Antitrust Law Daily Wrap Up, ANTITRUST NEWS: New competitor seeks to stop impending merger of two leading Internet escrow services, (Jan 15, 2015)

By Linda O’Brien, J.D., LL.M.

The impending merger of leading licensed Internet escrow service providers, Escrow.com and Agreed Escrow, Inc., would result in a monopoly in the United States and world markets for Internet escrow transactions for personal property, according to a complaint filed in the federal district court in Santa Ana, California (Escrow Hill Ltd. v. EC Services Corporation, January 14, 2015).

New Zealand-based Escrow Hill Ltd., which provides domain name and website escrow services, entered the field of Internet escrow transactions in 2014. Administration Services, LLC provides administration and marketing services to Escrow Hill.

With the development of the Internet, there became a need for personal property transactions escrows. Unlike in-person transactions, an Internet transaction requires either that payment be sent before the goods are received or that the goods are sent before payment is received. Escrow is one mechanism that eliminates transactional uncertainty over the Internet. Demand for those services has steadily increased, according to the complaint.

EC Services Corporation, doing business as Escrow.com, is a leading licensed Internet escrow services provider and has handled over $2 billion in transactions since it was founded in 1999. Escrow.com specifically promotes its services to buyers and sellers of Internet domain names, but also accepts other personal property transactions. Escrow.com’s only meaningful competition for domain name escrow services is Agreed Escrow, Inc. (“Agreed.com”), the lawsuit claimed.

In September 2014, Escrow.com announced the acquisition of Agreed.com in a press release stating that the merger will bring together the only two government-licensed escrow companies in the United States and the world. The California Department of Business Oversight lists only four licensed online escrow services in California – two are owned by Escrow.com and Agreed.com, a third is an online freelance referral network that does not offer Internet escrow services for personal property transactions, and a fourth markets its services only to businesses.

Even before the announced merger, Escrow.com and Agreed.com acted in concert to restrain trade by entering into agreements governing employees and other operational matters, the lawsuit charged. Now Escrow.com seeks to acquire Agreed.com, allegedly in order to create a monopoly. Before the merger, Escrow.com had a majority of the market share in the United States and the world. After the merger, the combined company will have nearly 100 percent of the United States market and an estimated 95 percent of the world market, the complaint alleged.

There are no substitutes for Internet escrow services. Through the merger, the defendants will possess monopoly power in the Internet escrow market and will acquire the power to control prices and exclude competition, the plaintiff charged. Escrow Hill has been and will continue to be harmed by Escrow.com’s anticompetitive conduct because the defendants will be able to control prices in the market. Moreover, consumers in California, the United States, and the world have been and will continue to be harmed since they do not have a choice in Internet escrow services for personal property transactions and the defendants will have price-fixing power if the merger is complete, the complaint charges.

The plaintiffs assert claims for monopolization, attempted monopolization, and unfair competition in violation of Section 2 of the Sherman Act, and California’s Cartwright Act and Unfair Competition Law. The action seeks declaratory and injunctive relief, treble damages, disgorgement, pre-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 8:15-cv-00053.

Attorneys: Derek A. Newman and Sophy J. Tabandeh (Newman DuWors LLP) for Escrow Hill Ltd. and Administration Services, LLC.

Companies: Escrow Hill Ltd.; Administration Services, LLC; EC Services Corporation

News: Antitrust CaliforniaNews