Volkswagen Group of America, Inc. v. Smartcar, Inc.

Background

Smartcar asserted six counterclaims against Volkswagen Group of America, Inc. (VWGoA): a request for a declaration of no false association; claims under California’s Unfair Competition Law, the California Cartwright Act, and Sections 1 and 2 of the Sherman Act; and a breach-of-contract claim. VWGoA moved to dismiss counterclaims II–VI, leaving counterclaim I outside the motion.

Smartcar alleged that VWGoA’s vehicle systems generated and stored telematics data, and that VWGoA’s service agreements restricted vehicle owners from reselling or commercially distributing that data without VWGoA’s approval. Smartcar alleged that these restrictions prevented vehicle owners from using applications connected through Smartcar’s application programming interface and tied access to vehicle data to VWGoA’s own services. Smartcar also alleged that VWGoA violated an Automotive Repair Data Sharing Commitment by failing to provide access to vehicle data on fair and reasonable terms.

Judicial Notice and Incorporation by Reference

The court granted Smartcar’s requests for judicial notice of five documents, but generally limited judicial notice to the documents’ existence rather than the truth of disputed matters in them. The court also ruled that the Audi Connect Terms of Service, Car-Net Terms of Service, and the Automotive Repair Data Sharing Commitment were incorporated by reference into the counterclaims and could be considered in deciding the motion. The court found that the 2014 Memorandum of Understanding was not incorporated by reference and considered it only for judicial notice.

Sherman Act Claims

The court dismissed Smartcar’s claims for unlawful tying under Section 1 of the Sherman Act and monopolization under Section 2. Both claims required Smartcar to plead a legally cognizable relevant market and VWGoA’s power in that market.

The court found that Smartcar referred to approximately fourteen different product markets, including markets for VWGoA telematics data, access to telematics data, data processing, data storage, applications, vehicle repairs, insurance, and utilities. The complaint did not clearly define the markets’ boundaries, explain how the markets related to one another, identify economic substitutes, or state the geographic scope of any market. The court also found that the complaint used VWGoA-specific and broader market terms interchangeably and was unclear about whether Smartcar competed with VWGoA or was instead a consumer of vehicle data.

Because Smartcar failed to plead the threshold requirement of a legally sufficient relevant market, the court dismissed both Sherman Act claims. The court did not reach VWGoA’s argument that Smartcar lacked antitrust standing, explaining that the standing issue could be addressed only after the relevant market was clearly defined.

Cartwright Act Claim

The court dismissed Smartcar’s California Cartwright Act claim. Because California antitrust analysis mirrors the federal analysis in this context, the court held that Smartcar’s failure to adequately plead a relevant market was also fatal to this claim.

Unfair Competition Law Claim

The court dismissed Smartcar’s California Unfair Competition Law claim because Smartcar based it on the alleged Sherman Act and Cartwright Act violations. The court treated the claim as dependent on the antitrust claims, which it had dismissed for failure to define a relevant market.

Breach-of-Contract Claim

The court dismissed Smartcar’s breach-of-contract claim based on the Automotive Repair Data Sharing Commitment. Smartcar alleged that VWGoA had entered into express or implied contractual commitments and that Smartcar was entitled to enforce them as a third-party beneficiary. The court held that Smartcar alleged only a legal conclusion and did not provide facts showing that the Commitment was a contract. In particular, the court could not infer from the counterclaims or the Commitment that the promisees had provided a benefit or suffered a detriment as part of a bargained-for exchange.

Because Smartcar had not plausibly pleaded that a valid contract existed, the court did not decide whether Smartcar was a third-party beneficiary. The court noted doubts about that issue because the Commitment focused largely on vehicle owners’ and independent repair facilities’ right to repair, and Smartcar was not an independent repair facility.

Disposition

The court granted VWGoA’s motion to dismiss Smartcar’s counterclaims II–VI. Leave to amend was granted solely to cure the deficiencies identified in the order, and Smartcar was required to file any amended pleading within 21 days. If no amended complaint is filed, the case will proceed only as to counterclaim I.