Cdk Global LLC v. Mark Brnovich
16f4th1266
| 9th Cir. | 2021Background
- In 2019 Arizona enacted the "Dealer Law" to protect dealer/customer data and restrict DMS providers from blocking dealer-authorized third-party integrators; it bars limiting dealer control, caps access charges to direct costs, and requires a standardized open-access integration framework or similar method.
- Plaintiffs CDK Global LLC and Reynolds and Reynolds Co. (together "CDK") are dominant dealer management system (DMS) vendors that had restricted third-party data access and instead offered proprietary, higher-priced integration services.
- CDK sued Arizona seeking declaratory and injunctive relief and a preliminary injunction, alleging among other claims Copyright Act preemption, CFAA preemption, Contracts Clause and Takings Clause violations, and vagueness.
- The district court dismissed some claims, allowed the copyright preemption, Contracts Clause, and Takings claims to proceed, and denied the preliminary injunction.
- On interlocutory appeal the Ninth Circuit limited review to issues in the injunction order and affirmed, concluding CDK was unlikely to succeed on the merits of the copyright preemption, Contracts Clause, and Takings claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Copyright preemption | Dealer Law forces DMS providers to permit integrator access that necessarily creates unlicensed copies of DMS software, APIs, or data compilations, conflicting with §106(1) | Law regulates market practices indirectly, often permits secure access methods, does not necessarily create infringing "copies," and many applications would not conflict with Copyright Act | CDK failed to show facial conflict; unlikely to succeed. Memory copies may be transitory or fair use; law does not compel infringing copying of APIs or data compilations |
| Requirement to provide APIs | Mandated open-access APIs would force copying or public use of API declaring code and thus destroy CDK's rights in its API expression | Law allows alternative integration methods, use of industry-standard interfaces, and integrators need only issue method calls rather than copy declaring/implementing code | Requiring access does not necessarily compel infringing reuse; integrators are like API callers, not reimplementers; claim unlikely to succeed |
| Contracts Clause | Law substantially impairs CDK contracts with dealers and third-party vendors by invalidating contractual access restrictions and increasing costs | Law does not alter contractual rights or duties, only affects performance costs; serves legitimate public purposes (privacy, competition) and is reasonably tailored with security and reasonable-access provisions | Contracts Clause challenge fails; any impairment is not substantial in constitutional sense and law is reasonably tailored to public purpose |
| Takings Clause | Mandating third-party access to DMSs is a per se physical taking or at least a regulatory taking requiring compensation | Access is not a physical occupation; providers voluntarily license systems; statute permits termination and limits access to authorized integrators and reasonable cost recovery | No per se taking; regulatory-taking factors (Penn Central) weigh against CDK; unlikely to succeed |
Key Cases Cited
- Winter v. Natural Res. Def. Council, 555 U.S. 7 (2008) (preliminary injunction standard)
- Puente Ariz. v. Arpaio, 821 F.3d 1098 (9th Cir. 2016) (standard for facial challenges)
- United States v. Salerno, 481 U.S. 739 (1987) (facial-challenge burden)
- Google LLC v. Oracle Am., Inc., 141 S. Ct. 1183 (2021) (API categories and fair-use analysis)
- MAI Sys. Corp. v. Peak Comput., Inc., 991 F.2d 511 (9th Cir. 1993) (loading software into memory can be copying)
- Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 (1991) (facts vs expression in database copyrights)
- Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978) (regulatory takings test)
- Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982) (per se physical occupation takings)
- Cedar Point Nursery v. Hassid, 141 S. Ct. 2063 (2021) (physical occupation takings analysis)
- Experian Info. Sols., Inc. v. Nationwide Mktg. Servs., 893 F.3d 1176 (9th Cir. 2018) (limitations on database copyright protection)