Volkswagen Grp. of Am. v. Smartcar, Inc.

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VOLKSWAGEN GROUP OF AMERICA, INC., Plaintiff, v. SMARTCAR, INC., Defendant.

No. 21-cv-04895-JST

United States District Court, N.D. California

September 25, 2024

ORDER GRANTING MOTION TO DISMISS COUNTERCLAIMS II-VI RE: ECF NO. 101

JON S TIGAR UNITED STATES DISTRICT JUDGE

Before the Court is Plaintiff-Counterclaim Defendant Volkswagen Group of America, Inc.'s (“VWGoA”) motion to dismiss counterclaims asserted by Defendant-Counterclaim Plaintiff Smartcar, Inc. (“Smartcar”). ECF No 101. The Court will grant the motion.

I. BACKGROUND

A. Factual Background

For the purpose of resolving this motion, the Court accepts as true the allegations in Smartcar's counterclaim complaint. ECF No. 98 at 15-47; see Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005).

1. Telematics Data

The operation of consumer vehicles generates telematics data, including information about mileage, fuel consumption, braking and acceleration, and many other aspects of the car's performance. Counterclaim Compl.,^[1] ECF No. 98 at 15 ¶ 2. “Nearly every car shipped is internet connected.” Id. ¶ 23. Telematics data can be useful to drivers and to a range of third parties; for example, repair shops can reference it to facilitate maintenance or repairs, and insurance companies can monitor it to incentivize safe driving. Id. ¶¶ 28, 45-46.

Automobile original equipment manufacturers (“Automobile OEMs”) control “the type of data generated and stored on the vehicle.” Id. ¶ 28. “The National Highway Traffic Safety Administration currently mandates that all vehicles in the United States be compliant with the OBD-II specification, which means anyone equipped with the correct device can access the OBD-II vehicle diagnostics data by physically accessing the port. However, not all vehicle data generated by certain vehicles can be accessed with the OBD-II port.” Id. ¶ 29. In addition, many Automobile OEMs now outfit vehicles with a “cellular-based telematics control unit” (“TCU”). Id. ¶ 30. The TCU records and stores detailed data beyond that which the OBD-II port can capture, id., and enables remote control of certain functions, such as unlocking and locking the car using a smartphone, id. ¶¶ 27, 60. Although drivers theoretically could use the TCU to transmit their vehicle's data to anyone with an internet connection, TCUs are “designed to be secure and prevent[] unauthorized modification to the data or unauthorized access.” Id. ¶¶ 30-31.

2. Smartcar

Defendant Smartcar was founded in 2014 as a “mobility application developer platform for cars.” Id. ¶ 15. Its application programming interface (“API”) allows application developers to design applications that are compatible with vehicles from various Automobile OEMs.^[2]Id. ¶¶ 33-34. The API also makes it possible for consumers to use applications that were not designed for their specific vehicle. Id. ¶¶ 2, 33-34. Without such a platform, developers would need to customize the code of their applications for each make of car, and consumers would only be able to use applications designed for their particular cars. See id. ¶¶ 17-19. Applications that use Smartcar's API require drivers to “agree to share specific vehicle telematics data” from an application pre-installed by the Automobile OEMs that allows the user to remotely access their vehicle's data and controls. Id. ¶ 19.

Smartcar's business has flourished in “the last nine years,” and it has become “the leading developer platform for mobility businesses.” Id. ¶¶ 18, 24. Users of its API span several sectors, including insurance providers, car sharing businesses, state agencies, electric utility providers, independent repair shops, and ride hailing companies. Id. ¶ 20. Smartcar has built integrations with “thirty-seven car brands in North America and in Europe” and “has over 10,000 registered application developers.” Id. ¶ 22; see also id. ¶ 93 (applications developed on Smartcar's API are compatible “with a majority of the over forty-two Automobile OEM brands in the United States”). “Several Fortune 500 companies have adopted Smartcar's technology and its API ....” Id. ¶ 22.

3. VWGoA

Like other Automobile OEMs, VWGoA uses TCUs with security features restricting “interoperability,” that is, limiting data access to the Automobile OEM and approved third parties. Id. ¶ 31; see id. ¶ 39. Drivers who lease or purchase VWGoA vehicles (“VWGoA Owners”) have the option to purchase connectivity services, such as Car-Net, Audi connect, and myAudi (collectively, “VWGoA Services”), that allow them to connect to and control their vehicles using their smartphones and computers. See id. ¶ 27. “[B]ecause of the security features built into” the TCUs, VWGoA requires VWGoA Owners subscribing to the VWGoA Services to sign user agreements restricting their right to resell the data that their vehicle generates or distribute it for commercial purposes without VWGoA's approval. Id. ¶ 39; see id. ¶¶ 40-43. The data-sharing restriction is an express condition in the user services agreement. Id.; see id. ¶ 153.

