Cox Auto., Inc. v. CDK Global, LLC (In re Dealer Mgmt. Sys. Antitrust Litig.)

• Decision Date: 25 January 2019
• Docket Number: Case No. 18-cv-864
• Citation: 360 F.Supp.3d 788
• Parties: IN RE DEALER MANAGEMENT SYSTEMS ANTITRUST LITIGATION, MDL 2817 This document relates to: Cox Automotive, Inc, et al. v. CDK Global, LLC, Case No. 18-cv-1058 (N.D. Ill.)
• Court: U.S. District Court — Northern District of Illinois

360 F.Supp.3d 788

IN RE DEALER MANAGEMENT SYSTEMS ANTITRUST LITIGATION, MDL 2817 This document relates to: Cox Automotive, Inc, et al. v. CDK Global, LLC, Case No. 18-cv-1058 (N.D. Ill.)

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 is Defendant CDK Global, LLC's motion to dismiss [71] the complaint filed by Plaintiffs (1) Cox Automotive, Inc., (2) Autotrader.com, Inc., (3) Dealer Dot Com, Inc., (4) Dealertrack, Inc., (5) HomeNet, Inc., (6) Kelley Blue Book Co., Inc., (7) vAuto, Inc., (8) VinSolutions, Inc., and (9) Xtime, Inc. For the reasons set forth below, the motion [71] is granted in part and denied in part.

I. Background¹

Plaintiff Cox Automotive, Inc. ("Cox Automotive"), along with its subsidiaries (collectively, "Plaintiffs"), bring this action to remedy and enjoin purported ongoing antitrust and state law violations by Defendant CDK Global, LLC ("CDK" or "Defendant"). [Compl., at ¶ 1.]² Plaintiffs are vendors that provide automotive software solutions, including well-known applications like AutoTrader, Dealer.com, and Kelley Blue Book. [Id. at ¶¶ 6-7.] The data that dealers generate in operating their businesses—such as sales, inventory, service, and customer information—is the lifeblood of these applications. [Id. at ¶ 8.] Dealers store this data on a database that is part of separate enterprise software known as a Dealer Management System ("DMS"). [Id. at ¶ 48.] Virtually every franchised new car dealership in the United States now uses a DMS. [Id. at 50.] While dealers generate much of their data outside of the DMS in separate software solutions, as a practical matter, a substantial portion of dealer data is stored on the DMS. [Id. ]

A. The DMS Market

Defendant CDK and third-party The Reynolds and Reynolds Company ("Reynolds") provide DMS software and services to automobile dealerships throughout the United States. [Id. at ¶ 41.] Defendant and Reynolds together control approximately 75 percent of the DMS market when measured by number of dealers and approximately 90 percent when measured by number of vehicles sold. [Id. at ¶ 10.] Defendant alone controls approximately 45 percent of the DMS market. [Id. ] Switching DMS providers presents significant logistical challenges and is highly disruptive to business operations. [Id. at ¶ 57.] It can take a dealership more than a year of preparation, staff training, and testing before a new DMS can be put into operation, all while the dealership is trying to sell and service cars. [Id. ] The financial costs in terms of training and implementation are significant. [Id. ] Defendant's own CEO publicly has recognized that dealers are hesitant to switch DMS providers because the process can take time and can be very difficult. [Id. at ¶ 58.]

B. The Dealer Data Integration Market

The dealer data integration market consists of services that provide access to dealer data on the DMS, including Defendant's and Reynolds's own in-house data integration services. [Id. at ¶ 65.] Data integrators may also provide value-enhancing services, such as putting data from different DMSs in a uniform format, performing data hygiene, and allowing granular control by dealers over which vendors receive which data. [Id. ] Before a data integrator accesses dealer data on a DMS, they enter into contracts with dealers authorizing them to access the dealers' data. [Id. at ¶ 66.]

Vendors of software applications like Plaintiffs rely on data integrators to provide them with access to dealer data. [Id. at ¶¶ 62-65.] There once was a competitive market for data integration services. [Id. at ¶ 79.] Independent data integrators like Authenticom, Inc. ("Authenticom") competed with the offerings provided by Defendant and Reynolds. [Id. ] Defendant welcomed that competition, stating: "We don't tell the dealer, if someone wants access to their data, they have to come to [CDK] to gain access to the data. It's ultimately the dealer's data." [Id. at ¶ 76.]

In competition with independent integrators, Defendant provides data integration services through its Third-Party Access ("3PA") program, and Reynolds does the same through its Reynolds Certified Interface ("RCI") program. [Id. at ¶¶ 80, 87.] Defendant itself owns two independent integrators—DMI and IntegraLink—that provide data integration services across DMS platforms, including at one time for Reynolds dealers. [Id. at ¶¶ 83, 86.]

