District Court Rejects Motion To Dismiss Antitrust Claims In Data Analytics Joint Venture
01/08/2019On December 12, 2018, Judge William H. Orrick of the United States District Court for the Northern District of California issued an order granting in part and denying in part defendants’ motion to dismiss on a variety of trade secret, antitrust, and copyright claims. Teradata Corporation, et al., v. SAP SE, et al., Case No. 3:18-cv-03670 (N.D. Cal. Dec. 12, 2018). The Court agreed with defendants that the trade secret claims required additional specificity, but found the remaining claims, including those based on copyright and antitrust grounds, to be sufficiently pled.
The case concerned a joint venture that was intended to allow defendants to combine its enterprise resource planning (ERP) application and reporting tools with plaintiffs’ leading data analytics product. As part of the joint venture, the parties jointly developed and marketed a solution known as the “Teradata Foundation.” However, plaintiffs alleged that, during the course of the joint venture, defendants developed a competing software solution. Two months after defendants publicly announced their new enterprise data product, they unilaterally terminated the joint venture agreement. Shortly afterwards, defendants released a product that provided the same type of product integration that the Teradata Foundation was created to achieve.
Plaintiffs’ first antitrust claim alleged that defendants had engaged in an illegal tying arrangement by requiring the purchase of the newly developed enterprise data analytics product along with their existing ERP software. In finding this claim was adequately pled, the Court made four principal rulings.
First, the Court rejected defendants’ argument that there was now only one integrated product rather than two distinct products that can be tied together. The Court accepted that plaintiffs had sufficiently alleged the existence of two separate products by pleading that those products had demand in separate markets, performed separate functions, and could be sold separately—and indeed had historically been sold this way. Defendants argued that they now offered an “integrated” and “improved” product, and, “[s]ince the product is an improvement, that [is] the end of the matter” from an antitrust perspective. But the Court doubted whether the defendants had supported their claim of “integration.” And, even if they had, the Court found that improvement through integration “is tolerated in the antitrust context ‘unless the monopolist abuses or leverages its monopoly power in some other way when introducing the product.’” Id. at 21 (quoting Allied Orthopedic Appliances Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991, 1000 (9th Cir. 2010)). The Court held that such abuse was adequately alleged here through allegations that defendants (1) intentionally made its integrated product incompatible with other competing products, (2) ceased supporting earlier versions of the non-integrated products, (3) employed restrictive language in its licensing agreements to inhibit competition, and (4) limited the ability of its users to extract data from the tied product to use with competing software. These allegations were sufficient to plead that defendants tied together the sale of two distinct products.
Second, the Court found that plaintiffs had sufficiently pleaded facts supporting coercion because customers were forced into buying the tied product because defendants had placed a sunset on existing ERP Applications and intended to stop supporting those applications by 2025. The Court found that this allegation, along with the high costs of ERP software, was sufficient to allege coercion.
Third, the Court held that plaintiffs had sufficiently asserted market power by alleging that SAP held a dominant position in the relevant market, had market shares between 60% and 90%, and had significant lock-in power because of high-switching costs.
Fourth, the Court declined to decide whether to apply the rule of reason or per se rule on a motion to dismiss, but held that sufficient allegations had been made to state a claim under the rule of reason.
Plaintiffs also asserted an attempted monopolization claim, which the Court allowed to proceed. The Court rejected arguments that plaintiffs had failed to plead a dangerous probability of monopolization—a necessary element of the claim. The Court concluded that its prior discussion of plaintiffs’ market power and dominant position in the market based on market shares and the ability to lock-in customers to its services was sufficient to state a claim of attempted monopolization.
Accordingly, the Court denied the motion to dismiss with regards to the antitrust and copyright claims, granted the motion to dismiss without prejudice as to the trade secret claims, and the case will proceed to discovery.CATEGORIES: Monopolization, Sherman Act § 2, Tying