A La Crosse company that President Barack Obama saluted in 2015 as “one of America’s own fastest-growing private companies” has filed a major antitrust suit against two companies it contends not only hatched an illegal plot to ruin it but also have cost it millions of dollars and pushed it close to insolvency.
Authenticom’s profits dropped by 77.22 percent between the third quarter of 2015 until the first quarter of this year because of the two companies’ collusion, according to the complaint, filed Monday in U.S. District Court for Wisconsin’s Western District in Madison.
The companies’ actions “have left Authenticom cash flow insolvent, with insufficient earnings and resources to satisfy its outstanding debt obligations. Authenticom was unable to pay an $11 million principal payment on a loan from BMO Harris Bank due April 16, 2017, and has received a limited 90-day forbearance from the Bank pending the outcome of the forthcoming preliminary injunction motion,” the suit alleges.
Authenticom, headquartered in the Doerflinger building in downtown La Crosse, also could not pay a tax-related obligation of about $1.17 million that was due on April 18, the suit says. Several financial institutions have rejected Authenticom requests for financing, “citing doubts about Authenticom’s continued viability because of Defendants’ actions,” according to the suit.
Warning in convention center cubbyhole
Authenticom’s 96-page complaint contends that one of the defendants’ executives cornered company founder, president and CEO Steve Cottrell in a secluded area of a convention center on April 3, 2016, and warned, “For God’s sake, you have built a great little business. Get something for it before it is destroyed. Otherwise, I will (expletive) destroy it.”
The encounter, among many scenarios in the suit that read like plot lines for the Showtime series “Billions,” occurred shortly after Cottrell had spurned an offer to buy his company for $15 million.
The complaint demands a jury trial and seeks unspecified damages — and insists that they are eligible to be tripled — for alleged violations of the Sherman Antitrust Act.
Authenticom, which Cottrell founded in 2002 in what had been his son’s bedroom, created a niche for itself with computer programs to integrate auto dealers’ data, including facts such as sales figures, inventory tallies of cars, and parts and service reminders for more than 15,000 dealerships nationwide.
The sector, generically labeled dealer management systems, once had several players but now has only three: Authenticom and the two companies it is suing.
One of the defendants, CDK Global LLC, is a publicly traded Delaware corporation with headquarters in Hoffman Estates, Ill. It provides DMS software and services to car dealerships throughout the country and has more than $2 billion in annual revenues.
The Reynolds and Reynolds Co. is a private corporation headquartered in Dayton, Ohio.
The two are described variously in industry publications as “the Duopoly,” “the two 400-pound gorillas” and “the two giants of the DMS market.”
Among other allegations, Authenticom claims that CDK and Reynolds entered into an illegal agreement in February 2015 to eliminate competition in the market.
Moves ‘cripple’ Authenticom
That and other alleged moves, such as blocking dealers’ access to Authenticom, deactivating dealership logins to the La Crosse company’s systems and alleging that its systems are not secure, have “crippled it,” the suit contends.
Authenticom, which counters that its computer systems are almost impenetrably secure, “will soon be out of business if that conduct is not promptly enjoined,” the suit contends.
Cottrell declined comment on the suit, other than the particulars in the complaint.
A CDK spokesman issued a statement saying, “CDK does not comment in detail on matters in litigation. We can state, however, that the Authenticom complaint is meritless, and we welcome the opportunity to defend ourselves at the proper time.
“As we have said previously: We will not compromise the integrity of our systems or the security of our customers’ data,” the statement said.
Reynolds officials have not responded to a request for their reaction to the suit, and a court official said hearings on a preliminary injunction request and on the suit itself have not been set.
Authenticom also cites widespread angst among car dealerships because “CDK and Reynolds have powerful leverage over car dealerships, and they use that leverage to protect their dominant positions and constrain dealers’ behavior.”
For their part, many dealers have told CDK and Reynolds to stop blocking Authenticom, according to the suit.
“The dealers have made clear that the data is theirs, that they control access to it, and that the disabling of Authenticom has interrupted their operations and caused economic harm. But CDK and Reynolds have rejected the dealers’ objections,” according to Authenticom’s suit.
Many dealers contend that Authenticom’s products and services are superior to those of CDK and Reynolds.
Insisting that dealership complaints against the two big dogs are too numerous to list, Authenticom’s suit cites several, including the following from a Lexus dealer in California.
“I believe that CDK has no right to deny me access to my own data. By extension, I also retain my rights to distribute my data to chosen vendors who meet my strict criteria for data security,” the dealer wrote. “With each vendor requiring different kinds of data extraction, I feel it would be far more effective to support Authenticom and DealerVault, to build a great single point of extracted data, and plug my vendors into their ecosystem.”
Authenticom has developed a stellar reputation for its contributions to downtown La Crosse redevelopment, with its extensive renovations to its Doerflinger offices, where bright décor and a casual atmosphere have been home to its growth to more than 120 employees. Current employee numbers were unavailable Tuesday.