Lucasys Inc. v. PowerPlan, Inc.
| Decision Date | 30 September 2021 |
| Docket Number | CIVIL ACTION NO. 1:20-cv-2987-AT |
| Parties | LUCASYS INC., Plaintiff, v. POWERPLAN, INC., Defendant. |
| Court | U.S. District Court — Northern District of Georgia |
Aaron R. Gott, Bona Law PC, Minneapolis, MN, Jarod M. Bona, Pro Hac Vice, Jon Cieslak, Pro Hac Vice, Luis Blanquez, Pro Hac Vice, Bona Law, PC, La Jolla, CA, Jason Alloy, Evan Clayton Dunn, Joseph Harris Saul, Joshua A. Mayes, Rachel Frazier Gage, Richard Lance Robbins, Robbins Ross Alloy Belinfante Littlefield, LLC, Atlanta, GA, for Plaintiff.
Damond R. Mace, Pro Hac Vice, Janine Cerny Little, Pro Hac Vice, Stephen M. Fazio, Pro Hac Vice, Steven A. Friedman, Pro Hac Vice, Squire Patton Boggs (US) LLP, Cleveland, OH, Petrina Ann McDaniel, Squire Patton Boggs (US) LLP, Atlanta, GA, for Defendant.
Amy Totenberg, United States District Judge The story alleged in this antitrust case is one of David and Goliath. Plaintiff Lucasys Inc. ("Lucasys"), an up-and-coming, eager-to-innovate competitor, alleges that Defendant PowerPlan, Inc. ("PowerPlan") violated antitrust laws when it used its monopoly power in a primary software market to harm potential competitors and competition in a secondary, dependent consulting market with the aim of precluding those competitors from entering the primary market and competing with PowerPlan. As alleged, when PowerPlan learns of competitors (like Lucasys) seeking to step out of the secondary market into the primary software one, it squashes that competition by inter alia reaching out to customers and leveraging its monopoly power to coerce customers to stop working with the competitor (such as Lucasys). According to Lucasys, these anticompetitive actions (1) ensure that no nascent competitor will ever be able to grow to compete with PowerPlan in the primary software market and (2) harm consumers in all markets by stifling innovation, depriving consumers of their choice of product or service provider, reducing the output of current or prospective technology and software products, and increasing prices.
Defendant PowerPlan moves to dismiss Lucasys’ antitrust claims and tortious interference claims under state law. [Doc. 18.] Because the Complaint's allegations are sufficient at this stage to support the asserted antitrust violations and state law tortious interference claims, PowerPlan's Motion is DENIED .
Defendant PowerPlan is the leading provider of utility management software for investor-owned rate-regulated utilities around the country. (Compl. ¶ 6.) Plaintiff Lucasys is a small start-up tax consulting and software development company that provides data consulting and deferred tax solutions to rate-regulated utilities. (Id. ¶ 5.)
In 1994, PowerPlan developed software specially built for the industry of rate-regulated utilities that allows utilities to store, access, analyze, and compute their data in connection with industry-specific operational, accounting, regulatory, and tax needs. (Id. ¶¶ 7, 11.) PowerPlan's software is a single centralized database with different "modules" and "suites" that perform different functions, for example, related to computing income tax or property tax, or assisting with lease accounting or "rate case management." (Id. ¶¶ 9, 10.) The software is industry-specific in that much of these functions revolve around certain fixed assets unique to the industry of rate-regulated utilities. (Id. ¶ 7.)
After PowerPlan created this software in 1994, utility after utility bought in. By the late 2000s, PowerPlan had acquired its only competitor and was thus the only company offering a full suite of utility management software. (Id. ¶ 11.) Today, 99 percent of utilities use PowerPlan's software—indeed, large utilities must use PowerPlan's software because of the scale and complexity of their data. (Id. ¶ 12.)
According to the Complaint, PowerPlan, sitting atop this throne of monopoly power in the Utility Management Software Market ("Utility Software Market"), stopped innovating or updating its software to meet customers’ needs. (Id. ¶ 13.) One alleged significant problem with PowerPlan's software is that it is built on an outdated coding language. (Id. ¶ 14.) For this reason, the customer utilities’ data, housed in the PowerPlan software, cannot simply be exported to make calculations elsewhere. (Id. ¶ 23.) And because there are no alternative products, customers are forced to continue to purchase the PowerPlan software. (Id. ) Moreover, the Utility Software Market has high barriers to entry in that it would require both significant capital and ongoing access to consumer data (which is housed in PowerPlan's software). (Id. ¶¶ 106, 69.) Customers also face extremely high switching costs because their data is locked into PowerPlan software and any change would involve significant implementation costs, disruptions/risks to business and accounting processes, employee retraining, audit concerns, and regulatory concerns and risks. (Id. ¶ 70.)
