Authenticom, Inc. v. CDK Global, Inc. (In re Dealer Mgmt. Sys. Antitrust Litig.)

• Decision Date: 25 January 2019
• Docket Number: Case No. 18-cv-864
• Citation: 362 F.Supp.3d 558
• Parties: IN RE DEALER MANAGEMENT SYSTEMS ANTITRUST LITIGATION, MDL 2817 This Document Relates to: Authenticom, Inc. v. CDK Global, Inc., et al., Case No. 18-cv-868
• Court: U.S. District Court — Northern District of Illinois

362 F.Supp.3d 558

IN RE DEALER MANAGEMENT SYSTEMS ANTITRUST LITIGATION, MDL 2817

This Document Relates to:

Authenticom, Inc. v. CDK Global, Inc., et al., Case No. 18-cv-868

Case No. 18-cv-864

United States District Court, N.D. Illinois, Eastern Division.

Signed January 25, 2019

MEMORANDUM OPINION AND ORDER

Robert M. Dow, Jr., United States District Judge

Before the Court are the motion to dismiss the counterclaims of Defendant/Counter-Plaintiff CDK Global, LLC [272] and the motion to dismiss the conversion counterclaim of Defendant/Counter-Plaintiff Reynolds and Reynolds Co. [277] filed by Plaintiff/Counter-Defendant Authenticom, Inc. For the reasons set forth below, the motion to dismiss the counterclaims of Defendant CDK Global, LLC [272] is granted in part and denied in part, and the motion to dismiss the conversion counterclaim of Defendant Reynolds and Reynolds Co. [277] is granted.

I. Background

A. Procedural History

Plaintiff/Counter-Defendant Authenticom, Inc. ("Authenticom") filed this lawsuit on May 1, 2017, in the Western District of Wisconsin. At that time, Authenticom filed an emergency motion for a preliminary injunction that sought to enjoin allegedly anticompetitive practices by Defendants CDK Global, LLC ("CDK") and Reynolds and Reynolds Co. ("Reynolds") that Authenticom contends improperly prevented it from accessing Defendants' respective dealer management systems ("DMS"). [Authenticom, Inc. v. CDK Global, LLC et al. , Case No. 18-cv-868 (N.D. Ill.), Dkt. 5.] After extensive briefing and a two-and-a-half-day hearing, the district court granted Authenticom's motion for a preliminary injunction and entered a preliminary injunction against each Defendant mandating that Defendants permit Authenticom to access their respective DMSs. See Authenticom, Inc. v. CDK Glob., LLC , 2017 WL 3017048 (W.D. Wis. July 14, 2017), vacated, 874 F.3d 1019 (7th Cir. 2017).

After Defendants appealed, the Seventh Circuit vacated the preliminary injunctions and remanded the case, finding that the district court improperly issued "preliminary injunction that [went] so far beyond a measure that [would restore] what the market would look like in the absence of the alleged violation." Authenticom, Inc. v. CDK Glob., LLC , 874 F.3d 1019, 1026 (7th Cir. 2017). Specifically, the Seventh Circuit held that the preliminary injunctions improperly forced Defendants to share their respective DMSs in violation of the fundamental antitrust principle that firms generally have no duty to deal with competitors. Id. at 1021 (citing Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko , 540 U.S. 398, 124 S.Ct. 872, 157 L.Ed.2d 823 (2004), Pacific Bell Tel. Co. v. Linkline Commc'ns, Inc. , 555 U.S. 438, 129 S.Ct. 1109, 172 L.Ed.2d 836 (2009) ). The Seventh Circuit reasoned that "[t]he proper remedy for a section 1 violation based on an agreement to restrain trade is to set the offending agreement aside," not to impose a duty to deal. Id. at 1026.

After the Seventh Circuit issued its opinion, the Judicial Panel on Multidistrict Litigation ("JPML") granted Defendants' motion for transfer and consolidation of this case and a number of other potential tag-along lawsuits filed against Defendants. [See 1.] The JPML chose the Northern District of Illinois as the transferee court and assigned the litigation to Judge St Eve. [Id. ] While the case was before Judge St. Eve, she issued a thorough opinion granting in part and denying in part Defendants' Rule 12(b)(6) motions to dismiss in this case. [See In re Dealer Mgmt. Sys. Antitrust Litig. , 313 F.Supp.3d 931 (N.D. Ill. 2018).] The case was reassigned to this Court on May 23, 2018. [181.]

Both CDK and Reynolds subsequently answered the complaint and filed numerous counterclaims against Authenticom. [225 (Reynolds); 229 (CDK).] Specifically, CDK and Reynolds brings counterclaims against Authenticom for damages, declaratory, injunctive, and other relief pursuant to the Computer Fraud and Abuse Act, the Digital Millennium Copyright Act, the Copyright Act, the Defend Trade Secrets Act, the Wisconsin Computer Crimes Act, the California Comprehensive Computer Data Access and Fraud Act, the Wisconsin Uniform Trade Secrets Act, and state common law, consumer protection, and related laws. Pending before the Court are Authenticom's Rule 12(b)(6) motions to dismiss [272; 277] certain of those counterclaims.

