Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Maker of traffic signal preemption systems charged with manipulating competitive bidding processes, (Nov 6, 2014)

By Linda O’Brien, J.D., LL.M.

A manufacturer of emergency vehicle traffic preemption systems engaged in an anticompetitive scheme to monopolize the market for traffic signal preemption equipment by interfering with the competitive bidding process by public agencies and pursuing sham patent litigation, according to a complaint filed in the federal district court in San Francisco (KM Enterprises, Inc. v. Global Traffic Technologies, LLC, November 4, 2014).

KM Enterprises (KME) and Global Traffic Technologies (GTT) compete in the market for the distribution and installation of Emergency Vehicle Preemption (EVP) and Transit Signal Priority (TSP) equipment that preempts traffic signals so emergency and transit vehicles may pass on a green light while other traffic is directed to stop.

The complaint alleges that Kris Morgan, President of KME, invented the Emtrac Systems traffic preemption equipment which preempts traffic signals for emergency vehicles as well as performs data collection functions such as automated vehicle location. KME has offered a GPS capable version of the product since 2004. Prior to 2004, KME manufactured a non-GPS version of the equipment that used radio frequency signals. The 3M Company developed an optical signal priority system and patented a GPS version of the equipment in 1995. The 3M system was not substantially marketed until 2007 when GTT obtained the rights to the 3M system as part of an asset purchase.

Before the GPS version of the EVP and TSP products were marketed, 3M dominated the market with a 97 percent market share. After KME began offering its Emtrac GPS System consistently gained market share and in 2010, had a market share of 60 to 70 percent of the GPS market.

In 2009, GTT approached KME to discuss obtaining production rights to KME’s Emtrac GPS System. The discussions were not productive and GTT did not secure the rights to private label or sell KME’s Emtrac GPS system. Subsequently, GTT engaged in a manipulative scheme in which it encouraged and aided public agencies to draft specifications for GTT’s optical product and then informed the agencies that the product was no longer available. GTT then replaced the optical product with a “dual” product – optical and GPS – which placed the two products separately within one housing. This dual product locked KME out of the market since KME’s GPS product was not compatible with GTT’s GPS product, the complaint charged.

According to the complaint, GTT orchestrated contracts that unreasonably restrained trade in the EVP and TSP markets and persuaded agencies to incorporate components of GTT’s optical product in such a way so as to exclude the Emtrac System product from competition. GTT influenced the results of competitive bids in its favor by (1) learning the low bid and beating that price; (2) giving gifts; (3) lobbying; (4) giving grant writing assistance to agencies as an incentive; and (5) engaging in a campaign of misinformation concerning the quality of KME equipment. GTT also engaged in sham litigation by filing suit against KME in 2010, asserting patent infringement. GTT further provided misinformation to public agencies that (1) KME was under an injunction and could not lawfully offer its product for sale and (2) if the agencies installed KME’s Emtrac System product, it would have to be removed if GTT were successful in the patent litigation.

The plaintiffs assert claims for restraint of trade, monopolization, attempted monopoly, and violations of Sections 1 and 2 of the Sherman Act and California’s Cartwright Act and Unfair Competition Law. The action seeks declaratory and injunctive relief, treble damages, restitution, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 3:14-cv-04906-EDL.

Attorneys: Jana Yocom (Jana Yocom, P.C.) and Martin Zurada (Venardi Zurada, LLP) for KM Enterprises, Inc. and Rodney Kris Morgan.

Companies: KM Enterprises, Inc.; Global Traffic Technologies, LLC; Global Traffic Technologies, Inc.

News: Antitrust CaliforniaNews