Argument Recap

Earlier this month, the Federal Circuit heard oral argument in Teradata Corp. v. SAP SE, an antitrust case. In this case, the Federal Circuit is reviewing a district court’s grant of summary judgment dismissing tying and trade secret claims. This is our argument recap.

Deanne E. Maynard argued for Teradata. She began by asserting that, “in granting summary judgment on Teradata’s antitrust and trade secrets claims, the district court erred as a matter of law and decided disputed factual questions.” The discussion then shifted to jurisdiction when one judge expressed concern that the “compulsory counterclaim standard” had not been met for appellate jurisdiction. The judge further noted that the parties are effectively left “in the same position as if [patent claims] had never been made, and therefore” there is a lack of jurisdiction in this case. Maynard responded to this point by arguing that, in this case, “there is a logical relationship between the counterclaims and the claims at issue.” She further specified that “SAP alleges it invented what we claim as our trade secrets.” She also remarked that “the Federal Rules encourage related claims to be brought together” and that there is a broad standard for compulsory counterclaims.

The argument then turned to the merits of Teradata’s antitrust claim. Maynard contended “SAP is engaging in a classic illegal tie” as illustrated by “evidence show[ing] that they are forcing their locked in . . . customer base to buy a product that they do not want and charging them premium prices for a substandard product.” She further highlighted how the Supreme Court has made it clear that the “per se rule applies here.” “Under” that rule, she continued, “there is only one element in dispute, . . . which is SAP’s market power.” She then went on to argue that “SAP has market power over a certain subset of customers, namely large enterprises who are purchasing core ERP services.”

One judge then asked what Maynard’s thoughts were on the SAP’s contention that “there is no reasonable connection between the . . . tied product and effects on the tied product market.” Maynard responded by first noting that, “if the per se rule applies,” which Teradata believes is true, “the harm to competition that is required to be shown is only de minimis.” However, Maynard further replied, that even if the rule of reason applies, she believes that Teradata has shown the necessary substantial harm.

The discussion then shifted to Teradata’s trade secret appeal. With regard to this issue, Maynard asserted “the district court erred in concluding that [Teradata] had not [properly] marked” certain agreements as confidential “and also that somehow these agreements had given SAP the keys to one of our most important trade secrets: batch merge.” Maynard maintained that the agreements “gave [SAP] only a limited license to use [batch merge], and only during the bridge project.”

Patrick Kuhlmann argued for the government as amicus curiae, which supported reversal. He remarked how the goal for the court is “to address the correct legal principles for defining relevant markets in antitrust cases.” He argued the “district court departed from the flexible inquiry [of] market realities,” a type of inquiry that “should guide market definition because the types and the quality of the available evidence vary from case to case.” He maintained there were two main errors “where the district court improperly limited the use of important market definition tools.” First, he asserted, “the district court wrongly confined the practical indicia to sub-market cases.” Second, he contended, “the district court wrongly questioned the validity of aggregate diversion ratio analysis.”

Kannon K. Shanmugam argued for SAP SE. He began by addressing the jurisdictional issue by stating he “believe[s] the better view is that the 9th Circuit has jurisdiction here.” He supported his argument by noting that, “by the time of the district court’s ruling on the issue of summary judgment,” the claims at issue “had been narrowed to what is before the court.” He further explained that “Teradata has abandoned the hundreds of trade secrets that it initially asserted, which is what precipitated the filing of the patent counterclaim.”

The discussion then shifted to the merits of Teradata’s antitrust claim. Shanmugam pointed to “two ways in which the court could affirm the ruling on the antitrust claim.” He explained that the “court could hold that the district court correctly exercised its discretion in excluding Dr. John Asker’s . . . analysis supporting his market definition for the tying product.” Alternatively, he argued, the court “could conclude . . . that Teradata simply failed to bear its burden of coming forward with evidence of anti-competitive effects in the . . . market and under the rule of reason,” Teradata would be unable to move on its antitrust claim. One judge then asked why the rule of reason applies in this case. Shanmugam responded by arguing “the question is whether you are in a context where there are plausible pro-competitive justifications such that judicial experience provides a basis for believing that there might be a pro-competitive justification,” and, if so, “the rule of reason applies.” He highlighted Federal Circuit cases finding the rule of reason appropriate when “the tying product and the tied product are technologically integrated and . . . the integration provides benefits in the form of improved efficiency.” One judge then asked if Shanmugam could explain why Teradata’s evidence is insufficient to “create a triable issue on anti-competitive effects.” Shanmugam responded by highlighting that “Teradata failed to identify a single customer that used” the allegedly tied product “when purchased together with” the allegedly tying product as an enterprise data warehouse (EDW) product, “much less to replace Teradata’s EDW product or the EDW product of any competitor.”

Shanmugam asserted that “Dr. Asker simply assumed that every customer who uses” the tying product with the tied product “would use [the tied product] as an EDW product and would cease using Teradata’s and other customers EDW products as a result.” He further maintained that, “to the extent that Asker conducted a regression analysis that showed some decline in customers spending on Teradata products,” it did not speak to the relevant causal question of “whether customers were substituted.” He also argued “the exclusion of [Dr. Asker’s] qualitative analysis was appropriate because there he defined the market in terms of large enterprises, which in turn he defined in terms of the number of employees and users at the company.” Shanmugam further explained that “Dr. Asker simply failed to offer a methodology justifying” that aforementioned “aspect of his market definition.”

Shanmugam lastly addressed Teradata’s trade secret claim. He contended that “the district court’s decision was appropriate . . . on both of its grounds.” He argued that, “first, on the factual ground, Teradata did not sufficiently mark its claimed trade secret as confidential.” He also argued that “the relevant agreements here gave SAP that power to use this [batch merge] method.”

In rebuttal, Maynard argued that SAP misuses cases in an attempt to support its contention that the rule of reason applies in the present case. She maintained that the rule of reason does not apply because there is a “dispute of fact” regarding procompetitive benefits. She also asserted that “Dr. Asker did show a causal effect for Teradata’s lower sales as a result of the tie” and that “Asker used a well-established qualitative methodology and carefully explained all of his opinions.”

We will continue monitoring this case and report on developments.