LYNNE C. HERMLE (SBN 99779) Ichermle@orrick.com ORRICK, HERRINGTON SUTCLIFFE LLP 1000 Marsh Road Menlo Park, CA 94025 Telephone: (650) 614-7400 Facsimile: (650) 614-7401 KAREN G. JOHNSON-MCKEWAN (SBN 121570) ERIN M. CONNELL (SBN 223355) econnell@orrick.com ORRICK, HERRINGTON SUTCLIFFE LLP The Orrick Building 405 Howard Street San Francisco, CA 94105-2669 Telephone: (415) 773-5700 Facsimile: (415) 773-5759 Attorneys for Defendant and Cross-Complainant Netflix, Inc. SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF LOS ANGELES, WEST DISTRICT TWENTIETH CENTURY FOX FILM CORPORATION, a Delaware Corporation, and FOX 21, INC., a Delaware Corporation, Plaintiffs, v. NETF LIX, INC, a Delaware Corporation, Defendant. NETFLIX, INC., a Delaware Corporation, Cross-Complainant, V. TWENTIETH CENTURY FOX FILM CORPORATION, a Delaware Corporation, and FOX 21, INC., a Delaware Corporation, and DOES 1 through 10, Cross-Defendants. 10 Case No. SC126423 CROSS-COMPLAINANT NETFLIX, OPPOSITION TO TWENTIETH CENTURY FOX FILM CORPORATION AND FOX 21, SPECIAL MOTION TO STRIKE CROSS- COMPLAINT PURSUANT TO THE CALIFORNIA ANTI-SLAPP STATUTE, CODE OF CIVIL PROCEDURE SECTION 425.16 Date: January 19, 2017 Time: 8:30 a.m. Dept: Judge: Hon. Gerald Rosenberg Complaint Filed: September 16, 2016 Cross-Complaint Filed: October 19, 2016 RES ID: 161129177129 OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C.P. 425.16 II. IV. VI. TABLE OF CONTENTS Page INTRODUCTION ..1 BACKGROUND FACTS ..2 A. Fox?s Complaint ..2 B. Netflix?s Cross-Complaint ..3 C. Netflix?s Cross-Complaint Does Not Arise From ox?s Pre-Litigation Or Litigation Conduct ..4 D. Fox Engages In Anti?Competitive And Abusive Practices ..5 LEGAL STANDARD ..5 PRONG 1: FOX FAILS TO MEET ITS BURDEN ..6 A. Net?ix?s Claims Are Not Based On Pre?Litigation Or Litigation Conduct ..6 1. Net?ix?s Cross-Complaint Is Not Based On Fox?s Litigation Conduct ..6 2. Net?ix?s Allegations Regarding Fox?s Enforcement Of Its Contracts Do Not Arise From Fox?s Litigation Activity ..6 B. Any Purportedly Protected Activity Is Incidental To The Core Misconduct ..8 PRONG 2: NETF LIX CAN DEMONSTRATE A PROBABILITY OF PREVAILING ON ITS CLAIMS ..9 A. Fox?s Widespread Use Of Anti-Competitive Fixed-Term Agreements Is An Unlawful And Unfair Business Practice ..9 1. Net?ix Has Pleaded An Unfair Business Practice ..9 2. Fox?s Anti-Competitive Conduct Violates Sections 16600 And 17200 ..10 3. The Purported Injunctive Relief Section Violates Section 16600 ..11 B. Netflix?s Declaratory Relief Claim Is Not Duplicative Of Its UCL Claim ..13 C. Net?ix?s Claims Are Not Barred By The Litigation Privilege ..14 D. Net?ix Has Standing To Assert Its Claims ..14 1. Net?ix?s UCL Claim ..14 2. Net?ix?s Declaratory Relief Claim ..15 CONCLUSION .. 15 i OPPOSITION TO MOTION TO STRIKE PURSUANT TO CP. 425.16 TABLE OF AUTHORITIES Page(s) Cases Action Apartment Ass Inc. v. City of Santa Monica, 41 Cal. 4th 1232 (2007) .. 14 Aguilar v. Goldstein, 207 Cal. App. 4th 1152 (2012) ..8 Application Grp., Inc. v. Hunter Grp., Inc, 61 Cal. App. 4th 881 (1998) ..10, 13 Baral v. Sclmitt, 1 Cal. 5th 376 (2016) ..6, 8 Bardin v. DaimlerC/nysler Corp., 136 Cal. App. 4th 1255 (2006) .. 14 Bed, Bat/1 Beyond of La Jolla, Inc. v. La .Iolla Vill. Square Venture Partners, 52 Cal. App. 4th 867 (1997) ..13 Beverly Glen Music, Inc. v. Warner Commc ?ns, Inc., 178 Cal. App. 3d 1142 (1986) .. 12 Brownfield v. Daniel Freeman Marina Hosp, 208 Cal. App. 3d 405 (1989) .. 13 Cal. Ass ?17. of PSES v. Cal. Dep ?t of Educ, 141 Cal. App. 4th 360 (2006) ..14 Cel-Tech Commc ?ns, Inc. v. LA. Cellular Tel. Co., 20 Cal. 4th 163 (1999) ..9,10,11 City of Cotati v. Cashman, 29 Cal. 4th 69 (2002) ..7 CRST Van Expedited, Inc. v. Werner Enterprises, Inc, 479 F.3d 1099 (9th Cir. 2007) .. 12 De Haviland v. Warner Bros. Pictures, 67 Cal. App. 2d 225 (1944) .. 12, 13 Digerati Holdings, LLC v. Young [Money Ent., LLC, 194 Cal. App. 4th 873 (2011) ..6 Dyer v. Childress, 147 Cal. App. 4th 1273 (2007) ..6 - ii - OPPOSITION TO MOTION TO STRIKE PURSUANT TO C.C.P. 425 16 Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008) ..10 Farmers Ins. Exch. v. Super. 0., 2 Cal. 4th 377 (1992) ..10 Golden v. Cal. Emergency Physicians Med. Grp., 782 F.3d 1083 (9th Cir. 2015) ..10 Gotterba v. Travolta, 228 Cal. App. 4th 35 (2014) ..8, 9 Integrated Healthcare Holdings, Inc. v. itzgibbons, 140 Cal. App. 4th 515 (2006) ..9 Kajima Eng Constr., Inc. v. City ofL.A., 95 Cal. App. 4th 921 (2002) ..5, 6, 7, 8 Khajavi v. Feather River Anesthesia Med. Grp., 84 Cal. App. 4th 32 (2000) .. 12 Kwikset Corp. v. Super. Ct., 51 Ca1.4th310(2011) ..13,14 Law Q??ices of Mathew Higbee v. Expungement Assistance Servs., 214 Cal. App. 4th 544 (2013) ..14 Leep v. Am. Ship LLC, 126 Cal. App. 4th 1028 (2005) .. 12 Lemar Corp. v. Barry, 275 Cal. App. 2d 671 (1969) ..12 Navellier v. Sletten, 29 Cal. 4th 82 (2002) ..6 Olson v. Toy, 46 Cal. App. 4th 818 (1996) .. 14 Overstock. com, Inc. v. Gradient Analytics, Inc, 151 Cal. App. 4th 688 (2007) ..9, 14 People v. LA. Palm, Inc, 121 Cal. App. 3d 25 (1981) ..13 Perkins v. Super. CL, 117 Cal. App. 3d] (1981) ..10 Renewable Res. Coal, Inc. v. Pebble Mines Corp., 218 Cal. App. 4th 384 (2013) ..6 10 - 111 - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C.P. ?425.16 Design Ctr. Assocs. v. Portman Cos, 41 Cal. App. 4th 29 (1995) .. 13 Simons v. Kern Cty., 234 Cal. App. 2d 362 (1965) ..10 Supervolu, Inc. v. Wexford Underwriting Managers, Inc, 175 Cal. App. 4th 64 (2009) .. 15 Touchstone Television Prods. v. Super. CL, 208 Cal. App. 4th 676 (2012) .. 12 Statutes Cal. Business and Professions Code 16600 ..passim Cal. Business and Professions Code 17200 ..passim Cal. Civil Code 3423 ..11, 12 Cal. Civil Code 3513 .. 12 Cal. Code of Civil Procedure 1060 .. 13 Cal. Code of Civil Procedure 425.16 ..5, 15 Cal. Code of Civil Procedure 452 ..10, 15 Cal. Code of Civil Procedure 3423 ..3, 11 Cal. Labor Code 2855 .. 12 Other Authorities Rutter: Cal. Prac. Guide Civ. Pro. Before Trial Ch. .. 