Computer Automation Systems, Inc., v. Intelutions, Inc.

Filing 72

ORDER: Granting 49 Motion to Dismiss. Signed by Judge Gustavo A. Gelpi on 2/24/14. (CL)

Civ. No. 13-1292 (GAG)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

COMPUTER AUTOMATION
SYSTEMS, INC.,
Plaintiff,
v.

Civ. No. 13-1292 (GAG)

INTELUTIONS,
Defendant.

OPINION AND ORDER
Computer Automation Systems (“CAS”) sued Intelutions for, inter alia, copyright
infringement. The court denied Intelutions’s motion to dismiss. (See Docket Nos. 19 &
30.) Intelutions counterclaimed that CAS breached federal antitrust law, 15 U.S.C. §§ 2,
15(a), and CAS moved to dismiss the counterclaim. (See Docket Nos. 43 & 49.) For the
following reasons, the court GRANTS the motion to dismiss the counterclaim at Docket
No. 49.
I.

Standard of Review
“The general rules of pleading require a short and plain statement of the claim

showing that the pleader is entitled to relief.” Gargano v. Liberty Intern. Underwriters,
Inc., 572 F.3d 45, 48 (1st Cir. 2009) (citations omitted) (internal quotation marks
omitted). “This short and plain statement need only ‘give the defendant fair notice of
what the . . . claim is and the grounds upon which it rests.’” Id. (quoting Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007)).

Civ. No. 13-1292 (GAG)
Under Rule 12(b)(6), a defendant may move to dismiss an action against him for
failure to state a claim upon which relief can be granted. See FED. R. CIV. P. 12(b)(6).
To survive a Rule 12(b)(6) motion, a complaint must contain sufficient factual matter “to
state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. The court
must decide whether the complaint alleges enough facts to “raise a right to relief above
the speculative level.” Id. at 555. In so doing, the court accepts as true all well-pleaded
facts and draws all reasonable inferences in the plaintiff’s favor. Parker v. Hurley, 514
F.3d 87, 90 (1st Cir. 2008). However, “the tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal conclusions.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). “Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly,
550 U.S. at 555). “[W]here the well-pleaded facts do not permit the court to infer more
than the mere possibility of misconduct, the complaint has alleged-but it has not
‘show[n]’ -‘that the pleader is entitled to relief.’” Iqbal, 556 U.S. at 679 (quoting FED. R.
CIV. P. 8(a)(2)).
A plaintiff need not allege sufficient facts to meet the evidentiary prima facie
standard. See generally Rodriguez-Reyes v. Molina-Rodriguez, 711 F.3d 49 (1st Cir.
2013). Prima facie elements “are part of the background against which a plausibility
determination should be made.” Id. at 54 (external citations omitted). “[T]he elements of
a prima facie case may be used as a prism to shed light upon the plausibility of the
claim.” Id. (emphasis added).

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Civ. No. 13-1292 (GAG)
II.

Relevant Factual Background
The court discussed the facts in detail in denying Intelutions’s motion to dismiss

and recites only the relevant facts. (See Docket No. 30.) In this counterclaim, Intelutions
alleges CAS

“attempt[ed] to eliminate competition through illegal

acts

of

monopolization.” (Docket No. 43 at 12.)
CAS licensed its product (“SEAS”) to the Puerto Rico Department of Education
(“PRDE”) on an annual basis from 2006 to 2012 to help the PRDE with federal reporting
requirements concerning special needs students. On May 10, 2010, Intelutions entered
into a service contract on an hourly pay basis with the PRDE to set up a data warehouse
for the Department of Special Education (“DSE”). (Id. at 13.) Intelutions learned that the
PRDE was dissatisfied with SEAS’s numerous deficiencies, CAS’s lack of cooperation,
and its occasional, unjustifiable shutdown of its services to the PRDE. (Id. at 14.)
Intelutions alleges CAS never attempted to remedy the deficiencies. (Id.) In shutting off
its services, CAS “knew that the [DSE] would be gravely impaired in all of its federal
reporting requirements and would not be able to provide the necessary services and
functions for the special needs students . . . .” (Id. at 17.) Consequently, and because it
was pleased with Intelutions’s work, the PRDE amended its service contract with
Intelutions on August 29, 2011 to take on a larger role with the PRDE. (Id. at 14-15.)
The amended contract called for the development of a customized software
application facilitating access to the Individual Education Program, which was later
called MiPE. (Id. at 15.) MiPE was intended to work in conjunction with SEAS and they
were used simultaneously beginning in February 2012.

