Posted by Reuters
By Alison Frankel
On Monday, the 7th US Circuit Court of Appeals vacated a preliminary injunction that required competing car dealership software management companies to allow a data scraper to access information from consenting customers. The data scraper, Authenticom, had accused the dealership management companies of conspiring in violation of the Sherman Act to block Authenticom from obtaining information dealerships want to provide.
The 7th Circuit opinion, written by Chief Judge Diane Wood for a panel that also included Judges Frank Easterbrook and Ilana Rovner, didn’t reach a conclusion about the merits of Authenticom’s allegations against the dealership management companies, Reynolds and Reynolds and CDK Global. The judges dissolved the injunction issued by US District Judge James Peterson of Madison, Wisconsin, because they found it forced Reynolds and CDK to do business with Authenticom on terms they never agreed to.
But the facts of the Authenticom case raise some of the same tough questions we recently saw in the data scraper hiQ’s case against LinkedIn: In the age of Big Data, who owns information? Should customers control access to their own data? Can information managers choke off other businesses without violating antitrust law? And can data scrapers obtain information from closed systems without breaking the Computer Fraud and Abuse Act?
Here’s the background in Authenticom, according to the 7th Circuit. Reynolds and CDK dominate the market for computerized auto dealer management systems, which track analytics on accounting, payroll, inventory, sales, parts, service, finance and insurance. Reynolds has always had a closed system, although some dealers nevertheless allowed access to it. CDK used to have an open system, allowing access by third parties, but decided a couple of years ago to close it. CDK said the change was primarily to secure its system against computer hackers and other unauthorized users.
CDK’s switch spelled disaster for Authenticom, which is in the business of scraping data from car dealership systems and selling it to app developers who specialize in products for the dealers. Since 2013, when Reynolds first implemented technology to block data scraping, Authenticom’s business is down about roughly 25 percent. As the 7th Circuit explained, “Without the ability to scrape data from the big data management systems, (Authenticom) was faced with the unattractive choice of going straight to the dealers and creating a new data base, or giving up the chance to serve the great majority of dealerships.”
Meanwhile, Authenticom alleged, CDK’s own data analytics subsidiaries were picking up business, thanks to a trio of 2015 agreements between CDK and Reynolds. CDK’s subsidiaries, like Authenticom, accessed data from CDK’s system to sell to app developers. As that system transitioned to a closed architecture, Reynolds agreed to permit the CDK subsidiaries to access its system in exchange for an agreement from CDK to help app companies begin using Reynolds’ in-house data analytics subsidiary. Reynolds and CDK also pledged not to help any other business gain access to one another’s systems.
Authenticom, represented by Kellogg Huber Hansen Todd Evans & Figel, claimed those 2015 agreements were a per se violation of the Sherman Act. It alleged that dealers wanted to provide Authenticom access to their data via the CDK and Reynolds systems but that CDK and Reynolds had conspired to block even invited outsiders from logging in. The data scraper asserted that after the 2015 agreements that cut off access for third parties, CDK and Reynolds jacked up their prices for data analytic services. The 7th Circuit quoted testimony from one app developer who said he used to pay Authenticom about $35 a month instead of buying a similar service from Reynolds for $247. Reynolds now charges nearly $900 a month, the app developer said. CDK, according to the 7th Circuit, hiked its monthly data analytics price from $160 to $735 after the 2015 agreements with Reynolds.
Judge Peterson granted Authenticom a preliminary injunction last summer, ordering Reynolds and CDK not to block Authenticom from accessing their systems by using credentials supplied by dealers. (The order covered only dealers who were Authenticom customers as of May 2017, when Authenticom launched its antitrust case.)
On appeal, Reynolds’ lawyers at Paul Hastings argued (among other things) that Authenticom’s use of dealers’ credentials was a violation of the Computer Fraud and Abuse Act. As you probably recall, that 1986 law targeted computer hackers but has been interpreted in 9th Circuit to prohibit unauthorized third parties from using log in credentials from authorized users, even with their consent. Authenticom’s use of dealer credentials to access Reynolds’ system was “a textbook violation” of the law, Reynolds said.
CDK, represented by Mayer Brown, argued that Authenticom’s antitrust claims don’t hold up because antitrust law does not oblige CDK and Reynolds to help a competitor. Judge Peterson’s contrary reasoning, CDK said, was a public interest disaster that “would require all manner of companies with proprietary, secure computer systems – from banks to e-commerce businesses – to open those systems to parasitic data aggregators of all kinds.”
The 7th Circuit skirted the policy questions. As I mentioned, the court said that the proper remedy for a violation of the Sherman Act would have been to set aside the 2015 agreements between CDK and Reynolds but Judge Peterson’s injunction went beyond restoring the pre-agreement status quo. By ordering CDK and Reynolds “to enter into an entirely new arrangement with Authenticom,” the appeals court said, the injunction was inconsistent with the U.S. Supreme Court’s 2004 ruling in Verizon v. Law Offices of Curtis V. Trinko (540 U.S. 398), which held that even monopolists don’t have to help competitors.
As a practical matter, the 7th Circuit decision doesn’t have much impact. Judge Peterson had already stayed the injunction from taking effect so Authenticom won’t be any worse off now than it already is. But the appeals court did urge the trial judge to act quickly to reach a decision on the merits lest Authenticom be forced to close up shop before the case is resolved. That means Judge Peterson will have to grapple with the merits issues of who controls access to the dealers’ data.
There’s relatively little precedent on these Big Data questions so whatever the judge decides will be noteworthy.
I emailed lawyers for Authenticom, Reynolds and CDK. CDK sent an email statement: “We strongly believe that our policy of not allowing unauthorized intermediaries onto our systems is the best way to preserve the integrity of those systems and the security of our customers’ data,” it said. “We are not aware of any case in which a court has mandated unfettered access to the data and systems operated by another company. We remain committed to protecting our property rights and those of third parties with data on our systems.” Authenticom counsel Aaron Panner of Kellogg Huber and Reynolds lawyer Stephen Kinnaird of Paul Hastings didn’t get back to me.