26 October 2021Copyright

Arizona denies car dealers’ copyright challenge to data law

Arizona attorney general Mark Brnovich has overthrown a challenge to a state law that stops data software companies from restricting access to car dealers’ data.

Data companies  CDK Global and the UK-based  Reynolds & Reynolds could not convince the  US Court of Appeals for the Ninth Circuit that the Arizona law would infringe on their software copyrights.

The three-judge panel agreed that the parties’ argument that the “Dealer Law” was preempted by the Copyright Act and the Computer Fraud and Abuse Act was void for vagueness.

There was no conflict preemption because the state and federal laws were not irreconcilable, the panel concluded.

The  opinion, published on October 25, 2021, affirms a  US District Court for the District of Arizona decision to deny CDK and Reynolds injunctive relief on similar grounds.

Data sharing

To manage operations, car dealerships use dealer management systems (DMS) to manage information about customers, vehicles, accounting, and parts.

CDK and Reynolds license these DMS services to car dealerships. According to the opinion, the two companies control a “substantial majority of the DMS market”.

Both companies previously allowed dealers to share access to the DMS with third-party data-integration companies that would reformat the dealer’s data for use in other software applications.

But the companies began prohibiting this practice on the grounds that it was necessary to protect their IP rights and “ensure robust system performance and security”.

Case background

In 2019, the Arizona State Legislature enacted a statute aimed at strengthening privacy protections for consumers’ data is collected by car dealers and restricting anti-competitive business practices by tech companies that provide database services to the dealers.

According to the ninth circuit, the main provision of the statute is to prevent database providers from limiting access to dealer data.

Two of these database providers, CDK and Reynolds, challenged this statute, claiming that the law was unconstitutional and was preempted by numerous other federal statutes in a lawsuit targeting the Arizona Attorney General.

The Arizona Automobile Dealers Association intervened in defence of the law and together with the Attorney General, moved to dismiss the complaint. The Arizona district court dismissed most of the claims but allowed the copyright preemption claims.

Following a hearing, the district court denied the preliminary injunction, stating that the claims were unlikely to succeed, leading the database companies to appeal to the ninth circuit.

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