B. Factual Background¹

Given that this case already has been extensively litigated before multiple courts, the Court assumes some familiarity with the facts of this case. The Counterclaims brought by CDK and Reynolds focus on Authenticom's purported unauthorized access to their enterprise software and computing platforms for automotive dealerships and dealership groups known as Dealer Management Systems or, more commonly, DMSs. Both CDK and Reynolds allege that they have devoted substantial resources to developing, securing, and maintaining their respective DMSs. According to CDK and Reynolds, Authenticom's business model revolves around improperly gaining free access to their respective DMSs, extracting and exporting the data from those DMSs, often copying the data onto its own system, and then selling the data to third-parties (principally vendors that provide software applications to support the dealers operations). Authenticom is able to do this by using login credentials (allegedly through unsecured means) acquired from dealers.

Authenticom does not appear to dispute that Reynolds sufficiently has alleged that Authenticom lacked authorization to access its DMS. However, a central dispute raised in Authenticom's motion to dismiss the counterclaims of CDK is whether CDK sufficiently has alleged that Authenticom lacked authorization to access its DMS. CDK alleges that Authenticom "does not have CDK's permission or its authorization to access or use CDK's DMS, including on behalf of or for the purported benefit of dealers or vendors." [229, at ¶ 35.] CDK contends that its contracts with dealers and third parties make clear that its DMS has remained the sole and exclusive property of CDK. [Id. at ¶ 19.] Section 6(D) of CDK's standard DMS contract with dealers—known as the "Master Service Agreement" or "MSA"—states:

Client [i.e. , the dealer] shall treat as confidential and will not disclose or otherwise make available any of the CDK Products (including, without limitation, screen displays or user documentation) or any trade secrets, processes, proprietary data, information or documentation related thereto (collectively the "Confidential Information"), in any form, to any person other than employees and agentsof Client with a need-to-know."

[276, Ex. D (emphasis added).] The MSA also prohibits "ANY THIRD PARTY [sic] SOFTWARE TO ACCESS THE CDK DEALER MANAGEMENT SYSTEM EXCEPT AS OTHERWISE PERMITTED BY [THE] AGREEMENT." [229, at ¶ 71.]

CDK further alleges that "Authenticom became aware that CDK objected to its unauthorized access to the CDK DMS no later than June 2015, and in all likelihood, much earlier." [Id. at ¶ 82.] Supporting that assertion, CDK alleges that Authenticom has taken steps to circumvent CDK's security measures. [See, e.g., id. at ¶ 83.] For example, Authenticom representatives certified that they were "an authorized dealer employee" in order to access CDK's DMS. [Id. at ¶¶ 84-86.] Authenticom also implemented a software tool that automatically renewed user IDs that CDK had disabled. [Id. at ¶ 63.] Furthermore, Authenticom was able to modify its automated scripts to bypass a CAPTCHA ("Completely Automated Public Turing test to tell Computers and Humans Apart") control designed by CDK to stop Authenticom's automated access to its DMS. [Id. at ¶¶ 90-93.]

CDK also alleges that a CDK employee informed Authenticom's CEO Steve Cottrell "(a) that CDK's contracts with dealers prohibited them from providing DMS login credentials to third parties (including Authenticom) and (b) that CDK intended to prevent non-authorized access to its DMS, including Authenticom's unlawful user ID and password access." [Id. at ¶ 87.] "Mr. Cottrell responded to the effect that Authenticom refused to cease its unauthorized access or otherwise change its business practices." [Id. ]

Both CDK and Reynolds claim that Authenticom's purported unauthorized access to their respective DMSs has caused them harm. CDK alleges that Authenticom misappropriated protected "CDK-created forms, accounting rules, tax tables, and proprietary tools and data compilations." [Id. at ¶ 115.] The "trade secrets stored on the CDK DMS derive independent economic value from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, such as other DMS providers, application providers, or third-party data extractors like Authenticom." [Id. at ¶ 128.] CDK "makes efforts to maintain the secrecy of these trade secrets" and outlines such efforts in its counter-complaint. [Id. at ¶ 129.] Authenticom's unauthorized access adds "to the cost of computing services that CDK must provide" to each dealer. [Id. at ¶ 51.] Authenticom's data extraction methods burden "CDK's systems with poorly constructed, inefficient and repetitive queries that extract too much data, too frequently, and during peak dealer business hours." [Id. at ¶ 52.] "At times, for at least some dealers, Authenticom's constant querying can tie up more than 50% of the DMS's entire computing capacity." [Id. at ¶ 55.]

Likewise, Reynolds alleges that "the automated scripts that Authenticom uses ‘ping’ [its] DMS with computing requests at a rate of hundreds or thousands of times per day" and are dangerous to the DMS. [226, at ¶ 99.] "That speed and volume taxes the computational and network resources of the Reynolds DMS, resulting in degradation of service for dealers and increased operational costs to Reynolds." [Id. ] Reynolds further alleges that "[i]t has been expensive and burdensome * * * to respond to...