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From Antitrust Law Daily, February 25, 2014

Software developer lacked antitrust standing, failed to state plausible monopolization claims

By John W. Arden, J.D., LL.M.

Monopolization and attempted monopolization counterclaims brought by a software developer being sued for copyright infringement were dismissed because the developer lacked antitrust standing and failed to state plausible claims for the antitrust allegations, according to the federal district court in San Juan, Puerto Rico (Computer Automation Systems, Inc. v. Intelutions, February 24, 2014, Gelpi, G.).

Computer Automation Systems licensed a software product to the Puerto Rico Department of Education on an annual basis from 2006 to 2012 to help the Department with federal reporting requirements for special needs students. In 2010, Intelutions entered into a service contract with the Department of Education to set up a data warehouse for the special education group. Intelutions learned that the Department of Education was dissatisfied with Computer Automation Systems’ software, the company’s lack of cooperation, and its occasional, unjustifiable shutdown of services.

Because of these problems, the Department of Education amended its service contract with Intelutions on August 29, 2011 to give the firm a larger role. The amended contract called for Intelutions to develop a customized software application facilitating access to the Individual Education Program, later called MiPE. It was intended to work in conjunction with Computer Automation Systems’ software. The programs were used simultaneously beginning in February 2012.

Contract renewal negotiations between the Department of Education and Computer Automation Systems broke down in October 2012. The Department subsequently informed Intelutions that MiPE would have to satisfy the functions of Computer Automation Systems’ software to continue to serve the special education reporting requirements of Puerto Rico.

Computer Automation Systems brought a copyright infringement action against Intelutions in Arkansas federal court. The action was dismissed for lack of in personam jurisdiction. The action was brought in the federal district court in San Juan, which denied Interlutions’ motion to dismiss. Intelutions brought counterclaims, charging that Computer Automation Systems attempted to eliminate competition “through illegal acts of monopolization,” and Computer Automation Systems moved to dismiss the counterclaims. The district court granted the motion to dismiss based on the lack of antitrust standing and the failure to state a plausible claim.

Antitrust Injury

A six-factor test governs whether a plaintiff has standing to bring an antitrust action. One of these factors is “antitrust standing,” that is, the nature of the plaintiff’s alleged injury and whether the injury is the type that Congress sought to redress with the antitrust laws. The absence of antitrust injury will generally defeat standing, and the plaintiff bears the burden of demonstrating that standing exists, the court noted. Plaintiffs must show that they were injured as a result of the defendant’s actions, those actions constituted an antitrust violation, and the violation caused injury to competition.

Failure to allege injury. With these principles in mind, the district court found that Intelutions failed to allege an antitrust injury. The company generally claimed that (1) Computer Automation thought it had a stranglehold over the Department of Education because it had licensed its software for the prior six years; (2) Computer Automation believed it had monopoly power in Puerto Rico that would force the Department of Education to comply with its demands in light of its sporadic shutdowns; (3) Computer Automation had offices in 11 states, providing its software to thousands of school districts, including all districts in Puerto Rico, thereby preventing Intelutions from entering the market; and (4) Computer Automation’s intervention in a class action and instigation of this case exemplified vexatious litigation meant to stymie Intelutions’ entry into the market and increase of market share.

These claims did not allege antitrust injury, the court observed. The complaint actually stated numerous allegations demonstrating that neither injury nor market restraint occurred and that Intelutions was doing quite well.

Co-existence and market domination. Intelutions failed to show that Computer Automation’s exclusive agreements caused adverse effects on competition, according to the court. “Even though CAS allegedly had 100 percent market share, it only had one-year licensing agreements with the [Puerto Rico Department of Education], and Intelutions states that other competitors, such as itself and SAP, could also contract with PRDE,” the court explained. “Indeed, the PRDE allegedly believed MiPE was technologically superior and financially more attractive, resulting in the PRDE’s choice not to renew its contract with CAS and choose Intelutions.”

Thus, the court found that Intelutions was not foreclosed from competing, advancing, and eventually dominating in the Puerto Rico market. Furthermore, the Department of Education was able to simultaneously contract with Intelutions and SAP. Intelutions did nothing to advance the argument that the exclusive agreements yielded adverse effects on competition.

Monopolies and Attempted Monopolies

The complaint failed to state a claim for on-going monopolization or attempted monopolization, the court found. The complaint made clear that Computer Automation and the Department of Education had no current licensing agreement. In fact, it appeared that Intelutions prevailed in its struggle against Computer Automation, which had no current market presence. Thus, no monopoly power existed.

As for attempted monopoly, Intelutions did not establish an existing dangerous probability of monopoly power. The counterclaims reiterated the superiority of Intelutions’ software, both functionally and economically. Computer Automation had no dominant share of the market, could not control prices or threaten competition, and was incapable of threatening to do so with dangerous probability. Intelutions failed to state a claim for past attempted monopoly or actual monopoly. The only allegation of attempted monopolization was Computer Automation’s involvement in two litigation proceedings—the first as an intervener in a state class action and the second for copyright infringement. Intelutions failed to specify how the intervention in the state class action was improper. The court saw little merit in arguing that the copyright claims underlying this action constituted bad faith litigation, since Computer Automation had allowed Intelutions access to its software and claimed to have a witness who heard Intelutions’ representatives discuss reverse engineering the software.

The case is Civ. No. 13-1292 (GAG).

Attorneys: Everett C. Tucker, IV (Quattebaum, Grooms, Tull & Burrow PLLC) for Computer Automation Systems, Inc. Andres Guillemard-Noble (Nachman & Guillemard, PSC) for Intelutions, Inc.

Companies: Computer Automation Systems, Inc.; Intelutions, Inc.

MainStory: TopStory Antitrust PuertoRicoNews

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