Antitrust Law Daily Wrap Up, ANTITRUST—SDOhio: Integrator of Third-Party Applications Fails to State Antitrust Claims Against Provider of Dealer Management System, (Jun 7, 2013)

By Tobias J. Gillett, J.D., LL.M.

An integrator of third-party applications for an automobile dealer management system (DMS) failed to adequately plead antitrust counterclaims against the owner and operator of the DMS, because the integrator did not sufficiently allege a relevant market, an antitrust injury, antitrust standing, or market power, the federal district court in Dayton, Ohio has ruled (Reynolds & Reynolds Company v. Superior Integrated Solutions, Inc., June 6, 2013, Rose, T.).

The Reynolds & Reynolds Company provides a DMS to automobile dealers called ERA. Superior Integrated Solutions, Inc. (SIS) supplies software that integrates third-party applications with DMSs, including ERA. Reynolds also provides integration of third-party applications with ERA and allows third-party integrators access to ERA if they pay a fee to become Reynolds-certified. Reynolds’ contracts with auto dealerships typically contain prohibitions on connecting third-party applications to ERA and on allowing third party integrators that are not certified by Reynolds, such as SIS, to interface with ERA.

Reynolds sued SIS, asserting claims for copyright infringement. SIS filed counterclaims for violations of Sections 1 and 2 of the Sherman Act, among other claims. Reynolds filed a motion to dismiss the counterclaims.

Relevant market. The court first concluded that SIS had not sufficiently alleged a relevant market for its tying claims. SIS had alleged that the relevant market was “the ERA third-party application aftermarket,” and that it competed in that market “because it provides integration services to third-party application providers that need to integrate with ERA.” The court applied the Sixth Circuit’s “reasonable interchangeability” test, which defines the relevant product market as “the tying product and all reasonably interchangeable products.”

Here, SIS did not allege facts indicating whether there were “any substitute products or services in the ERA third-party application aftermarket,” or whether customers would be sensitive to price increases. Moreover, SIS did not allege whether there was “substantial competition in the primary DMS market.”

Antitrust injury. SIS also did not allege an antitrust injury, according to the court. SIS had admitted that third-party application providers could have Reynolds integrate their software or become certified by Reynolds to install it themselves. SIS did not allege any facts about Reynolds’ fees for certification beyond claiming that they were “exorbitant,” did not provide support for its claim that Reynolds was limiting dealers’ options, and did not identify any third-party application providers that had been forced out of the ERA aftermarket. Moreover, SIS did not compete in the market that it had defined, because it provided integration services to application providers and was not itself an application provider. Finally, SIS did not point to any specific third-party application providers that had been harmed by Reynolds’ alleged anti-competitive conduct.

Antitrust standing. The court determined that SIS did not possess standing to bring its antitrust claims. A plaintiff that did not directly compete in the relevant market could have standing “if their injury [was] ‘inextricably intertwined’ with the injury sought to be inflicted,” which required the plaintiff to show that the defendant “manipulated or utilized the plaintiff as a ‘fulcrum, conduit or market force’ to injure competitors in the relevant product and geographic markets.”

SIS did not plead facts that would indicate that Reynolds had used SIS as a “fulcrum, conduit or market force” to injure competitors in the market. Moreover, the court would dismiss SIS’s claims because the third-party application providers would be more direct victims of Reynolds’ conduct, and thus would be the proper plaintiffs.

Market power. Finally, SIS did not sufficiently plead that Reynolds possessed market power for either its Section 1 or Section 2 counterclaims. For the Section 1 counterclaim, SIS did not specifically identify the alleged tied and tying products, but the court assumed that the tying product was ERA and the tied product was third-party applications. However, SIS did not demonstrate that Reynolds had market power in that market. It had not alleged Reynolds’ market power beyond claiming that “approximately 40% of the auto dealers that the third-party application providers that are SIS’s customers work with use Reynolds’ ERA,” and that Reynolds held “a large percentage of the market” for DMA “throughout the country.” Further, SIS did not allege “that Reynolds has a direct economic interest in the third-party applications,” because, in addition to performing integration itself, Reynolds licensed others to do so, and SIS’s claim that Reynolds’ fee was “exorbitant” did not “satisfy the plausibility requirement.”

For the Section 2 counterclaim, SIS did not “plausibly” plead that Reynolds had monopoly power in the relevant market, since SIS’s pleading indicated that there were many participants, other than Reynolds, in that relevant market. Moreover, SIS did not allege an aftermarket of third-party applications that was wholly dependent on a primary market that was restrained by Reynolds. SIS did not plead that Reynolds changed the terms of its agreements with its customers after they purchased ERA, and the primary market was not restrained by Reynolds because “DMS users [could] contract for DMS from whomever they choose, Reynolds ERA being one of the options.”

The case is No. 1:12-cv-848.

Attorneys: Aundrea K. Gulley (Gibbs & Bruns) for Reynolds & Reynolds Company. Anastasia Joy Wade (Brouse McDowell LPA) for Superior Integrated Solutions, Inc.

Companies: The Reynolds & Reynolds Company; Superior Integrated Solutions, Inc.

Cases: Antitrust OhioNews