(Id.)

Contract renewal

negotiations between the PRDE and CAS fell through in October 2012. (Docket No. 43

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Civ. No. 13-1292 (GAG)
at 16.)

The PRDE informed Intelutions that MiPE would need to satisfy SEAS’s

functions to continue serving special education reporting requirements in Puerto Rico.
(Id.) MiPE was “much better and much less expensive” than SEAS. (Id.)
Intelutions alleges CAS “thought it had a stranglehold on [the] PRDE since it had
licensed SEAS . . . for the prior six years.” (Id.) CAS sued Intelutions in Arkansas
federal district court in 2012 and the court dismissed the complaint for lack of in
personam jurisdiction. Intelutions claims CAS neglected to include the PRDE as a
defendant because it would defeat CAS’s true goal of establishing a monopoly. (Id. at
18.) Intelutions also alleges that CAS intervened in a class action to compel the PRDE to
use SEAS and cease use of MiPE. (Id.) Intelutions claims MiPE is more efficient and
cost-efficient, and that it could offer to create similarly customized software for school
districts throughout the United States.
III.

Discussion
Intelutions counterclaims pursuant to 15 U.S.C. §§ 2, 15(a). (Id. at 12, 21.) CAS

moved to dismiss for three reasons: 1) Intelutions lacks standing; 2) Intelutions failed to
define the relevant market, in terms of product and geography, that CAS has attempted to
monopolize or monopolized; and 3) Intelutions has failed to state a claim for breach of
antitrust law. (Docket No. 49 at 5.) Because Intelutions lacks standing and states no
plausible claim for monopolization or attempted monopolization, the court refrains from
opining on the remaining issues.
A.

Antitrust Injury

A six-factor test governs whether a plaintiff has standing to bring an antitrust
action. The relevant factors are: (1) the causal connection between the alleged antitrust

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Civ. No. 13-1292 (GAG)
violation and harm to the plaintiff; (2) an improper motive; (3) the nature of the
plaintiff’s alleged injury and whether the injury was of a type that Congress sought to
redress with the antitrust laws (“antitrust injury”); (4) the directness with which the
alleged market restraint caused the asserted injury; (5) the speculative nature of the
damages; and (6) the risk of duplicative recovery or complex apportionment of damages.
Sterling Merch. Inc., v. Nestle, S.A., 656 F.3d 112, 120-21 (1st Cir. 2011) (citations
omitted). The causation requirement is particularly important. Id. The absence of an
antitrust injury will generally defeat standing, and Plaintiff bears the burden of
demonstrating that standing exists. Id. (citations omitted) (quotation marks omitted).
1.

Failure to Allege Injury

Antitrust injury should be the type of loss that the claimed violations would be
likely to cause and should reflect the anticompetitive effect either of the violation or of
anticompetitive acts made possible by the violation.

Sterling, 656 F.3d at 121.

“Plaintiffs must show not only that they were injured as a result of the defendant’s
actions and that those actions constituted an antitrust violation, but also that their injury is
the type of injury the antitrust violation would cause to competition.” Id.
Competitors “may suffer injury even when there is no injury to competition or to
consumers, and so lack standing.” Id. “Further, unlike consumers, competitors have
incentives to bring antitrust suits for purposes which are anti-competitive . . . [and,
consequently,] there is reason for courts to be properly skeptical of many rivals’ suits,
particularly when the practices are not obviously ‘exclusionary.’” Id. (citations omitted).
However, “A reduction in output and an increase in prices in the relevant market”
typically constitute injury to competition. Id. (citations omitted).

