Judges: Wood
Filed: Nov. 06, 2017
Latest Update: Mar. 03, 2020
Summary: In the United States Court of Appeals For the Seventh Circuit _ Nos. 17-2540 & 17-2541 AUTHENTICOM, INC., Plaintiff-Appellee, v. CDK GLOBAL, LLC, and REYNOLDS AND REYNOLDS CO., Defendants-Appellants. _ Appeals from the United States District Court for the Western District of Wisconsin. No. 17-cv-318-jdp — James D. Peterson, Chief Judge. _ ARGUED SEPTEMBER 19, 2017 — DECIDED NOVEMBER 6, 2017 _ Before WOOD, Chief Judge, and EASTERBROOK and ROVNER, Circuit Judges. WOOD, Chief Judge. The backdrop fo
Summary: In the United States Court of Appeals For the Seventh Circuit _ Nos. 17-2540 & 17-2541 AUTHENTICOM, INC., Plaintiff-Appellee, v. CDK GLOBAL, LLC, and REYNOLDS AND REYNOLDS CO., Defendants-Appellants. _ Appeals from the United States District Court for the Western District of Wisconsin. No. 17-cv-318-jdp — James D. Peterson, Chief Judge. _ ARGUED SEPTEMBER 19, 2017 — DECIDED NOVEMBER 6, 2017 _ Before WOOD, Chief Judge, and EASTERBROOK and ROVNER, Circuit Judges. WOOD, Chief Judge. The backdrop for..
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In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 17‐2540 & 17‐2541
AUTHENTICOM, INC.,
Plaintiff‐Appellee,
v.
CDK GLOBAL, LLC, and
REYNOLDS AND REYNOLDS CO.,
Defendants‐Appellants.
____________________
Appeals from the United States District Court for the
Western District of Wisconsin.
No. 17‐cv‐318‐jdp — James D. Peterson, Chief Judge.
____________________
ARGUED SEPTEMBER 19, 2017 — DECIDED NOVEMBER 6, 2017
____________________
Before WOOD, Chief Judge, and EASTERBROOK and ROVNER,
Circuit Judges.
WOOD, Chief Judge. The backdrop for this appeal is the
world of automotive dealerships. But we are not concerned
with the cars themselves. Instead, the controversy before us
has to do with the management of the data those dealerships
need in order to run an efficient business. In an effort to keep
2 Nos. 17‐2540 & 17‐2541
track of such vital business matters as accounting, payroll, in‐
ventory, sales, parts, service, finance, and insurance, the deal‐
erships use computerized dealer‐management systems. The
dealers in our case did not write their own software or create
their own hardware, however. Instead, some licensed a
dealer‐management system from CDK Global LLC, and oth‐
ers licensed a system from Reynolds and Reynolds Company.
Some dealer‐management systems use open architecture,
under which third parties have some access to dealer‐origi‐
nated data that has been plugged into the system. Others use
closed architecture, under which that type of data scraping is
forbidden under the license. The present litigation arose when
CDK decided to change from an open system to a closed sys‐
tem, and CDK and its competitor Reynolds entered into
agreements designed to ease the transition. Authenticom, a
company that had been in the business of collecting data from
the dealer‐management systems and selling or using it for
various applications (“apps”), sued under section 1 of the
Sherman Act, 15 U.S.C. § 1, claiming that those agreements
violated the Act. Because Authenticom’s loss of access to the
data was imperiling its survival as a company, it asked for and
received a preliminary injunction from the district court in
support of its suit.
CDK and Reynolds took an interlocutory appeal from the
grant of the preliminary injunction, as is their right. See 28
U.S.C. § 1292(a)(1). We heard oral argument, and we now con‐
clude that the injunction must be set aside. It goes well be‐
yond the scope of the alleged violation, and in so doing fails
to adhere to the lessons of Verizon Communications Inc. v. Law
Offices of Curtis V. Trinko, 540 U.S. 398 (2004), and Pacific Bell
Telephone Co. v. Linkline Communications, Inc., 555 U.S. 438
Nos. 17‐2540 & 17‐2541 3
(2009). In light of Authenticom’s representations about its
need for a quick resolution of this matter, however, we urge
the district court to do what it can to expedite its final judg‐
ment.
