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From Antitrust Law Daily, October 18, 2013

Software company failed to state antitrust claims based on insurers’ required use of competing software

By Tobias J. Gillett, J.D., LL.M.

A producer of insurance industry estimating software failed to state Sherman Act conspiracy and monopolization claims based on the allegedly anticompetitive demand by insurers for the use of a competing software product marketed by a company ultimately owned by various insurance companies, the U.S. Court of Appeals in New York has ruled in a summary order (Vedder Software Group Ltd. v. Insurance Services Office, Inc., October 18, 2013, Per Curiam).

Vedder Software Group Ltd. alleged that the defendants’ ownership and required use of software that competed with Vedder’s Estimating Wizard insurance industry estimating software amounted to an antitrust violation. Xactware, Inc., wholly owned by Insurance Services Office, Inc., marketed the competing software, called Xactimate. Insurance Services Office was in turn wholly owned by Verisk Analytics, Inc., a publicly traded company owned in part by various insurance companies, including various Liberty Mutual entities.

Vedder asserted Sherman Act claims against Insurance Services Office, Xactware, and four Liberty Mutual corporate entities. The district court dismissed Vedder’s claims for failure to state a claim, and Vedder appealed.

The appellate court affirmed the district court’s decision. Vedder did not allege an express agreement among the defendant insurers, instead relying on their parallel conduct combined with the “plus factors” of (1) “the insurers’ ownership interests in Verisk,” and (2) “their alleged demands requiring the use of Xactimate.”

The court found that the facts alleged by Vedder did not state a Sherman Act Section 1 claim. Although Vedder alleged that several insurance companies that accounted for the “vast majority of insurance business in the United States” controlled Verisk, the complaint only identified Liberty Mutual as a member of the conspiracy. Moreover, the insurers’ control over Verisk was a legal conclusion that the court did not accept as true. The insurers’ “common stake in Verisk [was] not conclusive of a conspiracy,” according to the court.

Further, the insurers’ alleged demand for the use of Xactimate did not show the existence of an agreement because it did not “tend to exclude the possibility” that the insurer acted independently. Demanding the use of Xactimate would assure that an insurer and its vendors used compatible software, ensuring consistency in estimates and ease in sharing data. Although Vedder contended that the insurers’ demand “extended to work done for other insurers,” the complaint failed to make that allegation, and instead only alleged that the demand was made to “obtain or retain the business of the defendant insurers.”

Vedder also did not state a claim for monopolization under Section 2 of the Sherman Act, according to the court. Vedder’s claim only concerned the defendants’ alleged conspiracy, and the court had previously concluded that the complaint failed to adequately plead the existence of an agreement.

The case is No. 13-1267.

Attorneys: Daniel J. Centi (Feeney, Centi and Mackey) for Vedder Software Group Ltd. Joel M. Cohen (Davis Polk & Wardwell LLP) for Insurance Services Office, Inc. and Xactware, Inc. Kevin J. Fee (Kornstein Veisz Wexler & Pollard, LLP) for Liberty Mutual Holding Company Inc.

Companies: Vedder Software Group Ltd.; Insurance Services Office, Inc.; Xactware, Inc.; Liberty Mutual Holding Company Inc.

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