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Civ. No. 13-1292 (GAG)
Failure to allege that consumer prices increased during the relevant time period
militates towards dismissal. See Sterling, 656 F.3d at 122. Similarly, when consumer
prices decrease during the relevant time period, no antitrust violation likely exists. Id.
Increased sales, profits, and market share during the relevant time period “provides
further indication that no antitrust injury exists . . . .” Id. at 122-23.
With these principles in mind, the court finds that Intelutions lacks standing for
failure to allege an antitrust injury. Intelutions generically alleges, “CAS thought it had a
stranglehold on [the] PRDE since it had licensed SEAS to PRDE for the prior six years,”
and that “CAS believed that its monopoly power in Puerto Rico would force the PRDE to
comply with its demands” in light of the sporadic shutdowns. (Docket No. 43 at 17.)
CAS, furthermore, has offices in eleven states and provides SEAS to thousands of United
States school districts, including all of the districts in Puerto Rico, thereby preventing
Intelutions from entering the market. (Id.) Lastly, Intelutions claims that intervention in
a state class action and instigation of this case exemplify vexatious litigation meant to
stymie Intelutions’s entry into and increased percentages of market share. (Id. at 18-20.)
Intelutions, however, fails to allege antitrust injury. The complaint actually states
numerous allegations demonstrating that neither injury nor market restraint occurred and
that Intelutions did quite well.

Paragraphs 13, 14, 17, 18, 26, 29, and 30 of the

counterclaim substantiate this determination. They state, in relevant part, as follows:


The PRDE “entered into a number of different contracts with Intelutions to
achieve [streamlining and updating all of its technology and attempting to cut
costs],” and, the PRDE “contracted with Intelutions to develop a new tool which
replaced the SAP tool and now costs the PRDE a nominal fee per year,” as
opposed to the $500,000 it paid annually to SAP. (Docket No. 43 at 15.)



MiPE and SEAS were being used simultaneously by the Department of Special
Education to meet all of its reporting requirements. (Id.)

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Civ. No. 13-1292 (GAG)



When negotiations with CAS to renew the agreement failed, the PRDE met with
Intelutions and informed them that MiPE would have to fully replace SEAS in all
modules and functionalities. (Id. at 16.)



The PRDE had fully intended to renew the contract with CAS until it refused, but
the MiPE software turned out to be much better and much less expensive. MiPE
became the PRDE’s own customized software. (Id.)



MiPE and SEAS are completely incompatible systems and the PRDE solicited
development of MiPE from Intelutions. (Id. at 18.)



The PRDE is no longer dependent on CAS. (Id.)



The PRDE invested approximately $1.5 million dollars to develop MiPE, which it
now owns. MiPE is much more cost effective than SEAS, since it no longer has
to pay a two million dollar annual licensing fee. (Id. at 18-19.)



Since its full launching in October 2012, MiPE has been operating successfully.
(Id. at 19.)
Intelutions’s counterclaim alleges that the PRDE entered into agreements not only

with CAS, but also with Plaintiff and with a company called SAP at the same time.
MiPE was much more cost-efficient than SEAS, costing the PRDE a one-time fee of only
$1.5 million, versus a $2 million annual fee. The PRDE also used SEAS and MiPE or
other Intelutions services simultaneously and chose MiPE after CAS’s product allegedly
faltered. (Docket No. 43 at 16.) Intelutions also claims MiPE is both different from and
superior to SEAS, and that it now operates successfully for the PRDE, while CAS does
not have any operating agreement with the PRDE. Clearly, according to Intelutions, the
PRDE and Puerto Rico benefitted financially and technologically from the change. The
court fails to see a plausible claim for injury or market restraint. See Sterling, 656 F.3d at
121-23.
2.

Co-Existence and Market Domination

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Civ. No. 13-1292 (GAG)
In Sterling, the First Circuit stated, “Short contract terms and low switching costs
generally allay most fears of injury to competition. Sterling points to Nestlé PR’s fiveyear, 90 percent exclusive contract with Ralph’s as support for its claim,” but it “allows
other distributors at least limited access.” Id. at 124. Indeed, Sterling failed to show that
the competitor’s exclusive agreements yielded adverse effects on competition. Id.
The same goes for Intelutions and CAS here. Even though CAS allegedly had
100 percent of the market share, it only had one-year licensing agreements with the
PRDE, and Intelutions states that other competitors, such as itself and SAP, could also
contract with the PRDE. Indeed, the PRDE allegedly believed MiPE was technologically
superior and financially more attractive, resulting in the PRDE’s choice not to renew its
contract with CAS and choose Intelutions.

