evidence that tends to exclude the possibili ty of indepe ndent ac tion, 550 U.S. at 554, and that the district court below had he ld that plaintiffs must allege additional fac ts that tended to exclude independe nt selfinterested c onduct, id. at 552, it specifica lly held that, to survive a motion to dismiss , plaintiffs need only “enough fac tual matter (taken as true ) to sug g est that an a g ree ment was made ,” id. at 55 6; see also 2 A re e da

& Ho ve nk amp § 30 7d 1 ( 3d e d. 20 07 ) ( “ [T]he Sup re me Court did not ho ld16

that th e same sta

nd ard a pp lie s to a

c omp la int

and a dis c ov e ry

re c or d .
. . . T he ‘p la

us ibl y
su g g e sti ng ’ t

hr e sh old fo r a c on sp ir a c y

c omp la int

re ma ins c on sid e ra

bly le ss t ha n th e ‘t e nd s to ru le out the possibili ty ’ standar d for summary judgme nt.”). De fe nd ants ne xt ar gue that Twom bly require s that a plaintiff identify the spec ific time, place , or per son relate d to eac h conspirac y alleg ation. This is also incorrec t. The Twom bly court noted, in dicta, that had the claim of a g ree ment in that case not rested on the pa rallel c onduct descr ibed in the complaint, “we doubt that the . . . ref ere nces to a

n ag ree ment amongthe [Baby Be lls] would have g iven the notice r equire d by Rule 8 . . . [because] the pleading s mentioned no sp e c if ic tim e , p la c e , o r p e rs on

inv olv e d in

the a lle g e d c on sp ir a c ie s. ” 55 0 at 56 5 n .1 0. In th is
case , as in Twom bly , the claim of a g ree ment rests on the pa rallel c onduct desc ribed in the complaint. There fore , plaintiffs wer e not re quired to mention a spec ific time, place or per son involved in eac h conspirac y alleg ation. De fe nd ants the n a

rgue that in fe rr inga

c on sp ir a c y

fr om t he fa c ts a lle g e d is unre a so na ble beca use plaintiffs’ a lleg ations “ar e the ve ry same c laims that were thoroug hly investigated and reje cted by

the Antitrust Division of the Depar tment of J ustice,” A

ppellee’ s Br . 17-18, which closed its inquiry

in Dece mber 2003 a

nd publicly

announce d that it had uncover ed no evide nce that th e joi nt v e ntu

re s h a d h arm e d c omp e tit ion or c on sume rs of

dig ita l mu sic . E ve n if

we c ou ld consider this evide nce on a motion to di smiss, defendants c ite no case to support the proposition that a civil antitrust complaint must be dismis sed bec ause a n investigation undertake n by the Depa rtment of Just ice f

ound no evidenc e of c onspiracy . Second, this argument neg lects the fa ct that the complaint alleg es that the De partment of Justice has, since 2003, la unched two ne w investigations int o whether defe ndants eng ag ed in collusion and price fix ing a nd whetherA short explanation of per se illega lity versus the r

ule of re ason is in order. Pe r se 4 liability is reser ved “f or only those ag ree ments that are so plainly anticompetitive that no elabor ate study

of the industry

is neede d to establish their illeg ality .” Dagher , 5 47 U. S. at 5 (i nte rn a l qu otatio n ma

rk s o mitte d) . Pr ic e -f

ixinga g re e me nts be tw e e n c omp e tit or s a re g e ne ra lly pe r seunlawful, mea

ning the y are prohibited despite the r easona bleness of the particula

r price s ag ree d upon. Id ; see also 7 Are eda & Hovenkamp § 1509a (2d e d. 2003). In contra st, under the rule of r eason a

naly sis, which presumptively applies to Section 1 claims, “a ntitrust plainti ffs must demonstrate that a pa rticular c ontrac t or combination is in fact unre asonable and anticompetitive bef

ore it will be found unlaw ful.” Da gh he r, 547 U.S. at 5. 17 defe ndants misled the Depa rtment about the for

mation and oper ation of MusicNe t and pre ssplay
. The only one of de fenda

nts’ contentions that merits more than a brief disc ussion is t he impact of the Supre me Court’s dec ision in Texaco I nc. v. D agher , 5 47 U. S. 1 (2 00 6) . T hat c a se
c on c e rn e d a

joi nt v e ntu

re fo rm e d b y

Te xac o a nd She ll O il t o c omp le te ly

c on so lid ate the ir op e ratio ns in t

he we ste rn

Un ite d St ate s. Th e joi nt v e ntu re , E qu ilo n, pr od

uc e d s ig nif

ic ant c os t saving s in production and mar keting , see D agher v. Saudi Re fining, Inc. , 369 F.3d 1108, 1111 (9th Cir. 2004), rev’d , 5 47 U. S. 1 (2 00 6) , a nd e nd e d c omp e tit ion

