SkyRiver and Innovative Interfaces File Major Antitrust Lawsuit Against OCLC
By Marshall Breeding, Director for Innovative Technology and Research, Vanderbilt University Library, Nashville, TNJul 29, 2010
Bibliographic services company SkyRiver Technology Solutions, joined by library automation company Innovative Interfaces, filed a lawsuit yesterday in federal court in San Francisco against OCLC, alleging a litany of anticompetitive business practices.
The move initiates a major legal battle between OCLC, a worldwide library membership organization, and two companies owned and founded by Jerry Kline.
It also represents the culmination of concerns expressed by some vendors and librarians that OCLC has used its tax-exempt status to behave not only as a giant library utility but a hard-nosed business. For example, if successful, the lawsuit could open up OCLC's WorldCat database to commercial competitors.
OCLC spokesperson Bob Murphy offered an initial statement: "We have not received a copy of the formal complaint. Once we have received a copy and have had a chance to review it with our legal department, we will have a response." (LJ will follow up when OCLC responds.)
On Twitter, with some using the #skyoclc hashtag suggested by the plaintiffs, some librarians said they saw it coming. Librarian Dale Askey tweeted, "oclc does some things very well, but i must confess that the skyriver/iii lawsuit seemed inevitable given oclc's recent politics."
Another, BugRabbit, quipped, "The shot heard 'round the WorldCat!" Jolietjosh wrote "we all knew this was coming, eh?...everybody take sides." Publishing consultant Michael Cairns commented, "A cynic might suggest that skyriver were always looking to sue. Were established to sue. Not me though. Just glad I'm not involved."
Wide-ranging complaint
The complaint (embedded below) describes four sectors of activities in which OCLC is involved: cataloging services, bibliographic data services, interlibrary lending, and integrated library systems.
Given the 72,000 libraries involved with OCLC and the organization's breadth of products and services, the legal action raises enormous implications regarding the library automation and bibliographic services industry sectors. Though SkyRiver, a relatively new and small start-up, leads the lawsuit, with the backing of Kline and Innovative Interfaces, OCLC faces plaintiffs with the means to go forward.
SkyRiver President Leslie Straus stated: "We have been compelled by OCLC actions to file this suit. SkyRiver will not be driven from the market. Challenging OCLC's monopolistic practices will ultimately benefit libraries." SkyRiver has launched a website, Choice for Libraries, to host related documents and other materials related to the lawsuit.
The following excerpt reflects the essence of the complaint:
"This case is about defendant OCLC's exclusionary arrangements, punitive pricing, unlawful tying arrangements and its refusal to deal with for-profit firms in violation of the antitrust laws in order to maintain its monopolies and to destroy a new entrant in the market for library cataloging services in competition with OCLC," the suit charges, also claiming that OCLC's is attempting "to monopolize the integrated library systems market through unlawful, anticompetitive conduct and anticompetitive agreements that it imposes on its member libraries and its refusal to allow for-profit firms access to its database for commercial purposes."
Potential resolution unclear
OCLC has many strong supporters as well as sharp critics, and this case will inevitably spark a debate within the library world.
At this stage of the dispute, the allegations have not been proven and OCLC has not yet had its opportunity to respond to the charges. This case will likely generate a stream of documents. The legal process could take years--or lead to a settlement, as in some other high-profile cases.
For example, the Queens Library sued SirsiDynix last year, with initial claims not challenged for a period until a response from the defendants. The case was ultimately settled out of court, with the parties unwilling to say more.
Antitrust charges
In its complaint, SkyRiver asserts that OCLC's business practices violate Section 1 and Section 2 of the Sherman Antitrust Act. The 39-page document provides a lengthy description of SkyRiver's understanding of OCLC's activities and argues that these practices amount to illegal anti-competitive monopolies and harm other firms, such as SkyRiver and Innovative Interfaces, involved in the industry.
The lawsuit stems from events related to SkyRiver's entry into the bibliographic services arena and OCLC's alleged treatment of libraries that purchased that service, but also addresses a very broad range of business practices. The complaint asserts that OCLC responded with unfair "predatory" pricing for batch loading records created through this competitive service.
