Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Ill.: FICO denied dismissal of monopolization claims, (Dec 2, 2024)

By Martin A. Steinberg, J.D.

FICO and the three major credit bureaus were accused of conspiring to engage in monopolistic behavior to overcharge purchasers for FICO credit scores.

In an antitrust action brought by purchasers of credit scores against Fair Isaac Company (better known in the industry and to consumers as FICO) and the three major credit bureaus, the federal district court in Chicago dismissed all antitrust claims against the three major credit bureaus (TransUnion, Equifax, and Experian) as it had done previously with the initial complaints. The court found that because these Credit Bureaus had a history of being competitive with FICO, they were emboldened to resist pressure from FICO, rather than seek out its protection. The court again denied Fair Isaac Company’s motion to dismiss claims under Section 2 of the Sherman Act and various state claims. Because the court had previously dismissed the claims against FICO under Section 1 of the Sherman Act and the Clayton Act, it did so again, but with prejudice. Two categories of Plaintiffs filed separate amended complaints: (1) entities such as Sky Federal Credit Union (Direct Purchasers) that bought credit scores from FICO through agreements with FICO and the Credit Bureaus; and (2) entities such as Garner Properties & Management LLC (Indirect Purchasers) that bought scores from an intermediary company (In Re: Fico Antitrust Litigation Related Cases, No. 1:20-cv-02114 (N.D. Ill. Nov. 24, 2024)).

Background. While consumers may purchase their credit scores directly, the cases before the court are about the business-to-business market (B2B market) where businesses buy consumers’ credit scores to assess the risk of extending credit or engaging in transactions with those consumers. FICO has maintained a 90% monopoly where 90% of top lenders rely on FICO over the B2B credit-score market for many years. FICO has allegedly been aided by Experian, Equifax, and TransUnion (the Credit Bureaus), which collect, standardize, and distribute the credit and financial history of individuals through credit reports. The Credit Bureaus control nearly 100% of the aggregate credit-related data formed by aggregating credit data collected from businesses. The Credit Bureaus allegedly acted with FICO to negotiate sales of credit scores to businesses on terms that favor FICO, and then distributed FICO Scores to businesses.

In 2006, the Credit Bureaus launched VantageScore, an intended competitor to FICO Scores. VantageScore also employed scoring codes and algorithms to translate consumer information into a credit score. VantageScore allegedly distinguished itself through its competitive pricing and ability to provide a credit score for millions of people that would otherwise be unable to access one. FICO filed a lawsuit against the Credit Bureaus and VantageScore “with alleged intent of driving VantageScore Solutions out of business. FICO alleged antitrust, trademark, false advertising, and trade secret claims. See generally Fair Isaac Corp. v. Experian Info. Sols., Inc., 650 F.3d 1139 (8th Cir. 2011). FICO argued that VantageScore infringed on FICO’s trademark over credit score numbers in the range of 300–850 (VantageScore used a 501–900 scale). In 2011, the Eighth Circuit affirmed a jury verdict against FICO.

Agreements between FICO and Credit Bureaus. Between 2013 and 2015, FICO renewed its licensing and distribution agreements with the Credit Bureaus. Plaintiffs alleged that these agreements contained anticompetitive clauses that prevented the Credit Bureaus from marketing non-FICO credit scores and allowed FICO to penalize customers that sought both a FICO Score and a VantageScore. The No Equivalent Products clause prohibits the Credit Bureaus from developing or distributing a non-FICO analytic “that is ‘aligned to the odds-to-score relationship of any Fair Isaac Analytic’ or uses more than a limited number of reason codes that ‘match’ reason codes used by any Fair Isaac Analytic.” The Dynamic Royalty Schedule clause allows FICO to control the pricing of FICO Scores through the royalties that FICO charges the Credit Bureaus. The Level Playing Field clause prevents FICO from offering any Credit Bureau a more favorable price for distributing FICO Scores than that offered to any other Credit Bureau.

Lawsuits. In April 2020, Sky Federal Credit Union filed a class-action complaint against FICO with nine other complaints following shortly thereafter, asserting federal and state antitrust claims. In December 2021, the Direct Purchasers filed their consolidated class action complaint and the Indirect Purchasers filed their amended class action complaint. The court granted the motion to dismiss both complaints filed by the Credit Bureaus and granted in part and denied in part the motion filed by FICO. The Direct and Indirect Purchasers then each filed Amended Complaints, withdrawing their Sherman Act Section 2 conspiracy claims against all Defendants, and adding some allegations to their Sherman Act Section 1 claims. The Credit Bureaus and FICO again moved to dismiss all claims.

Monopolization. Plaintiffs alleged that FICO violated Section 2 of the Sherman Act through unlawful anticompetitive and exclusionary acts and agreements that “substantially foreclosed competition in the market for B2B credit scores in the U.S. This section prohibits the employment of unjustifiable means to gain that power and requires “two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power.” Earlier in the litigation, the court denied FICO’s motion to dismiss these claims, and Plaintiffs’ allegations in their Amended Complaints are largely unchanged. Still, FICO again moved to dismiss these claims, arguing that the Plaintiffs do not plausibly allege anticompetitive conduct.