be tw e e n T e xac o a

nd She ll O il altog ether in the domestic ref

ining a nd selling of

g asoline. B eca

use Texaco a

nd Shell Oil’s marke t share e x cee ded twenty -five pe rce nt, id. , the formation of Equilon was approve d by
c on se nt d e c re e by

the F e de ra l T ra de Commis sio n, a s w e ll a s b y state atto rn e y s g e ne ra l in California, Ha

waii, Ore g on, and Washing ton. Dagher , 547 U.S. at 4. Plaintiffs sued, alleg ing that in allowing E quilon to determine the pric e of g asoline, Texaco a nd Shell Oil viol ated the per
se rule a g ainst price f

ix ing unde r § 1 of the Sher man Act. The district court g rante d summary judgme nt to Tex aco a

nd Shell Oil, holdi ngthat the rule of rea son, rather

than a per se rule, g overne d the claim, and be cause plaintiffs esche wed the r ule of re ason ana ly sis, judgment wa s appropr iate as a

matter of la

w. Id. The Supreme Court ag ree d, holding that Equilon’s pric ing

4 po lic y wa s n ot a

pr ic e -f ixinga g re e me nt b e tw e e n c omp e tit or s, be c a us e Te xac o a

nd She ll O il d id18

not compete with one a

nother in the re levant mar ket (the sa le of g asoline). The ref ore, the pe r se
r u l e a g a i n s tp r i c e f

i x i n gd i d n o ta p p l y. Id. at 5-6. In its holdi ng , the Supreme Court pre sumed that Equilon was a law ful joint venture, bec ause its formation had been a pproved by

fede ral a nd state re gulators and plaintiffs did not ar gue that it was a sham. Id. at 6 n .1 . F ina lly , th e Sup re me Court no te d th at de sp ite the lawf uln e ss o f t

he joi nt v e ntu

re pla int if fs c ou ld h ave , b ut d id n ot, challeng e Equilon’s pricingpolicy under the rule of r eason. Id. at 7. Dagher does not support the dismissal of the complaint in this case. F irst, although the district court below state d that plaintiffs did not challeng e the joint venture s here , the complaint makes c lear

that plaintiffs do cha lleng e the joint venture s. See, e .g. , SCAC ¶¶ 67, 72-73, 76, 78, 81-83, 85. In the leg al memora ndum relied upon by

the district court for

the proposition that plaintiffs did not challeng e the joint venture s, plaintiffs wrote that while “it is not the ex istence or
c re atio n o f t

he se joi nt v e ntu

re s th at f or m th e ba sis of

the [p]la int if

fs ’ a lle g atio ns ,” de fe nd ants
us e d th e joi nt v e ntu

re s “ a s a me ans to i mpl e me nt t

he ir anti c omp e tit ive a g re e me nts ” and to “fa cilitat[ e] anticompetitive . . . horizontal combinations.” See Pls.’ Consol idated Mem. of L aw in Opp’n to Def

s.’ Supplemental Mem. of L aw 10- 11. The memora ndum also called MusicN et and pre ssplay

“mer e puppets of [the] [ d]efendants.” See id. at 11 . T he dis tr ic t c ourt imp lic itl y
a c kn ow le dg e d th at pl a int if fs did c ha lle ng e the joi nt v e ntu re s whe n it

he ld t hat pl a int if

fs ’ alleg ation that the joint ventures we re shams was conc lusory and implausible. Plaintiffs continue to challeng e the joint venture s on appea l, and def endants do not conte nd that MusicNet or pressplay wer e explicitly

approve d by

state or f eder al re gulators. Ther efor e, the Da gh e r Court’s presumption that Equilon was lawf ul beca use its formation had be en appr oved by fede ral a nd state re gulator s and

pla int if fs did no t argue that it

wa s a sh am, 5 47 U. S. at 6 n .1 , is no t a pp lic a bleWe n ote that so me c omm e ntator s c ontin ue to b e lie ve that Dagher does not fore close the 5 application of the per se rule a g ainst price- fix ing in the c ase of a lawf ul joint venture wher e the price fix ing itself is not re lated to the purpose of the joint venture or the joint venture doe s not result in signific ant ec onomic benef its. See Are eda & Hovenkamp 2009 Supplement § 2132 (ar guing that if Gene ral Motors and T oy ota wer e to form a joint venture for

