Net market slaps Big 3 with lawsuit

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When the Federal Trade Commission approved Covisint L.L.C.’s e-marketplace last fall after months of scrutiny, the Big 3 automakers hoped they’d put antitrust worries behind them.

Not so fast.

Earlier this month, a second auto e-marketplace from Ford Motor Co., General Motors Corp. and DaimlerChrysler AG—this one targeting the repair parts aftermarket—was hit with an antitrust suit by ChoiceParts L.L.C., a competing e-marketplace.

ChoiceParts’ complaint? The Big 3 automakers, it said, used their market power to try and drive ChoiceParts out of business. In an explosive allegation, ChoiceParts said the automakers first tried to acquire ChoiceParts before launching their own competing site and that they were withholding access to industry parts data, said Michael Badar, ChoiceParts’ chief marketing officer.

A DaimlerChrysler spokesman representing the repair parts e-market said the suit was without merit and that the online marketplace was moving forward. The executive in charge of the venture, Charles Rutono, declined to comment on the suit. Motions and court filings in response to the suit were expected to begin last week.

First-ever suit

The antitrust suit is the first ever filed against a b-to-b marketplace. For that reason, it will be closely watched. The past few months have seen a score of independent Net markets go out of business. And in almost every case, they’ve pointed to the entry of large industry consortia into their market as a key reason they were forced to close shop.

While the Federal Trade Commission has been keeping close tabs on b-to-b and issued some guidance as to appropriate business practices, it has not pushed for any new rules or legislation.

"ChoiceParts appears to have legitimate antitrust concerns," said Hillard Sterling, partner with Chicago law firm Gordon and Glickson L.L.C., who focuses on b-to-b issues. "Antitrust law precludes competitors from collaborating in a manner that effectively forecloses market entry and viable competition."

According to Sterling, the case will hinge on a key factual matter: Did the automakers unfairly limit ChoiceParts’ access to the data, and is there no other way for the company to acquire that same data via other channels?

"This is the first viable antitrust complaint against a business-to-business exchange," Sterling said. "This case is likely to be the first domino in a series that will raise many anticompetitive concerns with various b-to-b consortia."

History of sharing data

In its suit, ChoiceParts asks the U.S. District Court in Chicago to stop what it calls "anticompetitive

efforts" aimed at blocking ChoiceParts from providing its electronic automotive parts locator and transaction system to repair shops.

"Basically, we are looking for the right to use data about parts pricing that they’ve historically and consistently provided to other companies for at least 20 years," ChoiceParts’ Badar said. "We’ve got a great business model and a product that’s ready to go right now. We’re asking for the right to compete."

Badar called the data in question "the DNA of our business" and said the detailed part numbers and related data can only come from the automakers themselves.

ChoiceParts has signed what Badar described as a restrictive license to access the parts data, which ChoiceParts uses to build its offline product-locator catalogs. But the licenses do not allow it to sub-license the data, a necessity if ChoiceParts is to deliver its repair e-marketplace directly to collision and repair shops, Badar said.

The Big 3 automakers seem willing to let the case play out in court while they proceed with the launch of the service. The repair parts e-market has set up headquarters outside of Cleveland and has run several successful pilot tests, the DaimlerChrysler spokesman said.

Collaborate or compete

Tension between industry consortia and independent e-markets may be unavoidable, but until now it has not led to litigation. In some cases, consortia have cut deals with independent Net market-makers as a way to jump-start their own operations.

One environment that looks more cooperative than competitive is the aerospace industry, where a handful of parts e-markets have emerged, including Inc. and

Those small markets are facing the entry of powerful consortia. Last week, aerospace hub Exostar Inc., led by The Boeing Co. and others, tapped for its new CEO.

"We’ve had nothing crop up that even looked like a lawsuit," said Exostar VP-sales and marketing Stephen O’Sullivan. "We see ourselves as doing the things we’re good at and cooperating with other people who occupy a specialist niche. I don’t view us as predatory in any sense."

"This industry is really kind of different," said Barry Wightman, chief marketing officer of TradeAir. "There’s a vast pool of parts, and prices go up and down based on raw market forces. Nobody can really control it, and everybody holds a surplus."

The idea that independents and consortia will end up partnering in the aerospace industry has "absolute merit," Wightman said. "Net markets and [consortia marketplaces] are definitely talking to each other."

Government intervention

The government has been counting on market forces and common sense—rather than regulations and lawsuits—to keep the b-to-b industry in check.

Last summer, the FTC held a two-day workshop examining e-marketplace antitrust concerns. In October, the agency issued guidelines that in essence said e-markets appear to offer great benefit and should be regulated under existing antitrust laws.

Industry consortia Net markets will be closely watched if their owners have a large industry market share, restrain participation outside the market or do not interoperate with other e-markets, the report said.

So far, the FTC has largely kept its hands off this fledgling industry, while letting e-markets know they will be watched.

"The FTC has shown the presumption is heavily against filing antitrust suits against b-to-b consortia," antitrust lawyer Sterling said. "These deals typically create efficiencies and pro-competitive benefits. But there’s always an antitrust flag when competitors get together to collaborate rather than compete."

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