The Ruling Sets Out Important Guidelines for Data Aggregators and Their Affiliates
On July 22, 2024, Judge Rebecca R. Pallmeyer of the Northern District of Illinois issued a Memorandum Opinion and Order (“Opinion”), ultimately ruling to certify a class of vendors that provide back-end software to many of the nation’s auto dealers. While the case is academically important for antitrust practitioners, it also serves as an important reminder of the antitrust risk faced by companies that aggregate data and compete to provide exclusive services to retailers by limiting access to that data.
Summary of the Litigation
Defendants CDK Global, LLC (“CDK”) and The Reynolds and Reynolds Company (“Reynolds”) are leading providers of automotive software that serve as the back-end software for managing operations at car dealerships. These systems are known as “dealer management systems” (“DMS”). The Plaintiffs—a class made up of hundreds of automotive software application vendors—allege that CDK conspired with Reynolds to violate antitrust laws by restricting their access to CDK and Reynolds’ data systems. The class is represented by Plaintiff Loop, LLC (“AutoLoop”), an application vendor.
Vendors like AutoLoop compete to sell dealers various applications (“apps”) to assist dealers in a host of tasks such as inventory management, customer relationship management, warranty services, repair orders, and electronic vehicle registration and titling. Like the vendor class, CDK and Reynolds also sell apps to dealers, but they have a unique advantage in that they have access to dealer data through the provision of data integration services (“DIS”) to dealers. DIS vendors take raw dealer data (customer data) and convert it so that it can be commercially usable. In addition to DIS data, CDK and Reynolds sold dealer raw data through its affiliates.
AutoLoop alleges that in the past, access to dealer data was open, but beginning in 2006, Reynolds began preventing independent vendors from accessing its data. The class alleges that at the time, CDK kept their dealers’ data open so there was competition between Reynolds and CDK. However, the class alleges that starting in 2013, CDK stopped marketing its DMS as open. The class alleges that this change was the result of an oral agreement between senior executives at CDK and Reynolds to push out independent DIS providers. The class alleges the coconspirators hid their agreement through a coordinated message on “data security” that effectively blocked independent DIS providers from accessing customer data.
As a result, dozens of auto dealers, vendors and independent data integrators sued CDK1 and Reynolds under the Sherman Act and various state antitrust laws and consumer protection laws. On Feb. 1, 2018, these cases were consolidated into a multidistrict litigation (“MDL”). The presiding judge ruled in 2023 in a Daubert opinion that AutoLoop’s expert on class certification was admissible. And in a comprehensive opinion issued on June 29, 2023, the court issued various summary judgment rulings finding that the Section 1 claim and its parallel state law claims survived summary judgment and would be subject to a rule-of-reason analysis at trial.
Class Certification
Following the MDL’s rulings on summary judgment and experts, on July 22, 2024, the court ruled on AutoLoop’s motion for class certification. The court ultimately certified a “Vendor Class,” defined as:
“All automotive software vendors (i.e. persons or entities engaged in the sale of software solutions to automotive dealerships) located in the United States that, at any time since October 1, 2013, have purchased data integration services from CDK or Reynolds.”
Notably, the definition excludes all automotive software vendors that first purchased data integration services from CDK after June 5, 2018. (Opinion, 5).
The court’s order addressed two specific questions: first, it ruled on the admissibility of AutoLoop’s expert, Dr. Mark Israel, which was already largely litigated in the MDL proceeding.
In the proceeding before Judge Pallmeyer, CDK challenged the admissibility of Dr. Israel’s report on class certification issues on more narrow grounds, raising four technical arguments concerning the reliability of Dr. Israel’s regression analyses. CDK relied on their own expert, Dr. Laila Haider, an economist at Charles River Associates. Ultimately, the court found CDK’s arguments unpersuasive. (Opinion 9). Notably, practitioners will find the court’s analysis on the treatment of the interaction between proof of a monopoly and proof of an antitrust injury to be significant. The court noted that while there is not always an antitrust injury that flows from a monopoly, in this case, the evidence of an injury from the allegedly monopolistic conduct was clear:
“Dr. Israel explains that in other monopolization cases there may be debate as to whether buyers in the relevant market retain sufficient alternative options to avoid harm, ‘[b]ut based on the evidence in the present case, I see no room for debate on this question: The options for independent automated DIS services were eliminated, leaving a monopoly in each DIS market’ that resulted in an increase in the price of CDK’s and Reynolds’s DIS, among other harms.” (Opinion, 11).
The court then turned to a ruling on class certification and whether in particular the common interests of the class outweigh individual questions in the case. The court focused on the evidence of common antitrust injury throughout the class, including: increased prices for DIS services at CDK and Reynolds; costs associated with forced switching to CDK and Reynolds and away from preferred DIS providers; the elimination of the option to switch away from CDK and Reynolds to a preferred DIS option; removal of the upward quality pressure on CDK’s and Reynolds’s DIS offerings that is generated by market competition; and the exclusion of outside options to use in negotiations with CDK and Reynolds. (Opinion, 24).
Perhaps most notable is a relatively untested theory of “forced switching,” where the class contends they suffered injury by being forced to use CDK for DIS services once Reynolds closed their DMS, and in turn, being forced to use yet another vendor once CDK closed its DMS. (Opinion, 25). This is different than a theory of injury based on a price increase or overcharge, and instead focuses on the loss of choice as a potential antitrust injury.
The court ultimately dodged the question of whether the class must prove an overcharge to establish an antitrust theory, or whether something more conceptual such as forced switching could be sufficient. The court noted:
“The debate between the parties about whether antitrust injury is confined to price overcharges or instead includes more abstract effects (decreases in quality or loss of choice) is largely academic because Dr. Israel provides economic evidence of class-wide price overcharges and quantifies this injury with his regression analyses.” (Opinion, 29).
Time will tell whether this theory in the future could serve as an independent basis for a class-wide antitrust injury.
Next Steps
The case will now proceed to the merits stage of litigation. The significance of the court’s ruling—particularly on the issue of “forced choice”—will be the focus of legal experts and practitioners in future cases and investigations.
The practical import is that when businesses contract to provide exclusive access to valuable customer data, those arrangements should be scrutinized under a legal lens that considers more than just data privacy, but also considers whether that agreement could serve as the basis of an antitrust conspiracy.
1 Since filing the lawsuit, CDK’s service model has changed significantly and perhaps mitigated some of its ongoing antitrust risk. First CDK launched Fortellis in 2019, which provides a centralized “app store” for dealers to purchase CDK and third-party apps as well as a more seamless framework for vendors to integrate with dealers’ DMS data.
CDK also launched a free service in September 2022 called “Data Your Way,” which allows dealers to export their own DMS data and share it with vendors directly without paying any DIS fees to CDK. (Opinion, 4).
This document is intended to provide you with general information regarding the Northern District of Illinois Ruling on Class Certification in a section 1 antitrust case. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.