15 - iv - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO CP. 425.16 INTRODUCTION. Netflix, Inc.?s (?Net?ix?) Cross?Complaint challenges Fox?s unlawful use of ?xed-term employment agreements in violation of California law. Twentieth Century Fox Film Corporation and Fox 21, Inc. (?Fox 21?) (collectively ?Fox?) deliberately misconstrue the Cross- Complaint in order to try to justify an motion. Fox contends that Net?ix?s Cross- Complaint arises from protected pre-litigation and litigation activity because Fox threatened and then sued Net?ix after Net?ix hired two people who were subject to Fox ?xed-term employment agreements. But that is not the basis for the Cross-Complaint. Instead, Net?ix?s allegations focus on Fox?s unlawful use of fixed-term employment agreements to restrict employee mobility, in violation of Business and Professions Code 16600. The gravamen of Net?ix?s Cross-Complaint is Fox?s sweeping practice of binding employees to these illegal contracts; not Fox?s litigation activity. Netflix further alleges that Fox?s widespread use of these unlawful contracts is anti-competitive, including because the contracts both misrepresent the character of the employee?s work, and contain the false threat of injunction in the event of the employee?s breach. These contracts, which are based on a model developed for studio talent in the 19403, and which Fox now has extended over time to unlawfully bind rank-and-flle corporate employees, suppress employee mobility, to Net?ix?s detriment. Fox?s misleading and unjusti?ed characterization of the Cross-Complaint leaves all of this out, selecting instead a collection of stray phrases, stripped of their context in the pleading. Fox?s analysis not only is incorrect, it would lead to absurd results. Under Fox?s analysis, no cross-complaint for declaratory judgment could ever survive an motion if it cited pre-litigation threats as part of its allegations to demonstrate the existence of a controversy, or to evidence a pattern of unlawful conduct. Nor could an employee, facing Fox?s threat of injunction, ever seek a declaration of his or her rights under that contract. This, of course, is not the law. Fox?s threats of litigation do not shield Fox?s unlawful conduct, nor entitle Fox to protection. Net?ix?s Cross-Complaint is entirely proper. It simply cites the illegal provisions in the Fox ?xed term agreements as evidence of Fox?s oppressive and anti-competitive conduct. For example, in the case of breach, the law permits injunctive relief only against certain kinds of - - OPPOSITION MOTION TO STRIKE PURSUANT TO C.C.P 425.16 employees. Fox knows this, and so in the contracts themselves, it deliberately mischaracterizes the nature of its employees? work in an attempt to justify the threat of injunction. Further, these contracts have the effect of creating non?competes; they constitute unlawful restraints on employee mobility, are illegal and anti-competitive, and violate 16600, which codifies California?s public policy proscribing restraints on employee mobility, and which Fox largely ignores in its motion. Moreover, Fox?s abusive and coercive business practices regarding the agreements further illustrate its anti-competitive behavior. Fox engages in abusive conduct with employees who try to negotiate the agreements? terms. Fox pays below-market salaries, but tells employees that the agreements are ?take-it-or-Ieave-it.? Faced with the prospect of unemployment, employees are coerced to enter into, and must agree to, unilateral renewal of Fox?s oppressive contracts. Fox cannot fairly describe these contracting and employment practices as ?petitioning? activity protected by California?s statute. Because Fox fails to meet its burden of showing that the Cross-Complaint arises from protected activity, the Court?s analysis can end there. But Net?ix also can demonstrate it will prevail on its claims in the second half of the analysis. Fox claims the Labor Code authorizes its use of anti-competitive agreements, but the law does not afford Fox any such safe harbor. Business and Professions Code 16600 and 17200 both constrain Fox?s use of its ?xed- term contracts by prohibiting restraint of trade and unfair competition. When these statutes and the relevant case law are analyzed collectively, Fox?s widespread use of unlawful ?xed-term agreements constitutes an unfair and unlawful business practice, causing injury to Net?ix. The Court should deny Fox?s motion and award Net?ix its fees for opposing the motion. 11. BACKGROUND FACTS. A. Fox?s Complaint. Fox asserts three claims against Netflix in its Complaint. The first two allege that Netflix induced two former employees of Fox?Marcos Waltenberg and Tara breach their ?xed- term employment contracts (?Waltenberg Agreement? and Agreement?), and the third alleges unfair competition based on Net?ix?s alleged ?continuing threat of unlawfully interfering with Fox?s Fixed?Term Employment Agreements.? Compl. 111123-45. - 2 - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C.P. ?425. 16 Netflix?s Cross-Complaint. The Cross-Complaint arises from Fox?s imposition of unlawful agreements upon a broad swath of Fox?s full-time, salaried business executives who would typically be at-will employees, and who do not perform services that are of a special, unique, unusual, extraordinary, or intellectual character, as de?ned under California law. Fox compels them to sign provisions that acknowledge Fox?s (non-existent) right to enforce those contracts through injunction. Through the use of these unlawful ?xed-term agreements, Fox imposes a system on its workforce that is intentionally designed to ?restrain[] employee mobility, depress[] compensation levels, and create[] unlawful barriers to entry for Net?ix? to compete in the same industry in violation of 16600. Cross-Compl. 