I
Companies such as CDK and Reynolds that furnish
dealer‐management systems to automotive dealerships are in
the business of providing a service to their customers. So are
the companies that collect data for apps, or that design apps
using data either uploaded by the dealer to the systems or
generated by the systems. A glimpse at Authenticom’s web‐
site indicates that it is in the data collection business. See
http://www.authenticom.com/why.html (last visited Nov. 2,
2017). (It is unclear whether it also creates apps, but that detail
does not matter for present purposes.) Neither the integration
of data nor the development of apps competes with the sys‐
tems. Instead, the collection and integration of data creates an
intermediate downstream product; that data set can then be
organized and used as an input for apps, either developed by
outside vendors or by Authenticom itself. Functionally, a data
integrator such as Authenticom is no different from an inter‐
mediary in any industry, whether sheet steel, uncut fabrics, or
anything else. The fact that some of the dealer‐management
system providers are, or have been, vertically integrated such
that they also sell integrated data or produce apps does not
change the fundamental competitive analysis. That was one
of the main points in the Supreme Court’s Linkline decision,
which dealt with independent internet service providers that
competed with AT&T in the retail market, while at the same
time they leased transport service lines from AT&T.
4 Nos. 17‐2540 & 17‐2541
Authenticom has been around since 2002, when it was
founded by Steve Cottrell. It describes itself as a third‐party
data integrator, meaning that it collects data from dealerships,
organizes the data for various purposes, and sells this service
to third‐party app vendors, who use Authenticom’s integra‐
tion services to ensure that their apps are compatible with a
dealer’s management system. Critically, however, Authenti‐
com does not obtain its data directly from raw dealership rec‐
ords. Instead, it “scrapes” (or collects) data from the manage‐
ment system that the dealer uses. CDK and Reynolds are the
nation’s largest system providers, although their relative mar‐
ket shares have changed over time. Until 2015, the system fur‐
nished by CDK placed no restrictions on data harvesting by
third‐party integrators; Reynolds, in contrast, has always for‐
bidden that practice in its system licenses. (The record indi‐
cates that the restriction in the Reynolds licenses did not stop
Authenticom from persuading some Reynolds users to per‐
mit it to scrape data from them as well, in violation of their
agreements with Reynolds.) Apparently dealers liked the
open approach. At one point Reynolds had about 40% of the
market and CDK had less, but by the time the complaint in
this case was filed, their relative positions had flipped, with
CDK holding over 40% of the market and Reynolds around
30%. The remaining quarter of the market is occupied by one
significant fringe firm, DealerTrack (now owned by Cox Au‐
tomotive, with roughly 17% of the market), and numerous
other smaller players. Despite the apparent preference of the
dealers for the open model, CDK decided in 2015 to switch to
a closed system.
Both CDK and Reynolds provide some data‐integration
services in‐house (i.e. they are vertically integrated to some
degree). The CDK product is called 3PA, and the Reynolds
Nos. 17‐2540 & 17‐2541 5
product is RCI. During its period as an open system provider,
CDK also had two subsidiaries, Digital Motorworks and Inte‐
graLink, which operated in the same way as Authenticom. An
interested dealer would provide its log‐in credentials to the
integrator, which would then be able to pull data from the
dealer’s management system and provide it to an app vendor.
The app market is highly competitive, populated not only by
Reynolds and CDK, but also by such well‐known firms as
Carfax, AutoLoop, and Kelly Blue Book.
Until CDK switched to a closed system, Authenticom
seems to have been satisfied with its place in the market.
Reynolds had always used the closed model, meaning that it
blocked (or tried to block) third‐party access to data generated
by its system. CDK, on the other hand, did not prevent third‐
party integrators, including Authenticom, from accessing and
scraping data from its system, with dealer permission. The
reason CDK gave for changing its model from open to closed
in 2014 was the need to respond to a series of “well‐publicized
security breaches” that worried its cybersecurity team. It also
appears to have been motivated by a desire to squeeze more
value out of its internal integration program, 3PA. Either way,
after CDK made the switch to a closed system, DealerTrack
was left as the only major open dealer‐management system
provider.
CDK’s change to a closed system left its data‐integration
subsidiaries, Digital Motorworks and IntegraLink, in an awk‐
ward position, because they had been following the same
business model as Authenticom and had, it seems, scraped
data from dealers with the Reynolds system despite the pro‐
hibitions in the dealers’ license agreements. In order to wean
CDK’s subsidiaries from their dependence on the ability to
6 Nos. 17‐2540 & 17‐2541
scrape data, CDK and Reynolds entered into a series of writ‐
ten agreements. The first was the “Data Exchange Agree‐
ment,” in which CDK agreed to a five‐year wind‐down of the
two subsidiaries. During the wind‐down period, CDK agreed
that the subsidiaries would not scrape data from Reynolds us‐
ers without Reynolds’s permission. In turn, Reynolds agreed
that it would not block Digital Motorworks and IntegraLink
from obtaining access to its system during the wind‐down.