Intelutions was not foreclosed from

competing in, advancing through, and dominating its particular market in Puerto Rico.
Furthermore, although Intelutions alleges CAS occupied 100 percent of the market when
it had a licensing agreement with the PRDE, the PRDE nonetheless was able to
simultaneously contract with Intelutions and SAP. Lastly, Intelutions does nothing to
advance the argument that the exclusive agreements yielded adverse effects on
competition. These factors gravitate towards dismissing the counterclaim. See Sterling,
656 F.3d at 124.
B.

Monopolies and Attempted Monopolies

The Sherman Act outlaws monopolization or “attempt[s] to monopolize . . . any
part of the trade or commerce among the several states.” Diaz Aviation Corp. v. Airport
Aviation Servs., 716 F.3d 256, 265 (1st Cir. 2013).

Monopolization means “(1)

possession of monopoly power in the relevant market and (2) the willful acquisition or

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Civ. No. 13-1292 (GAG)
maintenance of that power as distinguished from growth or development as a
consequence of a superior product, business, acumen, or historic accident.” Id. (citations
omitted). “The elements of attempted monopolization are (1) that the defendant has
engaged in predatory or anticompetitive conduct with (2) the specific intent to
monopolize and (3) a dangerous probability of achieving monopoly power” exists. Id.
(citations omitted) (quotation marks omitted). “Monopoly power is the power to control
prices or exclude competition.” United States v. E.E. DuPont de Nemours & Co., 351
U.S. 377, 391 (1956). Monopoly power is typically proven by defining a relevant market
and showing that the defendant has a dominant share of that market. Coastal Fuels of
P.R., Inc. v. Caribbean Petrol. Corp., 79 F.3d 182, 195 (1st Cir. 1996) (citation omitted).
There is no doubt that the complaint fails to state a claim for on-going
monopolization or attempted monopolization. The complaint makes clear that CAS and
the PRDE have no licensing agreement; indeed, taken in the light most favorable to
Intelutions, Intelutions prevailed in its struggle against CAS and CAS currently has no
market presence. No monopoly power thus exists.
As to an attempted monopoly, i.e., an existing dangerous probability of monopoly
power, Intelutions’s complaint frequently reiterates the superiority and more
economically reasonable nature of MiPE when compared with SEAS, particularly how
the PRDE first preferred and now owns MiPE, effectively eliminating a need to ever use
SEAS again. Therefore, CAS has no dominant share of the market, cannot control the
price or threaten competition, and is incapable of threatening to do so with dangerous
probability. Indeed, aside from its copyright claim that surmounted a motion to dismiss,
CAS does nothing to indicate that it is a threat to enter the market under Intelutions’s

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Civ. No. 13-1292 (GAG)
rationale. Taking the facts in the complaint in the light most favorable to Intelutions, no
on-going monopoly or attempt to monopolize exists.
Intelutions also fails to state a claim for both past attempted monopoly and actual
monopoly. Intelutions describes CAS as having a “stranglehold” on special education
software in Puerto Rico.

Its complaint, however, regales the court with how it

triumphantly overcame the deficient and costly SEAS to coexist in the special education
software hierarchy and ultimately usurp CAS’s power over the PRDE.
Concerning attempted monopolization, Intelutions’s only allegations lie in CAS’s
involvement in two litigation proceedings: the first as an intervener in a state class action
suit, and the second for copyright infringement. The court sees little merit in arguing that
the underlying complaint in this case constitutes bad faith litigation. CAS allowed
Intelutions proprietary access to SEAS.

It claims to have a witness who heard

Intelutions’s representatives discuss reverse engineering SEAS in the months before
Intelutions contracted with the PRDE to provide an ostensibly identical service that
ultimately yielded MiPE. As the court previously stated, it is plausible that copyright
infringement occurred. (See Docket No. 30.) Surely a copyright infringer may not enjoy
immunity from the party it allegedly harmed simply because the harmed party previously
had a higher percentage of the market share and a larger national presence.
As for Intelutions’s argument that CAS improperly intervened in the state class
action, Intelutions fails to specify why.