11 2. On that foundation, Net?ix asserts two causes of action: an unfair competition claim and (ii) a declaratory relief claim to determine Net?ix?s rights as a competitor as negatively affected by Fox?s widespread use of ?xed-term agreements. Id. 1111 28-3 8. Multiple elements of the Fox contracts contribute to their unenforceability. First, they give Fox a unilateral option to extend the contract term, thereby forcing employees to work exclusively for Fox for several years and foreclosing any meaningful negotiation, in violation of 16600. Id. 11 18. The agreements also unlawfully purport to allow Fox to seek injunctive or other equitable relief to prevent a breach. 1d. 1111 15, 18, 20. For example, the Waltenberg and Agreements both contain the following identically-worded provision that mischaracterizes the employees? job duties as special and unique, and purports to permit Fox from enjoining them from breach: The services to be furnished by you hereunder and the rights and privileges granted to the Company by you are of a special, unique, unusual, extraordinary, and intellectual character which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in any action in law, and a breach by you of any of the provisions contained herein will cause the Company irreparable injury and damage. You expressly agree that the Company shall be entitled to seek injunctive and other equitable relief to prevent a breach of this Agreement by you. Resort to such equitable relief, however, shall not be construed as a waiver of any preceding or succeeding breach of the same or any other term or provision. The various rights and remedies of the Company hereunder shall be construed to be cumulative and no one of them shall be exclusive of any other or of any right or remedy allowed by law. 1d. 11 24 (emphases added). This provision is unlawful and violates Civil Code 3423 and Labor Code 2855. 1d. 11 26. Neither Ms. nor Mr. Waltenberg supplied services that were actually 3 OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C.P. 425 16 special or unique, and the statutes permit injunctive relief only against individuals who provide such services. Id. 11 24-26. Netflix alleges that other similarly-situated employees are also subject to these restrictive ?xed?term agreements. Id. 111123, 27. Such widespread use of unlawful restraints on trade are inconsistent with, and unlawful under, 16600 and 17200. Id. 1111 24?25. C. Netflix?s Cross-Complaint Does Not Arise From Fox?s Pre-Litigation Or Litigation Conduct. Fox claims that that Net?ix?s Cross-Complaint is based on ?Fox?s assertion of its rights to enforce its ?xed-term employment contracts.? Mot. at 5:25-26. That is not the basis of Net?ix?s Cross?Complaint. This is: 11 15: ?Fox engages in the widespread use of unlawfully restrictive ?xed-term employment agreements, and requires otherwise typically at-will employees to enter into such agreements as a condition of employment or promotion?; 0 11 17: Fox unreasonably pressures its employees (including but not limited to Waltenberg and into signing the agreements; 11 23: Fox?s ?xed-term agreements generally contain terms similar to the Waltenberg and Agreements; 0 11 27: Fox continues to use ?xed-term agreements with some or all of its California employees, which hinders Net?ix?s ability to recruit Fox employees; and 11 36: Net?ix seeks a judicial declaration because it ?wishes to compete fairly to employ other Fox employees? and cannot do so because of Fox?s use of unlawful agreements. Read as a whole, the Cross-Complaint seeks relief for conduct that is not based upon Fox?s litigation or pre-litigation actions in relation to any individual?s contract; the Waltenberg and Agreements are mere illustrations of Fox?s anti-competitive conduct. See, e. id. 111120, 23.1 Moreover, Net?ix?s allegations about Fox?s "enforcement" of its agreements do not refer to litigation or pre?litigation threats at all, but to Fox?s conduct binding its employees to contracts that violate 16600. For example, Net?ix alleges the provision purporting to permit Fox to enforce the agreement by injunction, coupled with Fox?s unilateral option to extend the contract, effectively compels employees to stay with Fox against their will. Id. 1111 18, 24. The ?threat of litigation? in paragraphs 18 and 24 refers to the contractual provision??You expressly agree that the Company shall be entitled to seek injunctive and other equitable relief to prevent a breach of this In fact, the only reference in the Cross-Complaint to any pre-litigation communication is Exhibit D, which Net?ix cites for Fox?s demand that Net?ix comply with an anti-competitive no-poaching arrangement. Id. 11 21; Ex. D. OIISUSA 76622552610 - 4 - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO P. 11425.16 Agreement by you. ??that purports to allow Fox to enjoin the employee?s departure. Cross-Comp]. 11 18. Net?ix?s allegations thus do not equate Fox?s ?enforcement? of its ?xed-term agreements with Fox?s pre-litigation or litigation activity, but to Fox?s contracting practices. D. Fox Engages In Anti-Competitive And Abusive Practices. The Cross-Complaint alleges that Fox engages in ?selective and abusive enforcement tactics? to force employees to sign ?xed-term contracts, in violation of 16600 and 17200. Id. 11 19. For example, Ms. supervisor repeatedly ?screamed? at her when she tried to negotiate her contract. This abuse continued through Ms. tenure: while already under contract, Fox 21 presented her a fixed-term agreement extending the term and with lower compensation than her peers. Fox 21 refused to negotiate the contract terms, and?given the alternative of unemployment and injunction?coerced her to execute it. Declaration of Tara Decl.?) 1111 4-14. Mr. Waltenberg experienced similar restraints: in response to a request for a raise, threatened to withhold sponsorship of his green card application. Faced with potential deportation, Mr. Waltenberg withdrew his raise request. Declaration of Marcos Waltenberg (?Waltenberg Decl.?) 11 7. When Mr. Waltenberg later renewed his request for a raise, offered him a promotion and raise only if he executed a ?xed-term contract. Id. 11 9. He could not negotiate the terms; told him it was a ?take it or leave it? offer. Id. Mr. Waltenberg believed his salary was lower than market rate, but he had little choice but to execute the agreement. Id. Neither Ms. nor Mr. Waltenberg performed any job duties that were unique or extraordinary. Decl. 11 18; Waltenberg Decl. 1111 10, 17. Their former colleagues transitioned into their positions when they left and there were many others at Fox who performed similar duties. Id. 111] 18-19; 111] 17-18. Both and Waltenberg attest that there are many other Fox business employees subject to ?xed-term agreements like theirs. Id. 1] 19; 1 18. LEGAL STANDARD. Code of Civil Procedure 425.16 requires a two-step process in evaluating a defendant?s motion to strike. Code Civ. Proc. First, the court must decide whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity. See Kajima Eng Comm, Inc. v. ity 95 Cal. App. 4th 921, 928 (2002). Only 10 - 5 - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C ?425 16 the claims arise from ?the defendant?s free expression or petition right[s], then the burden shifts to the plaintiff to show a probability of prevailing?. 1d.; Baral v. Schnilt, 1 Cal. 5th 376, 481 (2016) (second step accepts plaintiff?s evidence as true, and evaluates ?defendant?s showing only to determine if it defeats the plaintiff?s claim as a matter of Only a claim that meets both prongs of the statute may stricken. Navellier v. Sletten, 29 Cal. 4th 82, 88 (2002). IV. PRONG 1: FOX FAILS TO MEET ITS BURDEN. A. Net?ix?s Claims Are Not Based On Pro-Litigation Or Litigation Conduct. Fox has the initial burden to show that Net?ix?s claims arise from protected activity within the meaning of To determine whether Fox has met the ?arising from? requirements depends on the gravamen of the claim. Renewable Res. Coal, Inc. v. Pebble Mines Corp, 218 Cal. App. 4th 384, 395 (2013). The analysis turns on ?whether the defendant?s act underlying the plaintiff?s cause of action ilself was an act in furtherance of the right of petition or free speech.? Dyer v. Childress, 147 Cal. App. 4th 1273, 1279 (2007) (citations omitted) (emphasis original). Under the first prong, the Court must consider the pleadings, and declarations describing the facts upon which liability is based. Digerati Holdings, LLC v. Young Money LLC, 194 Cal. App. 4th 873, 883?84 (201 1). Fox cannot meet this burden. 1. Netflix?s Cross-Complaint Is Not Based On Fox?s Litigation Conduct. Fox?s analysis depends entirely upon the premise that Net?ix?s claims arise from Fox?s pre- litigation and litigation conduct regarding the and Waltenberg Agreements, and Fox?s Complaint. Mot. at 623?828. That premise is patently false; the Cross-Complaint alleges that Fox?s widespread use of illegal ?xed-term employment agreements violates 16600. See, e. Cross- Comp]. 2, 4, 15-19, 23-27. The Cross-Complaint is not limited to the or Waltenberg Agreements; those agreements only illustrate Fox?s unlawful practices. Id. 1111 20-22. Nor does Net?ix allege that Fox?s Complaint itself is actionable. Accordingly, Netflix?s claims do not arise from the exercise of its ?free speech or petition rights.? Kajima, 95 Cal. App. 4th at 928. 2. Netflix?s Allegations Regarding Fox?s Enforcement Of Its Contracts Do Not Arise From Fox?s Litigation Activity. Fox conflates the word ?enforcement? in Net?ix?s Cross-Complaint with Fox?s litigation - 6 - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C.P. 425.16 and pre-litigation activity. Mot. at 5:25-6z7. But the gravamen of the Cross-Complaint is Fox?s use of illegal ?xed-term contracts to compel employees to stay against their will, not Fox?s pre- litigation or litigation conduct: a 11 4, framing the ?Nature of the Action,? explains that Fox?s ?xed-term employment agreements are unlawful and unenforceable for three reasons: they unreasonably restrict mobility, sti?e competition, and depress salary levels; they contain false statements that mischaracterize both the nature of the work being performed and the company?s remedy for a breach; and Fox ?selectively? enforces them only when employees want to move to a competitor. Paragraph 16 expands on this third reason, focusing on Fox?s selectivity in choosing whether to allow an employee out of her contract, or insisting that she stay. Paragraph 16 does not discuss litigation. 0 ll 24 elaborates on 1I4?s second reason: reference to Fox?s ?use of legal threats and injunctions? arises from and is speci?cally tied to the company?s boilerplate contract provision that mischaracterizes the nature of the work the employee is performing as ?special, unique, extraordinary, and intellectual? and, based on that mischaracterization, claims the legal right to compel the employee to stay. It is the use of this illegal provision?and the threat it contains?that hinders Fox employees from leaving Fox for alternative employment. 0 1] 18 alleges the agreements give Fox unilateral Options to extend the contracts? terms. When this option is ?coupled with the threat of litigation to obtain an injunction for attempts to leave their employment with Fox,? employees are effectively compelled to stay at Fox. 161. The ?threat of litigation? described in that paragraph refers to the contractual provision purportedly permitting injunctive relief, not to any speci?c pre- litigation activity by Fox. 0 1120 identi?es the Waltenberg and Agreements as examples that ?illustrate Fox?s unlawful behavior.? 1d. 11 20. They are not the basis of the Cross-Complaint. City of Colali v. Cos/man, 29 Cal. 4th 69, 78 (2002) (?that a cause of action arguably may have been triggered by protected activity does not entail that it is one arising from Moreover, reference to ?Fox?s selective and abusive enforcement tactics,? in paragraph 19, describes Fox?s coercive tactics with its employees to secure their signature on ?xed-term agreements (see Waltenberg Decl. 7, 9), and the circumstances of its refusal to consent to early termination. Cross-Comp]. 