Antitrust Law Daily Wrap Up, ANTITRUST—4thCir: Refusal to Deal Claims Against Business-to-Business Data Network Properly Dismissed, (Dec 27, 2012)

By Jeffrey May, J.D.

The U.S. Court of Appeals in Richmond, Virginia, in a not-for-publication decision, affirmed dismissal of antitrust claims against GXS, Inc., the operator of a secure, private business-to-business data network, over which electronic data interchange (EDI) messages are sent. A competitor (Loren Data Corporation) unsuccessfully alleged that GXS's refusal to provide it a “peer interconnect” to the GXS network violated Sections 1 and 2 of the Sherman Act (Loren Data Corp. v. GXS, Inc., December 26, 2012, Urbanski, M.).

Business-to-business data networks transfer information in two ways: (1) a non-settlement peer interconnect and (2) a commercial mailbox. Loren Data, which had access to the GXS network by means of a commercial mailbox, alleged that a peer interconnect was the industry standard. It contended that a commercial mailbox arrangement was not a viable alternative to a peer interconnect because the commercial mailbox was cumbersome, inefficient, and expensive. It alleged a violation of the antitrust laws because GXS has refused to grant it a peer interconnect.

Loren Data based its conspiracy claim on a September 2010 letter from GSX, explaining that GSX could not offer Loren Data anything more than a commercial mailbox because Loren Data’s business model was incompatible with its own and because providing a peer interconnect to Loren Data could result in service quality problems. GXS stated that the core of Loren Data’s business model involved message “daisy chaining,” which allowed a message to hop from network to network. This was expressly prohibited by GXS’s current network interconnect agreements.

The amended complaint alleged that both GXS and Loren Data had peer interconnect agreements with all of the 36 other EDI networks. Although Loren Data alleged a concerted refusal to deal, the amended complaint stated that “[c]urrently about 55% of Loren Data’s business travels on GXS [Networks].”

The September 2010 letter and the daisy chaining ban in the GXS interconnect agreements referenced in the letter did not amount to evidence of collusion between GXS and each of the other 36 networks to boycott Loren Data. The letter did not provide any indication that other networks had acquiesced or joined in any kind of conspiracy to boycott Loren Data, much less taken any action against Loren Data. The letter merely suggested that GXS was unwilling to contract with Loren Data on the terms it sought.

The allegations were consistent with unilateral conduct by GXS to protect its network from the service quality perils it perceived to be associated with daisy chaining. Moreover, Loren Data’s ability to interconnect freely with other networks negated any suggestion that these networks conspired with GXS to boycott Loren Data.

Monopoly Claims

The court also rejected Loren Data's Section 2 claims based on GXS’s refusal to provide it a peer interconnect. Loren Data contended that this refusal was a denial of access to an essential facility. Loren Data’s allegations that it was able to access 36 other networks and that more than half of its business traversed the GXS network negated any plausible inference of anticompetitive exclusionary conduct by GXS to support a Section 2 claim.

Moreover, Loren Data could not plausibly maintain that a peer interconnect with GXS was an essential facility. Loren Data functioned for a decade without unfettered peer interconnect access to the GXS network, the court noted.

“[T]he fact that GXS has contracted with every other Network in the market suggests that its refusal to deal with Loren Data on the terms Loren Data desires will not have any negative effects on competition as a whole,” the court explained.

The case is No. 11-2062.

Glenn B. Manishin (Troutman Sanders, LLP) for Loren Data Corp. Robert A. Schwinger (Chadbourne & Parke, LLP) for GXS, Inc.

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