Over time, utility customers discovered that PowerPlan's software was not able to meet their needs and therefore began hiring consultants to fill the gaps by writing custom code extensions, providing data-consulting services, integrating their PowerPlan data with other applications to accomplish tasks the PowerPlan software could not, and other band-aid solutions. (Id. ¶ 15.) By the early 2010s, a market for these supplemental services existed; now, utilities typically pay hundreds of thousands or even millions of dollars every 3-5 years for these supplemental services. (Id. ¶¶ 16-17.) Currently, there are about ten companies competing in this Supplemental Management Service Market ("Supplemental Market"), including Lucasys and PowerPlan. (Id. ¶ 79.) As alleged, PowerPlan is largely content with the status quo of the Supplemental Market, even though it lacks a monopoly in this market, because (1) PowerPlan takes in additional revenue by providing services in this secondary market and (2) the availability of this market reduces pressure to invest substantial money into updating its obsolete utility management software. (Id. ¶ 18.)
Lucasys also alleges, in addition or in the alternative, a third "separate or sub-market" specifically related to "deferred tax solutions" for utilities (the "Deferred Tax Market"). (Id. ¶ 81.) Lucasys alleges that this is a market for consulting services and technology solutions to assist utility customers with cleansing and remediating their data to allow them to calculate tax positions associated with changes in the tax code at scale. (Id. ) Only three firms compete in this sub-market—Lucasys, PowerPlan, and a firm called Regulated Capital Consultants. (Id. ¶ 82.) This market/sub-market arose after the passage of a 2017 tax law that reduced the tax rate for utilities. (Id. ¶ 21.) Because rate-regulated utilities must share beneficial tax changes with the public ratepayers based on complicated state and federal regulations, often varying by jurisdiction, each utility requires services to evaluate its data in light of the tax changes and the relevant regulatory requirements to determine rates. (Id. ¶¶ 22-23.)
Lucasys was founded in 2018 by three former PowerPlan employees — who left PowerPlan in 2013, 2014, and 2015 and worked elsewhere before founding Lucasys. (Id. ¶ 28.) The founders’ goal in establishing Lucasys was to provide services and software related to deferred tax as well as long-term software and technology to replace consulting services. (Id. ) Currently, Lucasys provides both consulting services and technological solutions, and expects to develop Software-As-A-Service ("SAAS") tools to automate certain processes and reduce the need for manual data assessment in both the Supplemental Services Market and the Deferred Tax Market. (Id. ¶ 29.) So far, Lucasys has created three technological products: (1) a cloud-based software for tax computations; (2) a business automation tool to automatically transmit data between sources; and (3) a toolkit with several applications for calculations and data-related tasks. (Id. ¶ 30.) Lucasys plans to build on these technological innovations to compete more broadly with PowerPlan in the Utility Software Market and ultimately provide an alternative full-suite product. (Id. ¶ 31.)
As alleged, after learning that Lucasys was not only offering consulting services but also software and technological products, PowerPlan sought to eliminate the threat posed by Lucasys’ technological innovation. PowerPlan learned about Lucasys when both companies were bidding on a contract with American Electric Power Service Corporation ("AEP"). AEP offered a contract for a company to build a full software suite around taxes—one that would have replaced or expanded upon PowerPlan's existing tax suites. (Id. ¶ 35, 53.) When PowerPlan discovered that AEP had awarded the contract to Lucasys, it sought to intimidate both Lucasys and AEP with threatened legal action related to trade secret violations. (Id. ¶ 38-42.)
First, PowerPlan sent a demand letter to Lucasys claiming that Lucasys had misappropriated unspecified trade secrets. (Id. ¶ 38.) PowerPlan also demanded that Lucasys not only cease-and-desist efforts to design, develop, market, and sell software but also cease-and-desist consulting for all PowerPlan customers unless it stopped creating new software. (Id. ¶ 41.) Lucasys alleges that these claims were made in bad faith and solely as an attempt to block Lucasys from offering or providing services to utility customers because Lucasys, in developing technological and software tools, is a competitive threat to PowerPlan's monopoly. (Id. ¶ 40.) Providing a carrot to accompany the stick, PowerPlan also proposed to Lucasys an allegedly unlawful market-allocation agreement under which PowerPlan would "be open" to Lucasys competing with it for consulting services as long as it discontinued its...
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