16. This is not litigation conduct, but plainly an anti-competitive business practice. Net?ix?s allegations are comparable to conduct the Kajima court concluded was not protected. In Kajima, the complaint referred to Kajima?s threats to ?le lawsuits, and Kajima moved to strike under the statute. Kry?ima, 95 Cal. App. 4th at 930. The Second District denied the motion; the litigation threats were ?part of the [plaintiff?s] allegations regarding Kajima?s general pattern and practice of bidding and collecting? on projects. 1d. at 930-31. The - 7 - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C.P. 425 I6 alleged wrongdoing did not relate to the ?ling of the underlying complaint, and was ?not the basis for liability asserted in any of the causes of action.? 161?. at 931. Likewise, Net?ix?s allegations are entirely focused on Fox?s unlawful use of the agreements to restrict employee mobility. The gravamen of Net?ix?s Cross-Complaint is Fox?s sweeping practices of binding its employees to illegal contracts in violation of 16600, not Fox?s litigation activity. B. Any Purportedlv Protected Activity Is Incidental To The Core Misconduct. Even if the Court did ?nd that some of Netflix?s allegations concern protected activity, Fox still cannot meet its burden on the ?rst prong because any allegations concerning protected activity are at best ?merely incidental? or ?collateral,? and thus are not the subject of 425.16. Baral, 1 Cal. 5th at 394; see also id. (?Allegations of protected activity that merely provide context, without supporting a claim for recovery, cannot be stricken under the statute?). If the protected activity is only ?incidental to a cause of action based essentially on nonprotected activity, then the statute does not apply.? Aguilar v. Goldstein, 207 Cal. App. 4th 1 152, 1 160 (2012). Any mention in the Cross-Complaint to purportedly protected activity only provides context for Fox?s anti-competitive conduct; it does not form the basis for the claims. As noted above, the gravamen of the Cross-Complaint is that Fox?s use of, and practices concerning, ?xed term employment contracts is anti-competitive. Descriptions of the Waltenberg and Agreements provide context for the terms of agreements binding other similarly-situated business employees. Cross-Comp]. 111] 20, 24. Net?ix offered Exhibit to the Cross-Complaint to evidence Fox?s anti- competitive intent with respect to the employment contracts, not to demonstrate Fox?s attempts to enforce the contracts through litigation. Paragraphs 18 and 24 refer to Fox?s baseless legal threats?embedded in the contracts?to intimidate Fox employees from leaving, in violation of ?l6600. In deciding a SLAPP motion, the court must distinguish between speech that is ?mere evidence related to liability, and liability that is based on speech or petitioning activity.? Golfer-bu v. Travolta, 228 Cal. App. 4th 35, 42 (2014) (emphasis original); see id. at 41-42 (the ?complaint is not based upon Alto?s saber-rattling demand letters,? the letters are just evidence that a controversy exists). Net?ix? 3 claims of liability are not based on Fox?s purported litigation conduct, and to construe Net?ix?s allegations as an attack on protected speech would lead to the absurd result 10 - 8 - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO CP ?425. 16 striking any declaratory judgment complaint that follows receipt of a litigation threat.2 Fox has not met its burden under Prong 1. The Court?s inquiry should stop here. V. PRONG 2: NETFLIX CAN DEMONSTRATE A PROBABILITY OF PREVAILING ON ITS CLAIMS. Even if Fox could meet the ?rst prong of the SLAPP statute, Net?ix will prevail on its ?17200 and declaratory relief claims. Net?ix is entitled to ?a certain degree of leeway in establishing a probability of prevailing on its claims due to ?the early stage at which the [anti- motion is brought and heard [citation] and the limited opportunity to conduct discovery Integrated Healthcare Holdings, Inc. v. Fitzgibbons, 140 Cal. App. 4th 515, 530 (2006). In evaluating Net?ix?s showing, do not weigh credibility, nor do we evaluate the weight of the evidence. Instead, we accept as true all evidence favorable to the plaintiff and assess the defendant?s evidence only to determine if it defeats the plaintiff?s submission as a matter of law.? Overstock. cam, Inc. v. Gradient Analytics, Inc, 151 Cal. App. 4th 688, 699-700 (2007). A. Fox?s Widespread Use Of Anti-Competitive ixed-Term Agreements Is An Unlawful And Unfair Business Practice. 1. Netflix Has Pleaded An Unfair Business Practice. Net?ix has pleaded that Fox?s practices are both unfair and unlawful business practices. Mot. at 8: 19-92 When a competitor pleads unfair conduct that violates 17200, ?the word ?unfair? in that section means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise signi?cantly threatens or harms competition.? Cel-Tech Commc ?ns, Inc. v. LA. Cellular Tel. C0., 20 Cal. 4th 163, 187 (1999). Net?ix?s allegations meet this standard. Netflix alleges that Fox?s use of ?xed-term employment agreements ?restrains employee mobility, depresses compensation levels, and creates unlawful barriers to entry for Net?ix? in violation of 16600. Cross-Comp]. 11 2. Net?ix further alleges Fox?s business practices sti?e competition, restrain employee mobility, and chill and deter 2 Cf Gotterba, 228 Cal. App. 4th at 42 (?Acceptance of [defendant] Alto?s arguments would lead to the absurd results that a person receiving a demand letter threatening legal action for breach of contract would be precluded from seeking declaratory reliefto determine the validity ofthe contract. Declaratory relief would be limited to situations where the parties have not communicated their disagreement regarding an asserted breach of contract?) 