Antitrust
Sabol v. PayPal Holdings Inc.
Date: Nov. 5, 2025
Issue: Whether PayPal illegally inflated online retail prices through restrictive merchant agreements.
Case Summary: For the second time, Judge Jeffrey S. White of the Northern District of California granted in part and denied in part a proposed class action alleging PayPal illegally inflated online retail prices through restrictive merchant agreements, while still giving consumers one final chance to amend their complaint.
On Oct. 4, 2023, Christian Sabol and Samantha Russell filed a putative class action alleging PayPal violated the Sherman Act, California’s Cartwright Act, and California’s Unfair Competition Law (UCL). Plaintiffs claimed that PayPal charged industry-leading transaction fees of about 3.5% and enforced “Anti-Steering Rules” in its mandatory User Agreement that bar merchants from imposing surcharges for using PayPal or encouraging lower-cost payment methods. Plaintiffs argued these provisions function as platform most-favored-nation restraints that raise platform fees and retail prices, suppress discounts that merchants would otherwise offer for cheaper payment options, and eliminate natural price competition across the e-commerce marketplace.
In August 2024, Judge White dismissed the original complaint for failing to connect Plaintiffs’ alleged injuries to PayPal’s conduct. Plaintiffs then filed an amended complaint on Oct. 7, 2024, reasserting their claims and adding alleged violations of several state antitrust and consumer-protection statutes. PayPal moved to dismiss again on Nov. 21, 2024, arguing Plaintiffs still lacked antitrust standing, failed to state a viable antitrust theory, and did not plausibly allege any distinct state-law consumer-protection claims.
The court again ruled for PayPal and dismissed Plaintiffs’ amended complaint. The court explained that Section 1 of the Sherman Act prohibits any contract, combination, or conspiracy that restrains trade among the states. Further, Plaintiffs had to allege an agreement between distinct entities, an intent to restrain trade, and actual harm to competition. Yet Plaintiffs still failed to plead antitrust injury because they did not show that their alleged harm resulted from PayPal’s challenged conduct or that it was the type of harm the antitrust laws were designed to prevent, the court ruled.
At the same time, the court addressed PayPal’s separate challenge to Plaintiffs’ definition of the relevant product market. PayPal argued Plaintiffs’ focus on the e-commerce retail market was legally flawed. The court disagreed, concluding Plaintiffs plausibly alleged a distinct e-commerce retail market supported by regulatory data, economic literature, and prior decisions recognizing online retail operates differently from brick-and-mortar retail. The court explained that defining the relevant market is typically a fact-intensive inquiry inappropriate for resolution at the pleading stage. Accordingly, the court concluded that Plaintiffs’ proposed product market was facially sustainable and denied, in part, PayPal’s motion on that issue, even while dismissing the broader Sherman Act claim for lack of antitrust injury.
Additionally, the court concluded Plaintiffs failed to allege PayPal has market power. Plaintiffs argued that PayPal’s position as a leading payment platform, combined with its Anti-Steering Rules, gave it significant influence in the e-commerce retail market. The court acknowledged that aggregating merchant agreements is appropriate for evaluating market power but concluded Plaintiffs’ allegations were insufficient. The court explained Plaintiffs relied on PayPal’s supposed dominance among payment platforms, yet the complaint included no facts about competing platforms or their market shares. Without those details, the court could not infer that PayPal holds market power in the relevant market.
The court also concluded that Plaintiffs failed to allege federal antitrust standing under their pricing theory because their alleged overcharge harm remained derivative, attenuated, and speculative. The court pointed out that Plaintiffs did not show a direct link between PayPal’s Anti-Steering Rules and the retail prices they paid, and their new allegations did not demonstrate how any passed-through transaction fees meaningfully affected the prices of the specific goods or services they purchased. Because the causal chain remained too attenuated, the court granted PayPal’s motion to dismiss on this ground as well. Still, it allowed Plaintiffs one final opportunity to amend their Sherman Act claim.
Finally, the court dismissed Plaintiffs’ state-law claims without prejudice. Plaintiffs argued the court had jurisdiction under the Class Action Fairness Act (CAFA), which requires an amount in controversy of at least $5 million, a proposed class of 100 or more members, and minimal diversity between the parties. The court determined Plaintiffs did not adequately allege the amount in controversy and, after dismissing the Sherman Act claim, ruled it lacked jurisdiction to hear the remaining state-law claims. The court allowed Plaintiffs to amend their complaint but directed them to add specific allegations supporting CAFA jurisdiction.
Bottom Line: The court dismissed the lawsuit against Plaintiffs for the second time but gave Plaintiffs one final opportunity to amend their Sherman Act claim.
Documents: Opinion