The chief example (as reported in LJ) referenced in the complaint involves Michigan State University (MSU), an early adopter of SkyRiver's bibliographic services. Although MSU withdrew from its use of OCLC's cataloging service, the university remains an OCLC member and has maintained its paid subscription to OCLC's interlibrary loan service. Full participation in interlibrary loan requires newly acquired materials to be represented in WorldCat.
Rather than charge the nominal fee that MSU expected for batch loading records cataloged though SkyRiver, OCLC responded with a quotation for a much higher-priced service that would eliminate any savings gained through the use of SkyRiver. The complaint states that libraries have previously paid 23 cents per record loaded into WorldCat, and that the price quoted to MSU amounted to $2.85 per record.
(At the time, OCLC VP Cathy DeRosa responded, "OCLC membership is based on two things: an institution's desire to contribute for broader use, and their active participation in sharing those resource." OCLC has moved to a subscription-only model for services like cataloging and resource sharing, she noted. She framed MSU's request as essentially a request for the cooperative to perform "data stewardship" duties for MSU's records, in addition to the services provided by the resource-sharing subscription, but said "that's not the way the cost-share model works today.")
An important part of the lawsuit's argument involves practices that leverage a monopoly in one area of business activity to create or protect its monopoly in another. It asserts that OCLC operates a monopoly in bibliographic services, having acquired its major competitors--such as WLN and RLN--through a series of business acquisitions. OCLC likewise dominates interlibrary lending services, based on the WorldCat database.
Another aspect of the complaint involves charges that OCLC uses its monopoly in the interlibrary loan arena to protect its bibliographic services activities. By charging prohibitively high fees for loading records needed to be a full ILL participant, SkyRiver claims, OCLC prevents its member libraries from taking advantage of competing offerings, such as from SkyRiver.
Concerns about new ILS
Moreover, the suit claims that OCLC's recent entry into the integrated library system (ILS) market, with its cloud-computing-based ILS Web-scale Management Services (WMS), is likewise supported by its monopolies in other business sectors.
OCLC, as a nonprofit membership organization, competes in the same areas of commerce as do for-profit companies. In the cataloging arena, SkyRiver competes with OCLC's cataloging and other bibliographic services; OCLC's WorldCat Navigator competes against Innovative's INN-Reach resource sharing product; WorldCat Local competes against discovery products such as Innovative's Encore.
Yet the highest stakes lie in the entry of OCLC into the core library automation sector as it prepares to launch WMS next year, a product that competes directly with Innovative's Millennium ILS.
OCLC's position
OCLC has a very large and complex organization and has completed a variety of business acquisitions, involving for-profit businesses as well as nonprofit organizations. The complaint references these acquisitions and claims that all were funded through tax-free revenues.
The plaintiffs also make a moral argument, essentially stating that OCLC's business practices run contrary to its stated mission to "reduce library costs" and "furthering access to the world's information."
Librarian and consultant Karen Coyle commented on the lawsuit on her blog, Coyle's InFormation: "As the representative of a major ILS company explained to me a few years ago, the library market is a zero-sum game: every time one vendor wins, others must lose, because the number of customers is not growing. The library market is a pie that can be divided into any number of slices, but the pie remains the same... With its non-profit status OCLC has a distinct advantage: it doesn't pay federal income tax on the revenues it brings in. That said, given its size and depth of its involvement in day-to-day library operations, it is plausible that even without its non-profit status OCLC would be a formidable competitor for ILS vendors."
Relief sought
The lawsuit asks the court for both unspecified monetary damages as well as dramatically changed business practices. A key demand involves allowing commercial organizations access to the WorldCat database under reasonable terms. The suit asserts that current OCLC policies preclude for-profit companies gaining access to WorldCat and restricts libraries from sharing records.
WorldCat, it claims, aggregates records produced largely by publicly funded libraries, including the Library of Congress, and not by OCLC itself. Although OCLC has recently revised its policies regarding the use of WorldCat, SkyRiver asserts that such policies remain anticompetitive.
In its complaint, SkyRiver stipulates a demand for a jury trial.
The lawsuit
(First on Library Technology Guides)