CDK also promised that it would help its subsidiaries’ clients
(that is, the third‐party app providers who used the subsidi‐
aries to collect data from the Reynolds system) to move away
from using Digital Motorworks and IntegraLink’s services,
over to Reynolds’s in‐house integrator, RCI. Finally, the Data
Exchange Agreement committed both Reynolds and CDK not
to help anyone else gain access to the other company’s data
management system without permission.
The other two agreements between CDK and Reynolds
were called the 3PA and RCI Agreements. In them, each com‐
pany promised to allow the other company’s proprietary in‐
tegration software to have access to its data management sys‐
tem. Thus, for instance, CDK’s 3PA software was entitled to
take data from the Reynolds system. The parties agreed that
neither would use any unauthorized or unsecured methods
of obtaining access to the other’s data management system.
Notably, nothing in any of the three agreements required ei‐
ther CDK or Reynolds to block third‐party access to its own
data management system.
In the wake of CDK’s switch to a closed system and its
three agreements with Reynolds, Authenticom’s business
took a dive. Without the ability to scrape data from the big
data management systems, it was faced with the unattractive
Nos. 17‐2540 & 17‐2541 7
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. The district court found that the measures to
block third‐party integrators Reynolds had adopted in 2013
caused Authenticom to lose roughly a quarter of its business.
The primary source of this injury appears to have been CDK’s
shift from an open system to a closed system, even though
some harm may also have been attributable to the 2015 agree‐
ments. Some customers left Authenticom for Digital Motor‐
works and IntegraLink, because they had access to both
CDK’s system (as subsidiaries) and Reynolds’s system (be‐
cause of the Data Exchange Agreement).
II
That is where matters stood when, in May 2017, Authenti‐
com sued Reynolds and CDK under the antitrust laws. It as‐
serted that the three 2015 agreements are per se unlawful un‐
der section 1 of the Sherman Act, because they eliminate com‐
petition in the data‐integration market. It characterizes the
2015 agreements as agreements not to compete in the data‐
integration market, and further alleges that these agreements
were designed to drive independent providers, such as Au‐
thenticom, from the market. It also attacks CDK and Reyn‐
olds’s alleged exclusive dealing provisions in their dealer li‐
censes, under which dealers are forbidden to provide their
log‐in credentials to anyone else.
There is evidence that prices have increased considerably
since the 2015 agreements took effect. Alan Andreu, a man‐
ager who works for the third‐party application vendor Do‐
minion Dealer Solutions, testified that in 2011 his company
purchased data integration from Authenticom and another
independent company for $30 to $35 per month, per dealer.
8 Nos. 17‐2540 & 17‐2541
At that time, Reynolds charged $247 for similar services, a fig‐
ure that has now risen to a whopping $893 in the aftermath of
its agreements with CDK. Another vendor, AutoLoop, had a
similar tale to tell: before the 2015 agreement, CDK was charg‐
ing it $160 per month, and now it charges $735 per month for
the identical service. App vendors pass along these bloated
fees to dealers, who are already paying large fees for their
data management system. Authenticom also represents that
it is hanging on by a thread, and that without relief it is likely
to be forced to shutter its business altogether. Such a move
would be harmful overall to the data‐integration market, it
claims.
III
The merits of this lawsuit have yet to be tried, and so noth‐
ing we say should be taken as presaging the eventual outcome
of the case. The only matter before us is the propriety of the
preliminary injunction that the district court issued—a step it
took out of concern for preserving Authenticom as a function‐
ing company until the suit can be resolved one way or the
other. We begin with a brief description of the injunction,
which the court explained in an order issued contemporane‐
ously with the preliminary injunctions against each defend‐
ant. See Authenticom, Inc. v. CDK Global, LLC, et al., No. 17‐cv‐
318‐jdp, 2017 WL 3206943 (W.D. Wis. July 28, 2017).
The injunctions (one per defendant) do not focus on the
2015 agreements that are the focal point of Authenticom’s
lawsuit. Instead, they address the measures that the court be‐
lieved were necessary to “extend a lifeline to Authenticom, to
maintain its viability until this case is finally decided on the
merits.” Id. at *1. The key provisions (simplified somewhat)
are as follows:
Nos. 17‐2540 & 17‐2541 9
Defendants must not prevent Authenticom
from using dealer log‐in credentials pro‐
vided by dealers who were using Authenti‐
com as of May 1, 2017.
