Southern District Of New York Dismisses Competitor’s Sherman Act Claims Against Fintech Company For Lack Of Antitrust Standing
On March 31, 2021, Judge Mary Kay Vyskocil of the United States District Court for the Southern District of New York dismissed a ten-count complaint alleging that defendant financial technology companies, Advent Software Inc. and its parent company, SS&C Technologies Holdings Inc. (collectively “defendant”), violated, inter alia, Sections 1 and 2 of the Sherman Act by refusing to renew a software license with one of its competitors and engaging in so-called “exclusive dealing arrangements” that allegedly foreclosed the competitor from the marketplace. Arcesium, LLC v. Advent Software, Inc., 1:20-cv-04389 (MKV) (S.D.N.Y. Mar. 31, 2021). The Court found that plaintiff Arcesium LLC (“plaintiff”), a technology company that licensed defendant’s portfolio accounting software, but competed with them in providing related “post-trade solutions” (technology and services used to provide middle- and back-office support for investment funds and fund administrators), failed to adequately plead antitrust standing.
In March 2015, plaintiff and defendant entered into a five-year hosted reseller agreement (the “Reseller Agreement”), which granted plaintiff certain rights to sublicense defendant’s portfolio accounting software, known as Geneva, as well as certain rights to provide related services. In October 2019, defendant notified plaintiff that it was not planning to renew the Reseller Agreement and, following unsuccessful negotiations over revised terms, the Reseller Agreement expired on January 10, 2020. After further disputes arose over post-expiration issues, plaintiff brought suit, alleging that defendant wrongfully terminated the Reseller Agreement and prevented other customers of defendant from doing business with plaintiff as part of an anticompetitive scheme to exclude plaintiff from, and harm competition in, the alleged markets for portfolio accounting software and post-trade solutions for investment firms and funds administrators. Defendant moved to dismiss on a number of grounds. In dismissing the antitrust claims, the Court focused on the question of antitrust standing, concluding that plaintiff failed to demonstrate either of the two antitrust standing requirements: that plaintiff suffered an “antitrust injury,” or that plaintiff was an “efficient enforcer” of the antitrust laws.
On the issue of antitrust injury, the Court found that there were “no plausible allegations of market-wide harm, as opposed to harm only to the Plaintiff,” noting that the complaint did not allege facts showing actual price effects in either alleged market and that the predictions of future price increases were speculative and conclusory. The Court specifically rejected plaintiff’s claim that the alleged exclusion of its allegedly superior product showed market-wide harm, holding that “a plaintiff cannot simply plead that its products are superior; in order to have antitrust standing a plaintiff must plead facts that show how the quality of products in the market as a whole will decline because Defendants conduct.”
The Court then rejected plaintiff’s argument that defendant’s non-renewal and termination of the Reseller Agreement were anticompetitive, emphasizing that refusing to renew a license to copyrighted software is “precisely . . . the kind of business decision Defendants are permitted to make as owners of Geneva.” In so holding, the Court distinguished plaintiff’s allegations from those in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985), in which the Supreme Court recognized a “narrow exception” to the fundamental antitrust principle that there is no antitrust duty to deal with a competitor. The Court held that defendant’s conduct did not fall within this narrow exception because defendant engaged in renewal discussions with plaintiff and, more importantly, because the complaint established that, unlike Aspen Skiing, other firms competed in both the alleged portfolio accounting software and post-trade solutions markets. The Court similarly held that allegations that defendant engaged in “exclusive dealing arrangements,” which allegedly prohibited customers who used Geneva from working with plaintiff or using plaintiff to manage Geneva, did not establish antitrust injury because they did not “make Arcesium’s participation in the market impossible or otherwise lead to anticompetitive harm,” and did not establish substantial exclusion from the market.
The Court further concluded that antitrust standing was not satisfied for the related but distinct reason that plaintiff was not an “efficient enforcer” of the antitrust laws. Among other things, the Court found that Arcesium’s alleged injuries with regard to at least the exclusive dealing allegations were indirect, and that its damages were both (i) “highly speculative” because they would “necessarily turn on several assumptions about what third parties would have done if the circumstances were different,” and (ii) potentially duplicative.
Because the Court found that it could not ascertain whether an attempt to cure the defects in the complaint would necessarily be “futile,” it allowed plaintiff 30 days to file a motion for leave to amend and a proposed amended complaint.