It states, in a conclusory manner, that

intervention was improper, without providing any details, elaboration, or legal arguments
in its opposition to the motion to dismiss. The complaint also offers no details upon

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Civ. No. 13-1292 (GAG)
which relief may be granted. The court is not responsible for figuring that out. See U.S.
v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).
Lastly, Intelutions’s argument that CAS had a monopoly over Puerto Rico’s
special education software holds no water.

Intelutions’s story portrays CAS as

Dionysius and the PRDE as Damocles: on a whim and without notice, CAS could have
crippled the PRDE’s ability to meaningfully monitor and report on special needs
students.

Indeed, CAS failed to respond to the PRDE’s requests and SEAS failed

sometimes, leaving the PRDE in peril during a time of great need. This may be true, as it
would be when taken in the light most favorable to Intelutions, but it does not mean that
CAS held monopoly power over the PRDE.

“Monopoly power . . . requires . . .

something greater than market power . . . .” Eastman Kodak Co. v. Image Technical
Servs., Inc., 504 U.S. 451, 481 (1992).
Intelutions unabashedly touts the lifeline it threw the PRDE in its darkest hour
with the creation of MiPE in 2011 and eventual takeover of the market in 2012. In the
land of the unbiased, however, this just means that the PRDE thought Intelutions created
a better product and chose MiPE over SEAS, thereby demonstrating that CAS did not
dominate the market, control prices, and exclude competition. Furthermore, the PRDE
was bound to CAS only on an annual basis. If the PRDE was pigeonholed by CAS’s
shutdowns, threats, and failure to timely act, it could have sought a temporary restraining
order, injunctions, and relief for breach of contract.
monopoly exists.

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But no plausible claim for a

Civ. No. 13-1292 (GAG)
The U.S. Department of Justice provided an example germane to Intelutions’s
counterclaim in its report on competition and monopolies, which assesses single-firm
conduct under section 2 of the Sherman Act.
In markets characterized by rapid technological change . . .
a high market share of current sales or production may be
consistent with the presence of robust competition over
time rather than a sign of monopoly power. In those
situations, any power a firm may have may be both
temporary and essential to the competitive process. Indeed,
in the extreme case, market structure may be a series of
temporary monopolies in a dynamically competitive
market.
U.S. DEP’T

OF JUSTICE,

COMPETITION

AND

MONOPOLY: SINGLE-FIRM CONDUCT

UNDER

SECTION 2 OF THE SHERMAN ACT (2008), www.usdoj.gov/atr/public/reports/236681.htm.
It stands to reason that the PRDE would want to contract with only one company
to perform the software service for which Intelutions and CAS competes. Requiring a
government agency to hire multiple firms to complete a task which one can accomplish
for the sake of competition defies logic. One firm had to win; that does not mean that the
other was foreclosed from attempting usurpation. Indeed, that happened, and Intelutions
ostensibly succeeded. The motion to dismiss is GRANTED.
C.

Intelutions’ Arguments

Intelutions argues that CAS misapplies Sterling because Sterling considered the
grant of a summary judgment motion instead of a motion to dismiss, and the First Circuit
has counseled against the “slow influx of unreasonably high pleading requirements at the
earliest stages of antitrust litigation . . . .” (Docket No. 60 at 5.) The court is aware of
the First Circuit’s opinion warning district courts to abide by the pleading requirements
and still finds Sterling’s factors useful for the purpose of a plausibility inquiry. See

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Civ. No. 13-1292 (GAG)
Evergreen Partnering Group, Inc. v. Pactiv Corp., 720 F.3d 33, 43-44 (1st Cir. 2013).
Said another way, the court is not relying on factual conclusions, credibility
determinations, or Sterling’s holding to justify its decision; rather, it is ascertaining
whether the facts alleged in the complaint, taken in the light most favorable to Intelutions,
plausibly state a claim for relief under the factors Sterling enunciated. The court also
considered whether Intelutions is plausibility entitled to relief through an assessment of
its monopoly argument. Finding no plausibility based on the discussion above, the court
DISMISSES the counterclaim.
IV.

Conclusion
For the reasons stated above, the counterclaim at Docket No. 43 is DISMISSED.

It is so ORDERED this 24th day of February 2014.
/s/ Gustavo A. Gelpi____
Hon. Gustavo A Gelpi
U.S. District Judge

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