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From Antitrust Law Daily, December 10, 2015

Claims that auto finance company engaged in fraud on PTO, sham litigation inadequate

By Jeffrey May, J.D.

Monopoly claims against auto finance company Credit Acceptance Corporation (CAC) for allegedly enforcing a business method patent obtained by fraud on the U.S. Patent and Trademark Office (PTO) in order to harm competitors in the market for sub-prime auto loans have been dismissed by the federal district court in Los Angeles. Competitors Westlake Financial Services and Nowcom Corporation failed to adequately allege that CAC possessed sufficient market power in a properly-defined, relevant market and that CAC engaged in exclusionary conduct to support their Sherman Act, Section 2 claims. The court, however, granted the plaintiffs leave to amend their complaint (Westlake Services, LLC v. Credit Acceptance Corp., December 7, 2015, Otero, S.).

Relevant market, monopoly power. The court rejected the plaintiffs’ two proposed markets: (1) a U.S. market for e-commerce software that facilitates subprime auto loans; or (2) a U.S. market for e-commerce software that facilitates all auto loans. The complaint contained no allegations regarding whether the software products in the market were reasonably interchangeable or whether there was cross-elasticity of demand for these software products, the court noted. Moreover, both market definitions by their terms included products that could not plausibly be considered substitutes for the products offered or sold by the plaintiffs, including software used to compare auto finance packages or direct users to sources of automobile financing, according to the court. The plaintiffs’ allegation that the markets were limited to the United States also was insufficient. Having failed to adequately allege a relevant market, the plaintiffs failed to allege sufficient facts to support an inference that CAC had market power in either of the two proposed markets.

Exclusionary conduct. The plaintiffs contended that CAC engaged in Walker Process fraud by withholding material information from the patent examiner during prosecution of the patent application. However, they did not support their claim that CAC failed to disclose material prior art to the PTO during prosecution of the patent, including third-party public use of a computing software product by ZoomLot, a company which was acquired by CAC’s competitor National Auto Credit Inc., the court noted. Further, Walker Process fraud claims based on failure to disclose information about sales of the CAC invention prior to the filing date of the application leading to the patent failed. The court pointed out that the plaintiffs failed to make a showing of “specific intent to deceive the PTO.” The plaintiffs also failed to demonstrate that the underlying patent litigation was objectively baseless to support a “sham” litigation claim.

California Unfair Competition Law claim. The court also dismissed the plaintiffs’ California Unfair Competition Law (UCL) claim. The parties agreed that the claims based on the “unlawful” and “unfair” prongs rose and fell with the Sherman Act, Section 2 claims. With respect to the UCL claim based on a fraudulent business practice, the plaintiffs’ conclusory allegations of misrepresentations and omissions were not adequately pleaded, in the court’s view.

The case is No. 2:15-cv-07490-SJO-MRW.

Attorneys: John D. Van Loben Sels (Fish and Tsang LLP) for Westlake Services LLC and Nowcom Corp. Steven Sunshine, P. Anthony Sammi, Julia York, James Pak, Kevin Minnick, and Kristin Voorhees (Skadden Arps Slate Meagher and Flom LLP) for Credit Acceptance Corp.

Companies: Westlake Services LLC; Nowcom Corp.; Credit Acceptance Corp.

MainStory: TopStory Antitrust StateUnfairTradePractices CaliforniaNews

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