10 - 9 - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C.P. 425. I6 competitors, including Netflix, from recruiting ox?s employees. See id. 1111 15-19; 24-27. Finally, Net?ix alleges in the ?rst cause of action that Fox?s actions ?constitute an unfair, unlawful and/or fraudulent business practice under California Business and Professions Code section 17200.? Id. 31. (Emphasis added). Net?ix has properly pleaded that Fox?s conduct constitutes an unfair business practice under 17200, particularly in light of California?s liberal pleading standards.3 2. Fox?s Anti-Competitive Conduct Violates Sections 16600 And 17200. Section 17200 makes actionable (1) any business practices forbidden by law and (2) any business practices that Violate the policy and spirit of one of those laws, or otherwise threaten or harm competition.4 Net?ix can demonstrate that Fox?s use of ?xed-term agreements is both an unlawful and unfair business practice in violation of 16600 and 17200. In pertinent part, 16660 provides that ?every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.? Section 16600 codifies the strong legislative policy in favor of employee mobility and is opposed to any contract that seeks to limit competition. See Edwards v. ArthurAndersen LLP, 44 Cal. 4th 937, 946 (2008) 16600 re?ects settled legislative policy in favor of open competition and employee mobility). While 16600 proscribes noncompetition agreements generally, 17200, et seq. provides a cause of action for ?any unlawful, unfair or fraudulent business act or practice.? See Application Grp., Inc. v. Hunter Grp., Inc, 61 Cal. App. 4th 881, 907 (1998) (if employer?s practice violates Section 16600, it may also constitute an unlawful business practice under 17200). Fox?s ?xed-term employment contracts are void under 16600 and 17200. They permit Fox the unilateral right to extend the length of employment for additional years, thereby restraining an employee?s freedom to leave his job. See Edwards, 44 Cal. 4th at 946?47 (any restraint on trade, no matter how narrow or reasonable, violates 16600); Golden v. Cal. Emergency Physicians Med. 3 Civ. Proc. Code 452 (?In the construction ofa pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties?); Simons v. Kern Cty., 234 Cal. App. 2d 362, 367 (1965) (?California is committed to the rule ofliberal construction of pleadings?); Perkins v. Super. li7 Cal. App. 3d 1, 6 (1981) (?What is important is that the complaint as a whole contain suf?cient facts to apprise the defendant ofthe basis upon which the plaintiffis seeking relief?). 4 See Farmers Ins. Exch. v. Super. 2 Cal. 4th 377, 383 (1992) (unlawful business practice includes ??anything that can properly be called a business practice and that at the same time is forbidden by Cal-Tech, 20 Cal. 4th 163 at 187 (unfair business practice violates spirit or policy ofantitrust law or threatens competition). Unfair competition law is derivative in that it ?bon?ows? violations of other laws and treats them as unlawful practices. Farmers, 2 Cal. 4th at 383. - - OPPOSITION TO MOTION TO STRIKE PURSUANT TO C.C.P. ?425. 16 NOLA Grp., 782 F.3d 1083, 1086, 1092 (9th Cir. 2015) (Section 16600 proscribes ?any ?restraint of a substantial character,? no matter its form or scope?). In addition, Fox?s coercive and abusive tactics force their employees into these ?xed?term agreements, giving them no opportunity to negotiate, further evidencing the restraints on trade. See, Decl. 111] 4-14; Waltenberg Decl. 7, 9. Ms. and Mr. Waltenberg are not the only Fox employees subject to agreements of this nature, and who cannot leave their employment as desired. See Decl. 1111 16, 19; Waltenberg Decl. 1i 18; Declaration of Iva Colter 2-3.5 Moreover, Fox?s practices concerning its ?xed-term agreements allow Fox to pay its employees below-market salaries, giving Fox an unfair advantage over competitors who do not use unlawful contracts. Depressed wages and the harm to Fox?s competitors through the use of these agreements further illustrate Fox?s anti-competitive practices in violation of 17200. Cel- Tech, 20 Cal. 4th at 187 (holding ?unfair? practices are those that signi?cantly threaten or harm competition). 3. The Purported Iniunctive Relief Section Violates Section 16600. The ?xed-term agreements are further void because they purport to permit Fox injunctive relief to prevent employees from breach. But the law permits Fox no such remedy. Nor do the Labor Code sections that Fox cites authorize the agreements Net?ix seeks to invalidate. Mot. at To the contrary, they impose limitations on ?xed?term employment contracts. Indeed, far from authorizing Fox?s conduct, the primary statute upon which Fox relies? Labor Code 2855?instead places two limitations on the use of personal service contracts: they are not enforceable beyond seven years; and if the contract is otherwise valid, it can be enforced by speci?c enforcement only where the promised ?service is of a special, unique, unusual, extraordinary, or intellectual character.? Emphasis added; see also Civ. Code 3423. As to the second limitation, not only are the Fox contracts invalid under 16600, but case 5 Netflix anticipates discovery at a later stage will reveal evidence of additional employees unlawfully restrained from leaving their employment at Fox, despite their desire to do so. 6 In fact, some of the provisions Fox cites are irrelevant. Labor Code 2922 refers to at-wiII employees who may terminate employment at any time; 2920 identifies certain events?such as death of the employee that trigger termination ofthe employment; 2924 and 2925 acknowledge that an employee or employer subject to speci?ed term may terminate ifeither willfully breaches; and 2926 entitles an employee who is dismissed and not subject to a speci?ed term to receive compensation for services up to the dismissal. None authorizes the fixed-term agreements that Fox forces upon its employees. - 1 - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO ?425. l6 law makes clear that services of a unique and extraordinary character subject to these statutes are limited to artists or other celebrities, not business management employees. See, e. Lemat Corp. 12. Barry, 275 Cal. App. 2d 671 (1969) (enjoining ?star? professional basketball player from joining a rival team); De Haviland v. Warner Bros. Pictures, 67 Cal. App. 2d 225, 230 (1944) holding contracts for the exclusive services of artists (a term we use to denote all of those who contract to render ?exceptional services?) Beverly Glen Music, Inc. v. Warner Commc?ns, Inc, 178 Cal. App. 3d 1142, 1144 (1986) (?California courts will not enjoin the breach of a personal service contract unless the service is unique in nature?). There are no cases in which a business employee like Ms. or Mr. Waltenberg was found to render unique and extraordinary services subject to injunction under 2855. Fox is just wrong when it insists the courts have validated its ?xed-term employment contracts. 