Antitrust, False Advertising Claims Against Credit Bureaus Dismissed

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

Antitrust and false advertising claims brought by Fair Isaac Corporation against the major U.S. credit bureaus—in connection with their joint development of a new credit score competing with Fair Isaac’s—were dismissed by the federal district court in Minneapolis on July 24.

In 2006, Fair Isaac—the developer of the dominant credit score (FICO)—initiated its action against the credit bureaus—Trans Union, Experian, and Equifax—for violating the antitrust laws and engaging in false advertising while jointly developing the “VantageScore” credit score, with the goal of eliminating FICO scores.

Fair Isaac's claims against Equifax were later dismissed with prejudice consistent with a confidential settlement negotiated between the companies.

Antitrust Injury, Standing

According to the court, Fair Isaac lacked standing to seek damages or pursue injunctive relief under the antitrust laws. In order to have standing to seek damages, Fair Isaac had to establish that it suffered antitrust injury—an injury of the type the antitrust laws were intended to prevent and that flowed from that which made the defendants' acts unlawful.

The credit bureaus successfully argued that Fair Isaac did not have standing to recover damages for lost profits because the alleged lost profits would have resulted from an increase in competition rather than a reduced ability to compete. Fair Isaac would not be harmed if the credit bureaus agreed to artificially set the price of VantageScore higher than the price dictated by market forces, because consumers would reject VantageScore in favor of FICO scores, the court explained.

Elimination of Competitor

Even if the alleged goal of the conspiracy was to "eliminate" Fair Isaac from the credit scoring industry, this did not automatically establish injury of the type the antitrust laws were designed to prevent, according to the court. Fair Isaac maintained a dominant presence in the credit scoring market. The alleged goal of eliminating Fair Isaac would be accomplished, if at all, by persuading consumers that VantageScore credit scores were as good as or better than FICO scores and employing temporary price discounts to entice consumers to switch to VantageScore.

A strategy of persuading the market that one product was equal or superior to another product and that the price of the first product presented a higher value proposition than the second was the very nature of competition. The performance of the products as they competed in the market would determine which product prevailed.

Essence of Competition

Moreover, an alleged price fixing conspiracy would have depended on convincing the market (particularly, certain key lenders) that greater value can be realized by switching from FICO scores to VantageScore credit scores. This was the very essence of competition, in the court's view. Even considering the defendants' alleged "bad acts"—such as the use of “disinformation" and false statements, and the ability to manipulate the price of FICO scores relative to VantageScore credit scores by controlling the aggregated credit data and the sale of credit scores—the complaining company failed to establish antitrust standing, according to the court.

Injunctive Relief

Fair Isaac also lacked antitrust standing to seek injunctive relief, the court held, because the company did not face a sufficiently impending or imminent threat to satisfy the standing requirement under Sec. 16 of the Clayton Act.

Evidence suggesting that Fair Isaac lost some small amount of business to VantageScore was not sufficient. Moreover, while a private party might not be required to wait until it was eliminated as a result of alleged antitrust violations to pursue injunctive relief, Fair Isaac still had to satisfy the legal requirement of immediacy for antitrust standing to seek injunctive relief. Despite Fair Isaac's contention that the defendants had simply halted their plans temporarily during the pendency of the lawsuit, with the intention of resuming their efforts when the lawsuit was over, Fair Isaac could presumably take action at that time to protect itself.

Lastly, Fair Isaac had contended that the success of the conspiracy depended on the participation of all three bureaus, and the complaining company had entered into a "preferred partnership" with one of the three bureaus in connection with a settlement agreement of the claims in the dispute, the court noted.

False Advertising

The court rejected Fair Isaac's false advertising claims brought under Sec. 43(a) of the Lanham Act. Statements concerning the extent to which lenders actually used the defending credit bureaus' in-house credit scores and Vantage-Score credit scores in making lending decisions were not literally false or literally false by necessary implication, according to the court.

Fair Isaac contended that, at the time the statements were made, few if any lenders used the in-house scores or VantageScore. However, the credit bureaus successfully argued that the challenged statements failed to convey the implied message that an appreciable number of lenders used the in-house scores or VantageScore in making lending decisions. Moreover, because the statements were susceptible to more than one reasonable interpretation, they could not be literally false.

In addition, representations that VantageScore was better than other credit scores (or even the best in the industry) because it used better technologies and methodologies amounted to mere puffery.

The credit bureaus allegedly represented that VantageScore "allow[ed] credit grantors to evaluate consumer creditworthiness with significantly greater precision," was "more predictive than what's in the market," was "the most accurate scoring algorithm attainable," and was based on the "most up-to-date information available." These claims were merely vague, subjective representations of product superiority, in the court's view.

The decision is Fair Isaac Corp. v. Experian Information Solutions Inc., 2009-2 Trade Cases ¶76,691.