By E. Darius Sturmer, J.D.
Preliminary injunctive relief that allowed data integrator Authenticom, Inc. to continue accessing car dealership data from the information systems of two dealer management software vendors—CDK Global LLC (CDK) and Reynolds and Reynolds Co. (R&R)—during the pendency of its antitrust litigation against them went "well beyond the scope of the alleged violation" and therefore had to be set aside, the U.S. Court of Appeals in Chicago has decided. The district court’s orders, issued "out of concern for preserving Authenticom as a functioning company until the suit [could] be resolved," failed to consider harm from the defendants’ point of view and improperly imposed upon them a duty to deal with Authenticom on terms to which they did not agree. The injunctions were vacated and the case remanded to the district court with the imperative "to do what it can to expedite its final judgment" (Authenticom, Inc. v. CDK Global, LLC, November 6, 2017, Wood, D.).
Authenticom, which provided a service linking car dealers to third-party software vendors who could provide features not built into the dealers’ own comprehensive software packages, filed the antitrust complaint against CDK and R&R in May 2017, alleging that the companies’ blocking of access to their dealer management systems (DMSs) through a series of restrictive data exchange agreements destroyed the market for data integration services.
In its pleadings, Authenticom explained that virtually every dealer in the country uses a DMS to manage the major aspect of its business, from vehicle and parts inventory to service appointments and payroll, and the defendants sell DMS software to roughly 75 percent of them. Dealers also use an average of 10 to 15 software applications from third-party vendors like Carfax to provide enhancements and services not built into the basic DMS, though these applications required data from the DMS. Dealers generally find it cumbersome to retrieve their own data from their DMS to send to vendors, so most authorize vendors to get the data from the DMS either directly or through a third-party data integrator such as Authenticom. However, Authenticom averred, the defendants’ blocking of access to their DMSs had a significant impact on its revenue by interfering with its ability to integrate data for vendors who served dealers using those DMSs.
The district court found that the evidence Authenticom presented of a conspiracy between CDK and R&R to drive it out of business established at least a moderate chance of success in proving that the defendants violated Section 1 of the Sherman Act. Further, it held that the balance of harms under the circumstances tipped sharply in favor of Authenticom, given that the company stood at risk of going under without the requested injunctive relief. On these bases, the district court granted an injunction with numerous open-access measures the court believed "were necessary to extend to lifeline to Authenticom, to maintain its viability until the case is finally decided on the merits."
Regardless of the merits of the parties’ arguments or judicial disposition with respect to the balance of harms, however, the more fundamental problem with the injunctions that required their vacation was that they forced the defendants not to withhold from implementing the data sharing agreements or alleged boycott agreements at the center of the lawsuit, but to enter into an entirely new open architecture arrangement with the data integrator. The proper remedy for a Sec. 1 violation based on an agreement to restrain trade was to set aside the offending agreement, the appellate court noted.
Orders forcing the defendants to do business with Authenticom on new terms were inconsistent with Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, 540 U.S. 398 (2004), which cautioned of how limited the circumstances were in which duties to deal could be found to apply even in Sec. 2 cases. In a Sec. 1 case, the appellate court noted, all that was needed was to break up the allegedly troublesome agreement and return the market, for the time being, to the status quo. Moreover, the proper remedy to Authenticom’s contention that R&R and CDK illegally tied their DMSs to data integration would be to enjoin the tie, not to create a duty to deal, the court remarked. Authenticom failed to argue that either defendant had sufficient market power on its own to trigger a monopolization or attempted monopolization claim under Sec. 2, let alone one resembling the high standard in Sec. 2 cases for a duty-to-deal theory. Thus, such a theory could not support relief.
The cases are Nos. 17-2540 and 17-2541.
Attorneys: Jennifer L. Gregor (Godfrey & Kahn SC) for Authenticom, Inc. Mark W. Ryan (Mayer Brown LLP) for CDK Global, LLC, and Reynolds and Reynolds Co.
Companies: Authenticom, Inc.; CDK Global, LLC; Reynolds and Reynolds Co.
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