November 14, 2017

Seventh Circuit Strikes Down Injunction, Finding No Duty to Deal in Big Data

By Margaux Poueymirou

Big Data may be revolutionizing companies’ processing of information, but legal disputes over such data management still have to navigate through the shoals of settled antirust principles.

At least that’s the message of last week’s decision by the U.S. Court of Appeals for the Seventh Circuit vacating a preliminary injunction that required two companies, CDK Global, LLC (“CDK”) and Reynolds and Reynolds Co. (“Reynolds”), who collectively dominate the market for automobile dealership-management systems, to allow a third-party data-scraper, Authenticom, to access customers’ information.  The court held that the injunction ran afoul of antitrust law’s general disfavor of imposing a duty to deal as a remedy.

This case arose when CDK changed from an open to a closed dealer-management system and entered into a series of agreements with its closed-system competitor Reynolds to facilitate this transition.  Dealer-management systems enable automotive dealerships to track efficiently vital business matters such as accounting, payroll, inventory, sales, parts, service, finance, and insurance.  Open systems enable third parties to access dealer-originated data embedded in the system, while closed systems forbid such data scraping.

Under the CDK-Reynolds agreements, CDK agreed to a five-year wind-down of two of its data-scraping subsidiaries during which time its subsidiaries were precluded from scraping data without permission from Reynolds.  In turn, Reynolds agreed to provide data access to these subsidiaries.  Moreover, the companies agreed that each of them could use its proprietary integration software to access the other’s data management system.  None of these agreements required either company to block third-party access to its own data system.

Authenticom sued to block those agreements, alleging that they were both anticompetitive and threatened the survival of its business of data scraping, which involved collecting data from the dealer-management systems in order to be sold or used for various apps.  Authenticom alleged that CDK’s switch to a closed-system coupled with its agreements with Reynolds prevented Authenticom from scraping data from the major data-management systems, causing the company to lose substantial business.  It sued under Section 1 of the Sherman Act, claiming that the agreements were per se unlawful because they eliminated competition in the data-integration market, which was allegedly corroborated by the fact that prices had substantially increased since the agreements took effect.

The district court granted Authtenticom an injunction ordering Reynolds and CDK not to block Authenticom from accessing their systems when authorized by dealers.  The court granted the injunction out a concern for preserving Authenticom as a functioning company during the pendency of the suit.  CDK and Reynolds appealed to the Seventh Circuit, which reversed that decision and struck down the injunction.

Making clear that they were not passing on the merits of the lawsuit, the Seventh Circuit, in a unanimous decision authored by Chief Judge Diane Woods, vacated the injunction on the ground that it did not constitute a “proper remedy” for a Section 1 violation premised on a horizontal agreement in restraint of trade.  Under such circumstances, the proper remedy is to set aside the offending agreement, the Court stressed.

Instead of merely ordering CDK and Authenticom not to implement their allegedly anticompetitive agreements, however, the district court had issued a preliminary injunction that essentially forced CDK and Reynolds to do business with Authenticom on terms to which they had never agreed.  The Court of Appeals held that such an injunction was inconsistent with Supreme Court decisions that have established that a remedy imposing a duty to deal is only proper within the limited exception recognized in Aspen Skiing v. Aspen Highlands Skiing, 472 U.S. 585 (1985), which involved monopolization claims under Section 2 of the Sherman Act.

In light of Authenticom’s representations about its need for a quick resolution of the litigation in order to survive, however, the Seventh Circuit urged the district court to do what it can to expedite its final judgment.

Edited by Gary J. Malone

Categories: Antitrust Litigation

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