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From Antitrust Law Daily, June 11, 2018

Claims challenging Carfax agreements rejected

By Nicole D. Prysby, J.D.

Because used car dealers failed to provide sufficient evidence of the theory underlying their antitrust claims against Carfax—that Carfax substantially foreclosed competition in the Vehicle History Report (VHR) market through its exclusive arrangements—summary judgment granted for Carfax was affirmed by the U.S. Court of Appeals in New York City. The dealers had alleged that Carfax’s exclusive dealing arrangements with websites and manufacturers’ Certified Pre-Owned Programs (CPOs) violated Sections 1 and 2 of the Sherman Act. But the district court found that the dealers failed to show that the agreements foreclosed a sufficient portion of the market. The Second Circuit agreed, rejecting all of the dealers’ challenges to the decision. The court found that Carfax was not required to prove that the market was not foreclosed, and that errors in the report of the dealers’ expert witness meant that no reasonable jury could adopt the report’s conclusion that Carfax’s exclusive dealing agreements foreclosed a sufficient portion of the VHR market. The dealers also failed to demonstrate costs inherent in entering the VHR market and failed to show that prices in the market were higher as a whole (Maxon Hyundai Mazda v. Carfax, Inc., June 1, 2018, per curiam).

Background. Used car dealers brought an antitrust action against VHR provider Carfax, arguing that its exclusive dealing agreements with used car listing websites Autotrader and Cars.com, as well as with car manufacturers in connection with the manufacturers’ CPO programs violated Sections 1 and 2 of the Sherman Act. Carfax moved for summary judgment on the issue of whether its exclusive dealing agreements foreclosed competition in the sale of VHRs in violation of the Sherman Act. The district court found that they did not, because the used car dealers failed to show that the agreements foreclosed a sufficient portion of the market. Although the agreements created exclusivity, because the agreements were short term and did not prohibit dealers from buying another VHR for the same vehicle, the court found that they did not foreclose competition. Therefore, the district court granted summary judgment for Carfax. The dealers appealed.

Summary judgment affirmed. The dealers argued that the district court failed to hold Carfax to its burden on summary judgment, because Carfax did not produce evidence showing that the market was not foreclosed. The court rejected this argument, as Carfax was not required to prove a negative, it only needed to show that the dealers failed to provide evidence as to market foreclosure.

The dealers challenged the district court’s conclusion that errors in the report of the dealers’ expert witness would preclude a reasonable jury from adopting the report’s conclusion that Carfax’s exclusive dealing agreements foreclosed a sufficient portion of the VHR market. The court affirmed the district court’s conclusion that the expert erroneously omitted part of the relevant market from the analysis. The parties had stipulated the relevant market and the expert’s analysis omitted part of the agreed-upon market. The district court also correctly faulted the expert’s report for including non-exclusive CPO agreements in his analysis and failing to include non-dealer sales data for 2008-2011. For the same reasons, the court found that the district court had correctly concluded that no reasonable jury could adopt the expert’s conclusions regarding submarkets.

The court also rejected the dealers’ argument that the district court incorrectly determined that the competitive characteristics of the VHR market do not support a substantial foreclosure finding. Although the dealers pointed to costs incurred by Carfax and its primary competitor, it did not provide evidence as to whether such costs are necessarily incurred when entering the market. They also failed to show that prices were higher in the market as a whole; their evidence only demonstrated that prices increased for VHRs sold by Carfax to franchise dealers in 2010-2012. And the district court’s statement that even the website agreements were "no longer than three to five years" showed the court’s conclusion that the agreements were not particularly long-term, which was a key factor in its conclusion that the agreements did not foreclose competition.

Finally, the dealers argued that their Sherman Act Section 2 claim should go forward because they provided sufficient evidence of monopolization. Again, the court rejected that argument, finding that the dealers failed to provide sufficient evidence of the theory underlying all of their claims—that Carfax substantially foreclosed competition in the VHR market through its exclusive arrangements.

The case is No. 16-3717.

Attorneys: Joseph R. Saveri (Joseph Saveri Law Firm, Inc.) and Eric L. Cramer (Berger & Montague, PC) for Maxon Hyundai Mazda, Nylsi Inc. and Tarrytown Honda. James L. Cooper (Arnold & Porter LLP) for Carfax, Inc.

Companies: Maxon Hyundai Mazda; Nylsi Inc.; Maxon Hyundai Mazda; Carfax, Inc.

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