Certain limitations on Authenticom’s access
to the defendants’ dealer management sys‐
tems must be observed (e.g., Authenticom
can access only the parts of the system that
the dealer itself may access).
Defendants must cease blocking Authenti‐
com’s access to the affected dealers.
CDK must issue an Authenticom‐specific
user name and password for each dealer au‐
thorizing it to provide services.
Similarly, Reynolds must configure Authen‐
ticom’s log‐in credentials for authorizing
dealers.
If a defendant detects a material security
breach that it has reason to believe is at‐
tributable to Authenticom’s access, it may
temporarily suspend that access.
Authenticom must provide security in the
amount of $1 million as bond for both de‐
fendants’ injunctions.
There is more, but this is enough to give the flavor of the in‐
junctions. The defendants argue both that no preliminary in‐
junction should have issued, and that in any event there is no
warrant for these injunctions.
10 Nos. 17‐2540 & 17‐2541
Perhaps the only common ground among the parties is the
legal standard that governs preliminary injunctions:
A plaintiff seeking a preliminary injunction
must establish that he is likely to succeed on the
merits, that he is likely to suffer irreparable
harm in the absence of preliminary relief, that
the balance of equities tips in his favor, and that
an injunction is in the public interest.
Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20
(2008). See also Whitaker v. Kenosha Unified Schl. Dist. No. 1 Bd.
of Educ., 858 F.3d 1034, 1044 (7th Cir. 2017) (citation omitted),
citing Turnell v. CentiMark Corp., 796 F.3d 656, 661–62 (7th Cir.
2015).
Harm cannot be considered irreparable if it can be fully
rectified in a final judgment. Whitaker, 858 F.3d at 1045. The
district court thought that business failure by Authenticom
would be irreparable, in this sense. But that is not clear: we do
not know, at this stage, whether insolvency would drive it to
reorganization or dissolution; we do not know if a treble dam‐
age award (to which a winning antitrust plaintiff is entitled,
see 15 U.S.C. § 15(a)) might be enough to resuscitate the com‐
pany; nor do we know whether Authenticom might be able to
survive with a combination of the dealers who are not licen‐
sees of CDK or Reynolds and those who prefer open systems
and thus abandon the defendants. (If licenses last five years,
it is likely that 20% of them come up for renewal each year. It
thus would not take too long for dealers who resent the closed
system, as some apparently do, to free themselves of CDK or
Reynolds and take their data management system business to
DealerTrack or one of the fringe firms.)
Nos. 17‐2540 & 17‐2541 11
We need not explore this question further. For present pur‐
poses, we may assume (generously to Authenticom) that it
can show the first three requirements for a preliminary in‐
junction: irreparable harm, inadequate remedy at law, and at
least some likelihood of success on the merits. That takes us
to the balancing issue: how does Authenticom’s harm from
the denial of a preliminary injunction compare to CDK’s and
Reynolds’s harm from the grant of an injunction?
We already have discussed Authenticom’s theory of harm.
But it does not stand in a vacuum; to the contrary, any injunc‐
tion, and especially this one, has costs for CDK and Reynolds.
Reynolds argued to the district court, and argues here, that it
has always had a closed system, and it has been willing to pay
a price in customer loyalty because it believes that the closed
system delivers a higher quality product to the dealers. That
is because it believes that it has better control of system secu‐
rity when it knows what data is going in, who can manipulate
that data, and what is coming back out. Extracting data from
the system involves at least some access to the data base (how
much is disputed, as is the extent to which the data scraped
by data integrators is limited to dealer information versus ad‐
ditional content added by Reynolds). Reynolds believes too
that it would be perverse to punish it under the antitrust laws
for doing exactly the same thing it always has done. It sees the
three 2015 agreements as benign, arguing that CDK’s promise
not to help a third party assist in the breach of Reynolds’s li‐
cense with its dealers is neutral from a competitive stand‐
point. Even monopolists are almost never required to assist
their competitors, see Trinko, 540 U.S. at 408, and neither
Reynolds nor CDK is a monopolist. See also Olympia Equip.
Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370 (7th Cir.
