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Arizona beats back copyright challenge to car-dealer data law

3 minute read

REUTERS/Joshua Lott

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  • State law requires dealer database operators to allow access
  • Operators argued law would allow violations of their copyrights
  • Didn't show infringement from alleged code, data copying

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(Reuters) - Arizona beat back a challenge to a law prohibiting database-software companies from restricting authorized access to car dealers' data at the 9th U.S. Circuit Court of Appeals on Monday.

CDK Global LLC and Reynolds & Reynolds Co failed to show that the state law would allow for the infringement of their software copyrights by letting outsiders copy it, U.S. Circuit Judge Eric Miller wrote for a unanimous three-judge panel.

Car dealers use dealer management system (DMS) software to store information about customers, vehicles and accounting, including sensitive data like customers' social security numbers and credit history. Dealers often rely on other software for aspects of their business like marketing and customer relations, which require DMS data to function.

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Illinois-based CDK and Ohio-based Reynolds control most of the DMS market. The companies recently started prohibiting authorized third parties from taking data for dealers to use in other applications, and began charging "significantly higher prices" for their own data-integration services, the court said.

Arizona's legislature passed a law in 2019 that, in addition to strengthening safeguards for dealers' data, prohibits DMS providers from restricting a dealer's "ability to protect, store, copy, share or use" data, which the law referred to as "cyber ransom."

CDK and Reynolds challenged the statute in Phoenix federal court later that year, and U.S. District Judge Murray Snow denied their request to preliminarily block the law last year, finding they weren't likely to succeed on the merits.

The providers argued on appeal that the federal Copyright Act preempts the Arizona law because it allows users to infringe their copyrights by making unlicensed copies of their DMS software, data compilations, and application programming interfaces (APIs), which allow applications to connect with each other.

Miller, joined by Circuit Judges William Fletcher and Danielle Forrest, said Monday that the providers couldn't reach the "high bar" to show preemption.

The providers argued those who access its databases automatically create an unauthorized copy of the DMS software in the providers' servers. But Miller said even if that copying occurred, the providers didn't show it would infringe.

The court said the providers also didn't show that copying APIs would violate copyright law, noting the Arizona law doesn't require a provider to use an API, and that it wasn't clear that a provider's API would be entitled to copyright protection, citing the U.S. Supreme Court's April decision in Google LLC v. Oracle America Inc.

The providers also don't hold copyrights in the data itself, and the law "nowhere requires or permits the copying of any copyrighted data compilations," Miller said. The case will return to Arizona federal court for further proceedings.

"Today is a great day for consumers and for the protection of their personal information," said Katie Conner, a spokesperson for the Arizona Attorney General's Office.

The database providers and their attorneys Brian Howie of Quarles & Brady, Michael Scodro of Mayer Brown and Thomas Dillickrath of Sheppard Mullin Richter & Hampton didn't immediately respond to a request for comment.

The case is CDK Global LLC v. Brnovich, 9th U.S. Circuit Court of Appeals, No. 20-16469.

For CDK and Reynolds: Brian Howie of Quarles & Brady; Michael Scodro of Mayer Brown; and Thomas Dillickrath of Sheppard Mullin Richter & Hampton

For the Arizona Attorney General: Beau Roysden of the Office of the Attorney General; and Mary O'Grady of Osborn Maledon

Read more:

U.S. Supreme Court backs Google over Oracle in major copyright case

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Blake Brittain reports on intellectual property law, including patents, trademarks, copyrights and trade secrets. Reach him at blake.brittain@thomsonreuters.com

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