7 Nor can Fox show that its salaried business employees, like Ms. and Mr. Waltenberg, all provide service of ?special, unique, unusual, extraordinary, or intellectual character, which gives it peculiar value? in their job duties at Fox. Waltenberg Decl. 1] 17; Decl. 18. Nevertheless, Fox inserted intimidating and legally unsupportable contract language purporting to entitle it to injunctive relief if the employee breached by choosing, for example, to resign to seek different professional opportunities or a higher salary on the open market. Civ. Code 3423(e); Lab. Code 2855; Decl. 11 16. Cal. Civ. Code 3513 instructs that ?a law established for a public reason cannot be contravened by a private agreement.? See also De Haviland, 67 Cal. App. 2d at 236 (the rights of employees under 2855 fall squarely within the prohibition of 3513). Because 2855 was established for a public reason, Fox cannot simply waive this statutory protection by inserting boilerplate contract language describing every business employee as ?unique.? 7 Fox asserts that courts have ?repeatedly interpreted, enforced, and recognized the validity of these unremarkable contracts, frequently at the insistence and for the bene?t ofthe employee.? Mot. at 10:26-28. None ofthe cases Fox cites involve contracts restraining employees who render ?unique or extraordinary? services, involve a section 16600 challenge, or involve an employer attempting to enjoin an employee from working for a competitor. See CRST Van Expedited, Inc. v. Werner Enterprises, Inc, 479 F.3d 1099, l2-l3 (9th Cir. 2007) (court did not grant an injunction for ?xed?term contract, noting only remedy was damages); Touchstone Television Prods. v. Super. Ct, 208 Cal. App. 4th 676, 683 (2012) (no discussion ofenforceability of?xed-term agreements); Leep v. Am. Ship Mgmt., LLC, 126 Cal. App. 4th 1028, 1038 (2005) (did not interpret or enforce a ?xed-term contract); Klmjavi v. Feather River Anesthesia Med. Grp., 84 Cal. App. 4th 32, 58-59 (2000) (no injunction granted where employer terminated employee in violation of ?xed-term contract). Similarly, none ofthe cases Fox cites in footnote 9 ofits Motion, Mot. at 1:23-28, involve the enforcement of the contract through injunctive relief. Thus, while courts have interpreted fixed-term contracts, they have not interpreted them to enjoin non-unique business employees from working for competitors. - - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C.P. ?425.l6 Fox misconstrues the Labor Code and the case law interpreting it in claiming both have repeatedly authorized their ?xed?term agreements.8 Instead, these contracts violate the Labor and Civil Codes, and constitute anti-competitive business practices. Fox?s arguments that the Labor Code forecloses Netflix?s claims are red herrings.9 Fox ignores that the Labor Code must be read in conjunction with 16600 and 17200. See People v. L.A. Palm, Inc, 121 Cal. App. 3d 25, 33 (1981) (the Labor Code cannot foreclose remedies under the Business and Professions Code ?if the alleged misconduct does indeed constitute an unfair business practice?); Application Grp., 61 Cal. App. at 901 16600 as implemented through 17200 and 17204 ?ensures that California employees will be able to compete effectively for the most talented, skilled employees in their industries?). Because 2855 does not allow an employer to enjoin a non?unique employee from working for a competitor, it does not foreclose Netflix?s Claims. B. Netflix?s Declaratory Relief Claim Is Not Duplicative Of Its UCL Claim. Fox argues that Net?ix?s claim for declaratory relief fails because it is duplicative of the UCL claim. Mot. at 1 1:22-12:10. They are not duplicative claims; they require different pleading and proof. To state a claim for declaratory relief, Net?ix must allege (1) a proper subject, and (2) an actual controversy. See Brownfield v. Daniel Freeman Marina Hosp, 208 Cal. App. 3d 405, 410 (1989). It does not require proof of economic injury or causation, whereas a UCL claim requires both. See, e. g, Krill/(SE! Corp. v. Super. CL, 51 Cal. 4th 310, 322 (2011). Netflix meets the standard for declaratory relief. Code of Civil Procedure 1060 states that any party who has an interest in a contract may seek relief regarding the rights and duties under that contract. See e. g, Application Grp., 61 Cal. App. 4th at 893-94 (plaintiff third party employer 3 One of the more misleading examples of Fox?s brief is its reliance on a long quote from the De Haviland opinion to support its claim that the cited Labor Code sections are ?the Legislature?s expression ofthe ?public policy? when it comes to fixed-term contracts.? Mot. at [0:14-25. This quote is taken completely out of context; the De Havilana? court was discussing the reasons why the Labor Code limits ?xed term contracts to seven years, an issue not relevant here. De Haviland, 67 Cal. App. 2d at 235. 