Wednesday, October 15, 2008

ISP's Antitrust Claims Against Business Software Company Properly Rejected

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Antitrust claims brought by an independent service provider (ISP) against a business software company with which the ISP had entered into various consulting service agreements were properly dismissed, the U.S. Court of Appeals in San Francisco has ruled in a not-for-publication opinion.

Dismissal of the ISP's Sherman, Clayton, California Cartwright and Lanham Act claims (2005-2 Trade Cases ¶75,001) was affirmed.

The ISP's allegations were detailed in an earlier lower court ruling (2006-1 Trade Cases ¶75,292). Between 1996 and 2001, the ISP performed implementation and customization of the software company's products for customer sites. It allegedly recruited and trained engineers and technicians to work exclusively in customizing the defendant's software to meet the specific needs of manufacturing and distribution companies.

The ISP contended that the software company misused its market power and drove smaller competitors out of the market for the implementation and customization of the defendant's software products.

Power to Eliminate Competition in Market

Dismissal of the ISP's monopolization claims brought under Sec. 2 of the Sherman Act and under the California Cartwright Act was proper because the ISP failed to allege facts indicating that the software company had power to eliminate competition within a relevant market, the court ruled. Further, the ISP failed to plead facts that the software company had a "dangerous probability of success" in its attempt to control the relevant market or any intent to control prices.

Tying Arrangements

Tying claims under Clayton Act, Sec. 3 and the California Cartwright Act were also properly rejected. The ISP contended that the software company tied the sale of its software and/or software upgrades upon a buyer's purchase of its consulting or implementation services.

The ISP did not satisfy the elements of tying as per se illegal because it did not show that the software company had appreciable economic power to coerce acceptance of the tied product. The ISP also did not meet its initial burden to prove tying under a "rule of reason" analysis because there was no showing that the alleged tying restrained trade in the relevant market to impair competition.

Trade Disparagement

The appellate court upheld dismissal of the ISP's claims that the software company engaged in trade disparagement in violation of Sec. 43 of the Lanham Act. The ISP did not show that the software company made a false statement of fact about the ISP's services or its own services.

The October 7 not-for-publication opinion in nSight, Inc. v. PeopleSoft, Inc. appears at 2008-2 Trade Cases ¶76,320.

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