Regarding the first element, Plaintiffs plausibly alleged that FICO holds more than a 90% market share in the B2B credit-score market, the court found. According to FICO’s former Chief Financial Officer and Executive Vice-President, FICO has maintained a 90-plus percent market share for at least 13 years. Additionally, FICO did not argue that Plaintiffs failed to plausibly allege monopoly power in the relevant B2B market, except in the context of prequalification scores.

Regarding the second element, Plaintiffs argued that the No Equivalent Products, Dynamic Royalty Schedule, and Level Playing Field clauses in FICO’s agreements with the Credit Bureaus are anticompetitive. At the pleading stage, Plaintiffs alleged sufficient facts to proceed to discovery on the nature of these clauses’ anticompetitive effects, according to the court. Plaintiffs satisfied their pleading burden of identifying a relevant market with the B2B credit-score market, and FICO improperly asked too much of Plaintiffs by narrowing in on the pre-qualification market based on contractual language that would not be available to Plaintiffs without discovery. The court further rejected FICO’s attempt to introduce an agreement between it and Trans Union at this stage since a motion to dismiss is confined to the four corners of the complaint and the complaint did not incorporate that document.

FICO also argued that even if there may be a conceivable set of facts for the claim based on the licensing agreements themselves, any claims based on the Equifax litigation are time-barred. Though the Equifax Litigation ended in 2011, Plaintiffs plausibly alleged that the litigation was a part of a practice of anticompetitive acts that continue to this day. As the court already explained, FICO may seek leave to file an early summary judgment motion if discovery shows that there is no basis for Plaintiffs’ equitable-tolling and fraudulent-concealment claims

Plaintiffs alleged that in 2006, FICO filed a lawsuit against the Credit Bureaus and VantageScore “with the intended purpose of driving VantageScore Solutions out of business.” FICO brought antitrust, trademark, false advertising, and trade secret claims. See Fair Isaac Corp. v. Experian Info. Sols. Inc., 645 F. Supp. 2d 734, 738 (D. Minn. 2009). The district court granted summary judgement against FICO on the antitrust and false advertising claims, and a jury found FICO’s purported trademark of the “300-850” FICO score range was merely descriptive. The Minnesota federal court, in upholding the jury’s verdict, noted that the extensive and expensive litigation seemed to have been initiated largely in response to a perceived threat to FICO’s “dominant position in the credit scoring industry.”

Other federal claims. In response to the court’s prior decision, the Amended Complaints dropped the Sherman Act Section 2 conspiracy claims and Sherman Act Section 1 “hub and spokes” conspiracy claims. Instead, Plaintiffs alleged only that FICO entered into vertical agreements with each of the Credit Bureaus to restrain trade in the B2B credit score market, violating Section 1 of the Sherman Act. As the court already decided, Plaintiffs failed to state a Section 1 claim because the Level Playing Field provision is not plausibly a sufficient incentive for each Credit Bureau to conspire separately with FICO, and the Amended Complaints did not overcome this problem. The Level Playing Field clause is a “most favored nations” type clause, and these clauses “are standard devices by which buyers try to bargain for low prices, by getting the seller to agree to treat them as favorably as any of their other customers. The Seventh Circuit, however, has held that most-favored nations clauses are “not price-fixing.

As the court pointed out in the prior decision, there are other facts in the Amended Complaints that render the conspiracy allegation implausible: (1) the Credit Bureaus were sued by FICO shortly after their agreement, making it unlikely that they conspired with FICO in exchange for protection from competition; (2) the claims of protection from an outside competitor ring hollow, given that Plaintiffs did not allege that a new credit bureau was likely to emerge or that FICO took steps to threaten Credit Bureaus with helping new entrants; (3) the Credit Bureaus took significant measures to invest and to support VantageScore as a “competitively priced, highly predictive” alternative to FICO Scores; and (4) recent litigation involving TransUnion suggests that the Credit Bureaus were emboldened to resist pressure from FICO, rather than seek out its protection. Thus, the Credit Bureaus and FICO’s motions to dismiss were granted, with Counts 1 through 4 of both Amended Complaints being dismissed with prejudice.

State law claims. Finally, Plaintiffs raised a variety of state antitrust law claims. Because the alleged conduct that formed the basis for the state law claims as asserted against the Credit Bureaus was the same as the conduct that failed to plausibly set forth a conspiracy with FICO, all of the state law claims against the Credit Bureaus failed as well. Conversely, because Plaintiffs plausibly alleged a Sherman Act Section 2 monopolization claim against FICO, the state law claims against FICO survived.

The Case is No. 1:20-cv-02114.

Judge: Chang, E.

Attorneys: Carmen A. Medici (Robbins Geller Rudman & Dowd LLP) for Sky Federal Credit Union. Carol V. Gilden (Cohen Milstein Sellers & Toll PLLC) for Alternative Finance, Inc. Brant D. Penney (Reinhardt Wendorf & Blanchfield) for Garner Properties & Management LLC. Michael Allen Olsen (Mayer Brown LLP) for Fair Isaac Corp. James Franklin Herbison (Winston & Strawn LLP) for Equifax, Inc. Leslie Victoria Pope (Kellogg, Hansen, Todd, Figel & Frederick PLLC) for TransUnion, LLC.

Companies: Sky Federal Credit Union; Alternative Finance, Inc.; Fair Isaac Corp.; Equifax, Inc.; Garner Properties & Management LLC; Fair Isaac Corp.; TransUnion, LLC

Cases: Antitrust IllinoisNews