4. Data-Sharing Restriction

Because VWGoA Owners cannot share their data under the terms of the VWGoA Services, they cannot use applications that were developed with Smartcar's API. See, e.g., id. ¶ 41. They can only use applications from VWGoA or third-party developers that VWGoA approves. See, e.g., id. ¶¶ 27, 31-32; see also id. ¶ 172 (VWGoA provides access to “its own service providers and dealers”). VWGoA has not approved Smartcar as a partner. See id. ¶ 57.

Limiting VWGoA Owners' use of their data to “personal, non-commercial use,” means they must “accept unwanted services (i.e., VWGoA's Services)” to access their data, which “coerce[s] and steer[s] VWGoA Owners to use VWGoA's selected service providers,” such as repair services and data services. Id. ¶¶ 56-58. Although VWGoA has not sought to enforce these agreements against VWGoA Owners who use password storage vaults or give their family members their password, they have sought to enforce the agreement against Smartcar. Id. ¶ 57.

5. Anticompetitive Effects of Restriction

Smartcar alleges that the terms of the VWGoA Services user agreement “unlawfully tie the data (both the data itself and access to the data) from [VWGoA] Owners to the use of VWGoA's Services.” Id. ¶ 151. It identifies the tying product as “data access,” id. ¶ 122, or “the vehicle data and/or data access,” id. ¶¶ 136, 154, and the tied product as the “data processing/storage services aspect of VWGoA Services,” id. ¶ 122, or “VWGoA's Services,” id. ¶¶ 136, 154. It alleges that the “tying markets” consist of “either the telematics data market and/or telematics data access market,” id. ¶¶ 134, 152, while the “tied markets” are “the data processing (e.g. application developers), data storage (e.g. cloud and/or personal storage), and other usage data market (other services using such data),” id. ¶ 134.

Smartcar next alleges that VWGoA has monopoly power in several different markets as a result of the data-sharing restriction. It monopolizes the markets for data from VWGoA vehicles, see, e.g., id. ¶¶ 60, 86, 165, 168, and for access to VWGoA vehicle data, id. ¶¶ 165, 168. It also monopolizes the “telematics data market” and “telemetry data access market” at large. Id. ¶¶ 149, 166; see also id. ¶ 150 (alleging that the “telematics data market” consists of “just VWGoA and no one else”). It has “overwhelming monopoly power in the application development and data storage market.” Id. ¶ 134. Finally, VWGoA monopolizes the markets for data processing, data storage, and data services, id. ¶¶ 167-68, and monopolizes or attempts to monopolize other “relevant markets,” a category which seems to include the market for vehicle repairs, among others, id. ¶ 149.

The data-sharing restriction means that “VWGoA Owners face higher prices and reduced quality of service they receive from telematics-enabled applications ....” Id. ¶ 89. VWGoA Owners “have no option to further process the data” from their vehicles, leaving them “at the mercy of VWGoA's limited sets of features and monopolistic pricing,” with “limited choices in the aftermarket for data processing services.” Id. Because vehicles are expensive, VWGoA Owners face high switching costs that impede them from switching to another Automobile OEM. Id. ¶¶ 8, 90.

Because it cannot access VWGoA Owners' data, Smartcar “has lost market share.” Id. ¶ 96. Fewer drivers “can use applications enabled by Smartcar's API” than would be able to if Smartcar applications were compatible with VWGoA vehicles. Id. “Application Developers who use Smartcar's API therefore do not enter the market due to the risk imposed by VWGoA's control over the data generated by its vehicles.” Id. Smartcar has also “lost asset value vis-a-vis the reduction in value of the intellectual property protecting Smartcar's API” as well as “current and potential future customers.” Id. ¶ 97. VWGoA has “foreclos[ed] Smartcar from “competing [in] markets using the telematics data market and vehicle telemetry data access, including in data processing, data storage, and other data services.” Id. ¶ 158.

Beyond Smartcar or the market for its API, the VWGoA Services terms of use affect various sectors that use or could potentially use telematics data to provide services. Id. ¶¶ 44-52. If VWGoA Owners could “trade their own data for services through Smartcar's API,” Smartcar alleges that would “enable[] the creation of numerous businesses,” id. ¶ 44, and foster innovation in sectors including repair services insurance companies, government entities, and utility companies, id. ¶¶ 45-52; see, e.g., id. ¶ 48 (“Smartcar's API is essential to allowing insurance companies [that] build applications to obtain all of the data they need.”). “Businesses...