the produc tion of hy brid ca r eng ines, but then place the eng ines in car s they desig ned and pr oduced se parately , the Supreme Court would not permit them to fix the price s of the finished c ars a s part of the lawful joi nt v e ntu

re ); see also 12 Are eda & Hovemkamp § 2004a (2d ed. 2005) (notingthat the pe r se rule a g ainst price f

ix ing “ applies virtually

without ex ception whe n the price fix is ‘naked’ in the se ns e that it

do e s n ot a c c omp any

any signif ic ant i nte g ra

tio n o f r e se arc h a

nd de ve lop me nt, production or distribution. . . . As a g ener al matter, pr ice f ix ing is tolerated only

in the case of the joint venture produc ing significant, output-incr easingeff iciencie s, and whe re the price fix ing itself can be shown to be esse ntial to these social g ains.”); 11 Ar eeda & H ovenkamp § 1912c (2d ed. 2005) ( explaining that the rule of re ason is applied to a joint venture ’s horizontal restraint when the joint venture seems to be pr oductive or r easona ble on its face and the pa

rticular c ha lle ng e d a g re e me nt s e e ms t o b e re a so na bly ne c e ssa ry to t he purp os e of

the ve ntu re ). In th is c a se , th e SCA C ob vio us ly do e s n ot a lle g e that Mu sic Ne t or pr e ssp lay we re e c on omi c a lly eff icient in integ ratingrese arc h, development, pr oduction, or distribution or that price f ix ing w as rea sonably

nece ssary

to any social g ain the ventur es may have pr oduced. 19 here
. Second, eve n if we w ere to presume that MusicNe t and pre ssplay wer e lawf

ul, which we 5 do not, plaintiffs would still be fr ee to c halleng e their a ctivities pursuant to the rule of rea son. Dagher , 5 47 U. S. at 6 n .1 . T he c omp la int a lle g e s th at th e a c tiv iti e s o f t he joi nt v e ntu

re s a c tua lly
wer e anticompe titive and unrea sonable, SCAC ¶ 126, and, unlike in Dagher , p la int if fs in t his
case have not “ esche wed” a rule of re ason ana ly sis. Si milarly , the complaint contains many alleg ations of conduc t that took place outside of the joint ventures, and a re the ref ore not a ffe cted b y Dagher . For

all of these r easons, Da

gh e r does not support dismissal of the SCAC
. F ina lly , d e fe nd ants c la im that th e c on du c t a lle g e d in the c omp la int

“ wo uld be e nti re ly consistent with independent, thoug h para llel, action.” Appe llee’s B r. 20. Unde r Twom bly , a lle g atio ns of

pa ra lle l c on du c t th at c ou ld “ jus t a s w e ll b e ind e pe nd e nt a c tio n” are no t su ff ic ie nt t o state a c la im. 55 0 U .S. at 55 7. Ho we ve r, in t his c a se pla int if

fs have a lle g e d b e havio r t hat w ou ld plausibly contravene e ach de fenda nt’s self-inter est “in the a bsence of similar behavior by rivals.”On appe al, three pare nt-company defe ndants, Be rtelsmann, Inc., Sony Corporation of 6 Americ a, and T ime Warner I nc., ar gue that eve n if the SCAC states a claim under Twom bly , it fa ils to s tate a

c la im a g a ins t th e m be c a

us e pla int if

fs a lle g e no ba sis fo r p ie rc ingthe c or po rate veil. Be cause the district court did not rea ch this question and the par ties devote thre e total pag es to it in t heir brie fs, we r emand to allow the district c ourt to consider it in the first instance
. 20 7 A re e da & Ho ve nk amp § 14 15 a

(2 d e d. 20 03 ); se e als o Posner, su pra , at 10 0. F or

e xamp le , it
wo uld no t be in e a c h in div idu a l de fe nd ant’ s se lf -i nte re st t o s e ll Inte rn e t Mu sic at pr ic e s, and wi th DRMs, that w e re so un

po pu lar a s to e ns ur e that “ no bo dy in t he ir ri g ht m ind ” wo uld

wa nt t o purcha se the music, unless the de fenda nt’s rivals wer e doingthe same. F or these r easons we hold that the SCAC s tates a c laim under Twom bly
. 6 CO NC LU SION The Sec ond Consolidated Amendment Complaint contains “plausible g rounds to infer a n ag ree ment.” Twom bly , 5 50 U. S. at 55 6. We t he re fo re ho ld t

hat th e dis tr ic t c ourt

e rr e d in dis mis sin gthe c omp la int . T he c a se is r e mand e d f or fu rt he r p ro c e e din g s c on sis te nt w iththi s opinion.