Authenticom Inc. gained substantial traction in its antitrust lawsuit against two companies that the La Crosse corporation contends are trying to drive it out of business when a federal judge granted a temporary injunction against the pair.
Authenticom founder and CEO Steve Cottrell’s testimony was more credible than that of executives of CDK Global and The Reynolds and Reynolds Co., Judge James Peterson of Madison said in one part of his 23-page opinion and order issued Friday in U.S. District Court for Western Wisconsin in Madison.
Cottrell founded Authenticom in 2002 in what had been his son’s bedroom and built it into one of the three top players — the other two are CDK and Reynolds — in an automotive sector that provides dealerships with daily data to help manage their businesses. He filed an antitrust suit against CDK and Reynolds on May 2. The suit alleges that the two companies are colluding in an illegal plot that has cost Authenticom millions of dollars and pushed it to the brink of insolvency.
The ruling is “an important step forward not only for Authenticom, but for the automotive industry as a whole,” Cottrell said in a news release.
“We look forward to competing with CDK and Reynolds on a level playing field,” said Cottrell, who said he has been able to keep his nearly 110 employees on the payroll despite the financial woes he blames on the two companies.
Authenticom, headquartered in the Doerflinger building in downtown La Crosse, 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.
“We look forward to providing secure, cost-effective, and reliable data integration services to our existing and future customers, finally without the threat of being hindered by CDK’s and Reynolds’ anticompetitive conduct,” Cottrell’s statement said.
In the meantime, Cottrell said in an interview Monday, “We are so appreciative of the community support. We also are committed to keeping the community informed through transparency throughout this process.”
Cottrell said he was not able to comment beyond that and Authenticom’s official statement.
Authenticom is a third-party data integrator, linking car dealers to third-party software vendors such as CDK and Reynolds.
Among other allegations, Authenticom claims that CDK and Reynolds entered into an illegal agreement in February 2015 to eliminate competition in the market. That and other alleged actions, 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’s profits dropped by 77.22 percent between the third quarter of 2015 and the first quarter of this year because of the two companies’ collusion, the suit maintains.
“The case is complicated both factually and legally,” Peterson’s opinion states. “But based on the parties’ written submissions, documentary evidence, and the evidence presented at a two-and-one-half day hearing, the court concludes that Authenticom is entitled to a preliminary injunction.
“Authenticom’s evidence establishes at least a moderate chance of success in proving that defendants have violated the Sherman Act. And the balance of harms tips sharply in favor of Authenticom, because Authenticom is clearly at risk of going under without a preliminary injunction,” Peterson wrote.
Peterson also brushed aside the claims of CDK and Reynolds that giving Authenticom access to its data presents a security risk because it allows others to do so.
“The court did not receive any evidence that Authenticom has ever suffered a security breach or that it has caused a security breach at another entity,” the judge wrote.
Peterson also cited the testimony of witness Alan Andreu of the Dominion software company describing Reynolds’ means of allowing dealers to extract data from its system as “comically” and “horribly insecure.”
The actions of CDK and Reynolds “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,” according to Authenticom, which seeks a jury trial.
Authenticom 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.
Defendants CDK and Reynolds had pressed for a $10 million bond if Authenticom’s injunction request were granted, while the judge deemed that as unmanageable, considering Authenticom’s financial condition in the controversy. Peterson set the bond at $1 million.
Authenticom routinely makes Inc. Magazine’s annual list of the nation’s fastest-growing private companies, an accomplishment that President Barack Obama saluted when Obama delivered an economic speech at the University of Wisconsin-La Crosse on July 2, 2015.
CDK Global 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 private corporation of Reynolds and Reynolds is headquartered in Dayton, Ohio.
The judge’s order stipulates that Authenticom, CDK and Reynolds “work together to craft the form of the injunction by Thursday.” If they cannot agree, they are required to submit competing proposals for Peterson to consider, according to his order.