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Facebook Escapes Online Ad Co.'s Antitrust Suit

Facebook Inc. won a bid Thursday to dismiss a case brought by online advertising display company Sambreel Holdings LLC in California federal court accusing the social media giant of violating federal antitrust and California unfair competition laws by wooing companies from Sambreel's Facebook-based ad business.

Judge Cathy Ann Bencivengo dismissed the suit without prejudice after finding that Facebook was acting in self defense against an illegitimate invasion of its business, and that Facebook is not required to make its popular social-networking platform available to Sambreel as a venue for its business.

"As an overarching premise, the court is persuaded that Facebook has a right to control its own product, and to establish the terms with which its users, application developers, and advertisers must comply in order to utilize this product," Judge Bencivengo said in her dismissal order.

"Indeed, it is well settled that, as a general matter, the Sherman Act does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal."

Sambreel's flagship product PageRage, which allows users to customize their Facebook pages with designs that appear in their Web browsers when they visit the site, competes with Facebook in the sale of advertising impressions, Sambreel said in its March 19 complaint.

When PageRage started biting into Facebook's ad revenue in late 2010, the social networking behemoth began to woo advertisers away from Sambreel's product — even organizing them to boycott PageRage, according to the suit.

In addition to the boycott, Facebook threatened advertisers by saying it would not work with anyone doing business with PageRage, Sambreel alleged. The social media site's efforts were successful, and Sambreel lost its largest advertisers — which made up nearly 80 percent of its revenue — and its advertising rates were slashed in half, according to the complaint.

Additionally, Sambreel claimed that Facebook scanned the browsers of users who logged on to Facebook to determine whether they had downloaded PageRage without the users' permission. Facebook then required users who had downloaded PageRage to remove the entire platform from their computers and disable all Sambreel products — not just PageRage — before they were allowed to access the site, the suit says.

Within two weeks, Sambreel lost more than a million users and was forced to remove all of its PageRage ads, the suit said. It since has stopped developing new products, suffered substantial financial losses and laid off 124 employees — more than half of its staff.

But Facebook argued Sambreel's case was a weak one full of allegations that show only that Facebook acted in its own interest, within the bounds of the law.

Facebook cited a 2008 ruling from the Ninth Circuit, LiveUniverse Inc. v. MySpace Inc., that found that a social network's decision to bar a third party from its site did not amount to antitrust injury for that third-party company. A network's actions on its own website cannot negatively affect users' experiences on other sites, according to that ruling.

Judge Bencivengo dismissed the case without prejudice and granted Sambreel 30 days to refile an amended complaint.

Craig Clark, a Facebook attorney, said Friday the social-media giant was "pleased with the decision" but did not elaborate further.

Representatives for Sambreel did not immediately respond to a request for comment on Friday.

Sambreel is represented by Gregory P. Olson of the Law Office of Gregory P. Olson and Daniel Kotchen, Daniel Low and Robert Klinck of Kotchen & Low LLP.

Facebook is represented by James Basile and Elizabeth Deeley of Kirkland & Ellis LLP.

The case is Sambreel Holdings LLC et al. v. Facebook Inc., case number 3:12-cv-00668, in the U.S. District Court for the Southern District of California.