1986). Finally, to the extent that Authenticom asserts that
12 Nos. 17‐2540 & 17‐2541
Reynolds and CDK were engaged in a group boycott to force
it from the market, Reynolds argues that the facts do not fit
the theory. Reynolds was indifferent to Authenticom’s market
presence, save for its interest in preventing Authenticom from
seeking free, unauthorized access to its work product.
CDK makes many of the same points. Unlike Reynolds, it
does not have a history of exclusive use of closed systems. It
switched from open to closed in 2015. It asserts that it did so
with data security in mind. Essentially, however, its position
is that it had no duty to continue dealing with data integrators
such as Authenticom, that nothing in the 2015 agreements for‐
bade CDK itself from allowing access to its own data integra‐
tion system, and thus that the agreements cannot be seen as
anticompetitive.
This is not a complete summary of Reynolds and CDK’s
arguments, but it is enough to show that they have raised se‐
rious points. As we hinted earlier, however, the resolution of
this appeal does not depend on which side of the balance we
favor. (Indeed, given the fact that the district court enjoys con‐
siderable discretion in preliminary injunction proceedings,
simple disagreement with that court would not be enough to
justify a different result.) There is a more fundamental prob‐
lem with the injunction that requires us to set it aside. Authen‐
ticom’s case centers on agreements—actual and alleged—be‐
tween Reynolds and CDK. The actual agreements are the ones
signed in 2015; the alleged agreement is one described by Au‐
thenticom’s CEO, Cottrell, when he said that executives at
Reynolds and CDK confessed that they were determined to
block Authenticom from their systems.
The proper remedy for a section 1 violation based on an
agreement to restrain trade is to set the offending agreement
Nos. 17‐2540 & 17‐2541 13
aside. From the standpoint of preliminary injunctive relief,
that would mean ordering Reynolds and CDK not to imple‐
ment their 2015 agreements or any alleged agreement collec‐
tively to bar Authenticom from their data management sys‐
tems. Had the district court issued such an injunction, we
would have a different case. But it did not. Instead, it ordered
the defendants to enter into an entirely new arrangement with
Authenticom (granted, during the pendency of the litigation),
essentially forcing them to do business with Authenticom on
terms to which they did not agree. Such an order is incon‐
sistent with Trinko, which cautioned that an order to continue
to do business with a firm is proper only if the case fits
“within the limited exception recognized in Aspen Skiing [Co.
v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985)].” 540 U.S.
at 409. Aspen Skiing was a section 2 case, which already distin‐
guishes it from the present one. In a section 1 case, all that is
needed is to break up the allegedly troublesome agreement
and return the market, for the time being, to the status quo ante.
See In re Microsoft Corp. Antitrust Litig., 333 F.3d 517, 533 (4th
Cir. 2003) (reversing a mandatory injunction similar to the one
in this case on the ground that “relief under the antitrust laws
must flow from that conduct which is proscribed by the anti‐
trust laws”) (internal quotation marks omitted; emphasis in
original).
Authenticom also contends that Reynolds and CDK have
agreed to tie their data management systems to data integra‐
tion. We are dubious in the extreme that this amounts to tying,
rather than simply participation at two levels of the market,
as in Linkline. But perhaps there is more to the claim than
meets the eye on this record. Even if that were so, the proper
remedy would be to enjoin the tie, not to create a duty to deal.
14 Nos. 17‐2540 & 17‐2541
Authenticom has not argued that either Reynolds or CDK
has sufficient market power on its own to trigger either a mo‐
nopolization or an attempt‐to‐monopolize claim under sec‐
tion 2 of the Sherman Act, 15 U.S.C. § 2. And as we have noted,
even if it did, this case is a far cry from Aspen Skiing, which
represented the high‐water mark in section 2 cases for a duty‐
to‐deal theory. Trinko and Linkline leave no doubt that such a
theory cannot support relief.
IV
We appreciate the district court’s concern to ensure that a
potentially sound antitrust case should not disappear before
its eyes because the plaintiff runs a high risk of going out of
business while the litigation drags on. That does not, how‐
ever, justify a preliminary injunction that goes so far beyond
a measure that restores what the market would look like in
the absence of the alleged violation. After trial, the court will
be better able to assess the competitive significance of CDK
and Reynolds’s business models, of the 2015 agreements, and
of any other agreement Authenticom is able to prove. In the
meantime, however, the court must vacate the preliminary in‐
junction that it entered on July 28, 2017.
The preliminary injunction is VACATED and the case is
REMANDED to the district court for further proceedings con‐
sistent with this opinion.