9 For example, Fox contends the competitor privilege bars Net?ix?s claims. This is just wrong: the competition privilege is only a defense to tortious interference claims. See, e. Bed, Bath Beyond of La Jolla, Inc. v. La Jolla Vill. Square Venture Partners, 52 Cal. App. 4th 867, 881 (1997) (competition privilege permits interference with competitor?s prospective contractual relationship as long as the interfering conduct is not independently wrongful). Net?ix alleges no interference claims. Second, the competition privilege is permitted only if the party asserting the privilege is acting lawfully. S. F. Design Ctr. Assocs. v. Portman Cos, 41 Cal. App. 4th 29, 42 (1995) (competition privileged defeated ?where defendant engages in unlawful or illegitimate means?). Fox?s conduct violates Section 16600. See Section V.A. The competition privilege does not bar any ofNetflix?s claims. OI-ISUSA1766225526.10 - - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C.P. 425.16 had standing to request declaratory judgment regarding defendant employer?s use of noncompetition agreements with its Here, Net?ix?s rights are directly affected by these agreements because they inhibit Net?ix from recruiting Fox?s employees, thereby chilling Net?ix?s ability to compete. Cross-Comp]. 11 27. Moreover, Fox has complained publicly that Net?ix is engaged in a ?systematic, targeted? recruiting campaign (Declaration of Catherine Lui, Ex. it cannot now complain that there is no controversy ripe for adjudication.ll C. Netflix?s Claims Are Not Barred By The Litigation Privilege. Net?ix?s claims are not barred by the litigation privilege. The litigation privilege only protects communications in furtherance of the litigation and relate to ?litigation that is contemplated in good faith and under serious consideration.? Action Apartment Ass Inc. v. City of Santa Monica, 4] Cal. 4th 1232, 1251 (2007). As discussed above, the conduct upon which Net?ix sues is not in furtherance of Fox?s litigation. See Section IV. D. Netflix Has Standing To Assert Its Claims. 1. Netflix?s UCL Claim. Net?ix has standing to assert both claims against Fox. To allege standing under the UCL, Net?ix must ?establish a loss or deprivation of money or property suf?cient to qualify as an injury in fact, economic injury,? and show that the economic injury was caused by the unfair business practice. Kwikset Corp, 51 Cal. 4th at 322. There are many ways to show economic injury, particularly when a competitor alleges a UCL claim. 10?. at 323. See, e. g, Overstock. com, 151 Cal. App. 4th at 716 (allegations of diminished assets and reduced market capitalization adequately alleged standing); Law Of?ces of Mathew Higbee v. Expungement Assistance Servs., 214 Cal. App. 4th 544, 557-588 (2013) (lawyer had standing to sue non-lawyer company by alleging diminished value of law practice through loss of market share and increased advertising costs). '0 See also Olson v. Toy, 46 Cal. App. 4th 818, 820?25 (1996) (Section 1060 ?does not require that plaintiffs and defendants be parties to, or that plaintiffs be interested under, a legal instrument as a predicate to plaintiffs maintaining a declaratory relief action?). Fox also asserts Netflix?s declaratory relief claim fails because request for declaratory relief will not create a cause of action that otherwise does not exist.? Mot. at 12:4?5. The cases it cites in support are inapposite, as plaintiffs in both cases failed to plead the existence of an actual, present controversy. See Cal. Ass of PSES v. Cal. Dep't of Educ, 141 Cal. App. 4th 360, 377-378 (2006) (failed to allege that the challenged regulation had actually been applied; thus, the ?as applied? declaratory relief claim failed); Bar-din v. DaimlerC/nysler Corp, 136 Cal. App. 4th 1255, 1276- 77 (2006) (failed to allege facts suf?cient to state actual, present controversy). Netflix, on the other hand. has pleaded the existence of an actual, present controversy. 10 - 14 - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C.P. ?425.l6 Netflix has met both prongs of Kiri/(set in its pleading. Netflix alleges that Fox?s anti- competitive use of the ?xed?term agreements has impaired Netflix?s ability to compete effectively for talent, and that the wrongful conduct ?chills and deters competitors, including Net?ix, from soliciting, recruiting and hiring Fox?s California employees?. Cross-Comp]. 11 27; see id. 2, 16, 19, 27; Colter Dec]. 1[ 3. Fox?s unlawful conduct has caused Net?ix lost money or property and denies Net?ix the ?ability to fairly compete for Fox employees, who are unlawfully restrained from considering employment with Net?ix because of Fox?s use of ?xed-term employment agreements.? Id. 11 32; Colter Dec]. 11 3. Net?ix has properly alleged the requisite economic injury to its ability to fairly compete and hire the best talent under California?s liberal pleading standards. Civ. Free. Code 452; Rutter: Cal. Prac. Guide Civ. Pro. Before Trial Ch. (?conclusory allegations will not be stricken where they are supported by other,factual allegations in the complaint?). 2. Netflix?s Declaratory Relief Claim. Fox argues Net?ix lacks standing because its declaratory relief claim addresses past wrongs regarding Waltenberg and Mot. at 1518-9. But For ignores Net?ix?s requested relief, seeking the opportunity to compete fairly to employ oiher Fox employees. Cross-Comp]. 36. Finally, Net?ix?s declaratory relief claim is not superfluous. Mot. at 15:19-20. Net?ix is entitled to a determination of prospective employees? rights under their current agreements with Fox, particularly since Fox could dismiss its own claims unilaterally. See Surpervalu, Inc. v. Wexford Underwriting Managers, Inc., 175 Cal. App. 4th 64, 83 (2009) (same issue of contract interpretation raised in other claims does not bar declaratory relief of that cause of action). VI. CONCLUSION. For the foregoing reasons, the Court should deny Fox?s Motion to Strike and award Net?ix its fees in opposing this motion as the motion is frivolous andfor is solely intended to cause unnecessary delay pursuant to section Dated: January 5, 2017 OR IC 0 . UTCLIFFE LLP G. Atto eys for fendant and Cross-Complainant NETFLIX, INC. - 15 - OPPOSITION TO ANTI-SLAPP MOTION TO STRIKE PURSUANT TO C.C.P. 35425.16