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Sabol v. PayPal Holdings Inc., No. 23-cv-05100-JSW (N.D. Cal. Nov. 5, 2025)

by Rose Burnam

In Sabol v. PayPal Holdings Inc., No. 23-cv-05100-JSW (N.D. Cal. Nov. 5, 2025), the court dismissed Plaintiffs’ complaint because they failed to allege PayPal had market power and failed to allege antitrust standing, with leave to amend.

Plaintiffs alleged that PayPal violated Section 1 of the Sherman Act, California’s Cartwright Act, and California’s Unfair Competition Law by requiring merchants to enter a User Agreement with the following provisions: first, it prohibits merchants from imposing a surcharge or fee for accepting PayPal as a payment method, and second, it prohibits merchants from exhibiting a preference for a non-PayPal method of payment or from discouraging customers from using PayPal. Plaintiffs contended that these provisions, termed anti-steering rules, function as a platform most-favored nation restraint, and that in the absence of these rules, merchants could and would incentivize customers to use relatively cheaper payment gateways. Plaintiffs also contended that these provisions inflate transaction fees across the industry, and that merchants incorporate the costs from these inflated fees into their retail prices.  Because, Plaintiffs alleged, the anti-steering rules prevent merchants from incentivizing consumers to use cheaper non-PayPal payment gateways, PayPal faces no incentive to lower its fees.

The court found Plaintiffs failed to allege factual allegations in support of market power because they failed to allege facts showing PayPal’s dominance as a payment platform. Due to the absence of allegations about other payment platforms, the court lacked facts from which it could infer PayPal is the dominant payment platform in the market. The court clarified that Plaintiffs’ allegations regarding market power were not insufficient because the allegations depended on the aggregate impact of the anti-steering rules. Aggregation of this sort is permitted under Ninth Circuit precedents.

The court also found that Plaintiffs failed to allege antitrust standing because they did not sufficiently allege an antitrust injury and because their alleged injuries were too speculative. First, Plaintiffs failed to allege an antitrust injury because they failed to sufficiently allege market power, as discussed above. Second, the court found that Plaintiffs’ alleged injury was too attenuated and speculative because Plaintiffs leaned on the allegation that the merchants with which PayPal contracts are co-conspirators. However, the court found that, in the absence of a showing of market power, Plaintiffs could not rely on the co-conspirator exception to Illinois Brick Co. v. Illinois, 431 U.S. 720, 729 (1977). That is, in the absence of a finding of market power, the signing of a form contract was insufficient. Moreover, the court found that Plaintiffs failed to allege a direct link between the anti-steering rules and retail prices. Although Plaintiffs offered factual support for the proposition that transaction fees are incorporated into retail prices, they failed to explain the significance of the passed-on transaction fees relative to all the other potential pricing factors. The court found that explaining the relative significance of the transaction fee was necessary to show Plaintiffs’ injuries were not indirect and speculative. 

Although the court dismissed Plaintiffs’ complaint, it found Plaintiffs’ allegations of the product market facially sustainable, following Frame-Wilson v. Amazon, Inc., 591 F. Supp. 3d 975, 990 (W.D. Wash. 2022).  Plaintiffs alleged that PayPal’s anti-steering rules caused anticompetitive effects in the retail eCommerce market. The court explained that the relevant product market is a factual question, and therefore, the complaint will only be dismissed at this stage when the market definition is “facially unsustainable.” Although the court credited PayPal’s argument that the Frame-Wilson reasoning was inapplicable because it did not compete as a commerce retailer, as Amazon.com does, the court explained that argument is better addressed in assessing market power.

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The opinions expressed are those of the authors and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

This article was originally published in the California Lawyers Association E-Briefs, News and Notes: February 2026