Defendant's top executives have repeatedly made public statements that dealers may grant data integrators rights to access their DMS. [Id. at ¶ 75.] For example, "Steve Anenen, CDK's longtime CEO, publicly stated that dealers have the right to grant third parties access to, and use of, their data. He told the industry publication Automotive News, ‘We're not going to prohibit that or get in the way of that.’ " [Id. (citation omitted).] He further stated, "I don't know how you can ever make the opinion that the data is yours to govern and to preclude others from having access to it, when in fact it's really the data belonging to the dealer. As long as they grant permission, how would you ever go against that wish?" [Id. (citation omitted).] The complaint identifies similar statements made by other CDK executives. [See, e.g., id. at ¶ 76.]

Consistent with those statements, prior to 2015, Defendant publicly touted its "open" system as one of the competitive advantages of its DMS. [Id. at ¶ 96.] Defendant issued press releases stressing that it "believes in the fair competitive environment and does not use its leverage through supply of the dealer management system to reduce competition through the restriction of data access." [Id. ] By contrast, in 2009, Reynolds began selectively blocking third-party access to its DMS, and increased its blocking efforts in 2013. [Id. ] Despite its blocking efforts, Defendant continued to hostilely access Reynolds's DMS. Defendant was successful in marketing its "open" DMS as a competitive advantage over the Reynolds DMS. [Id. at ¶ 97.] As a result, Defendant very slowly gained market share from Reynolds. [Id. ] Reynolds's DMS market share declined from about 40 percent to 30 percent, with most dealers leaving Reynolds for Defendant. [Id. ]

C. Alleged Conspiracy

In 2015, Defendant "closed" its system, coming as a complete surprise to Plaintiffs and others in the industry. [Id. at ¶ 98.] Before 2015, Plaintiffs used 3PA, DMI, IntegraLink, Superior Integrated Solutions, Inc. ("SIS"), and other commercial data integrators to access data for dealers using Defendant's DMS. [Id. ] But after Defendant elected to close its system, Defendant made every effort to ensure that Plaintiff and other vendors could only integrate with dealer data through Defendant's 3PA program. [Id. ] Plaintiffs contend that Defendant's change to a "closed" DMS was the result of a horizontal agreement with Reynolds.

In early 2015, Defendant and Reynolds entered into three written agreements that are central to this lawsuit. One of these agreements is a "Data Exchange Agreement"—also referred to as a "wind-down" agreement—pursuant to which Defendant agreed to wind down its data integration business on the Reynolds DMS, with Reynolds promising not to block Defendant's access to the Reynolds system during the wind-down period. [Id. at ¶ 106.] During that period, Reynolds agreed that Defendant could continue to extract dealer data just as it had before, using login credentials provided by the dealer. [Id. ] As for other independent integrators, Defendant and Reynolds agreed that they would not assist any other party in accessing the other's DMS. [Id. ] Defendant and Reynolds also agreed that they themselves would no longer access data on each other's DMS. [Id. at ¶ 107.] Defendant also agreed to coordinate the transition of Defendant's clients that needed access to data on Reynolds's DMS to Reynolds. [Id. at ¶ 108.]

The other two written agreements between Defendant and Reynolds "granted reciprocal access" to each other's data integration products—via the 3PA and RCI programs, respectively. [Id. at ¶ 112.] Under the agreements, Defendant's proprietary products and services could integrate with data on Reynolds's DMSs via RCI, and vice versa. [Id. ] Reynolds received five free years of 3PA integration from Defendant, while Defendant had to pay for the data integration services from Reynolds. [Id. ] Moreover, by signing up for 3PA, Reynolds agreed that it would integrate with data on Defendant's DMSs exclusively through 3PA, and not obtain data for its products and services from anywhere else. [Id. ] Defendant agreed to the same in its integration contract with Reynolds for the RCI program. [Id. ]

In addition to the written agreements, senior CDK and Reynolds executives have admitted that they agreed to restrict access to dealer data and destroy data integrators like Authenticom, SIS, and others. [Id. at ¶ 113.] During a May 2015 phone conversation with Authenticom's founder and CEO Steve Cottrell, Reynolds's Vice President of Data Services Robert Schaefer said that Reynolds had "made agreements with the other major DMS providers"—there only is CDK—"to support each other's third-party access agreements and to block independent integrators such as Authenticom." [Id. ] Mr. Schaefer said that Authenticom should wind down its operations and leave the market. [Id. ] On April 3, 2016, at an industry convention in Las Vegas, Defendant's former Vice President of Product Management Dan McCray stated that Defendant and Reynolds had agreed to "[l]ock [Authenticom] and the other third parties out," and that they were "working collaboratively to remove all hostile integrators from our DMS system." [Id. at ¶ 114.]

Defendant's public position has been that it closed its DMS as part of a cybersecurity initiative. [Id. at ¶ 150.] Plaintiffs acknowledge Defendant's claimed "security" justification but argue...