SkyRiver and Innovative Interfaces File Antitrust Suit Against OCLC
Edward M. Corrado
Posted On August 2, 2010
SkyRiver Technology Solutions filed a complaint for Federal and State antitrust violations and unfair competition against OCLC in United States District Court, Northern Division of California on July 28. The suit  alleges that OCLC is "unlawfully monopolizing the bibliographic data, cataloging service and interlibrary lending markets and is attempting to monopolize the market for integrated library systems by anticompetitive and exclusionary agreements, policies and practices." Innovative Interfaces, Inc. is listed as a co-plaintiff. OCLC released a statement on July 29 saying that it hadn't reviewed the complaint yet and after it reviews the complaint and "have had an opportunity to review the allegations with its legal counsel, a statement in response will be forthcoming." This suit could have major implications in the library software and technology services industry. If the suit is successful, OCLC may have to provide for-profit firms access to the WorldCat database and there could be implications for OCLC's status as a non-profit cooperative.
SkyRiver's president Leslie Straus, when contacted for comment, said that the "trigger to the lawsuit was the issue with OCLC punitive pricing with [SkyRiver's] customers." According to the 39-page court filing, Michigan State University (MSU) and California State University at Long Beach (CSULB) were quoted a charge of $2.85 per record to batch-load records to OCLC to be used in WorldCat. MSU and CSULB wanted to load their records so that they could be used for ILL purposes. This amount was "approximately twelve times the amount paid by other libraries that batch load new records." The suit alleges that this "punitive price increase to MSU and CSULB, and the threats made by OCLC's Chair, also signaled to other libraries that they would suffer the same punitive uploading fees should they switch to SkyRiver's cataloging service." The suit also alleges that one or more smaller libraries that indicated an interest in switching from OCLC to SkyRiver were offered "significant discounts for cataloging not available to other OCLC members." Karen Schneider, director of the Cushing Library at Holy Names University, was quoted in a story on the Chronicle of Higher Education's website  as stating that the dispute between OCLC and MSU "was an OCLC misstep that made them very vulnerable to this suit."
Straus said that when their legal counsel started investigating the punitive pricing they uncovered a "bigger problem with the bundling of products," which "grew from the bibliographic metadata in the public domain." The lawsuit claims bibliographic "metadata is in the public domain or is created almost entirely by individual OCLC member libraries, not OCLC." When asked to elaborate, Straus pointed out that "Before SkyRiver was established legal due-diligence was done" to determine "will we even get it off the ground" because "SkyRiver holds as a guiding principle that bibliographic metadata exist within the public domain." [2a]
SkyRiver, founded by Innovative Interfaces owner Jerry Kline in 2009, is currently the only competitor to OCLC in the cataloging services market. OCLC has had competition in the past and the lawsuit claims that the fees to upload records to OCLC for libraries that participated with OCLC's competitors in the past were not nearly as exorbitant as what was quoted to MSU and CSULIB. OCLC acquired its last remaining competitor in the market for cataloging services, Research Libraries Group, Inc. (RLG), in 2006. A cataloger who worked at an RLG library said that they had no problems sending tapes to both RLG and OCLC for inclusion in WorldCat.
Is it against OCLC's Guidelines for the Use and Transfer of OCLC-Derived Records for libraries to share WorldCat service records with SkyRiver or another competing cataloging service? Straus says that they have all of the bibliographic data from SkyRiver's customers but also pointed out that according to OCLC's record use policy "anything derived from WorldCat is WorldCat data." Although the Guidelines were superseded by the WorldCat Rights and Responsibilities for the OCLC Cooperative on August 1, 2010, the suit says that although the language is different "the same policies and restrictions continue in effect." It is questionable if by providing their records to SkyRiver, MSU and other libraries have violated OCLC policy. This is something that this lawsuit may clear up. If libraries cannot provide WorldCat derived records, SkyRiver may have an even harder time growing a database that can compete with WorldCat for cataloging services then it would otherwise, considering OCLC's 40-year head start in amassing WorldCat.
The lawsuit claims that OCLC has a monopoly in three areas of the U.S. academic library market: bibliographic data, cataloging services, and ILL services and that OCLC is using its monopoly power in these areas "in an attempt to monopolize the market for integrated library systems."
According to the lawsuit there is currently no alternative for the ILL services provided by OCLC and OCLC is using this monopoly to coerce members to purchase their "cataloging service by threats and punitive pricing of its ILL service for those who do not purchase its cataloging service."
Attempted ILS Monopoly?
The claims related to the attempt to monopolize the integrated library system market revolve around WorldCat Local and the recently revealed OCLC Web-scale Management Service. The lawsuit claims that "Innovative has lost numerous contracts as a proximate result of OCLC's use of its monopoly power over the WorldCat database and its exploitation of its member libraries' obligation to purchase OCLC products." Because OCLC refuses to allow for-profit companies to access "the WorldCat database for commercial use" the co-plaintiffs believe that they are at an unfair disadvantage in offering discovery layers such as Encore that compete with WorldCat Local. The suit alleges this unfair disadvantage is further exacerbated by the OCLC offer of a stripped down version of WorldCat Local known as WorldCat Local Quick Start, for free to member libraries that purchase OCLC's FirstSearch. The lawsuit claims that OCLC is doing this to "induce librarians" to purchase WorldCat Local.
Related to this topic is something that has been picked up by Library Journal and a number of librarian bloggers and social media users. The lawsuit claims that "OCLC has used its tax-free profits to pay personal cash inducements to key university library officials and provide them with luxury trips to expensive resorts to obtain their commitment to promote OCLC products and the development of those products at their universities..." For example, a Twitter user who goes by the user name OCLCWatchdog  has examined OCLC's 990 tax returns and has tweeted that one library director was paid $66,139 in 2006  and $67,634 in 2007  by OCLC. When asked, assuming these allegations are true, how they harm SkyRiver, Straus said "this is further evidence this (being a non-profit) may not be the case."
OCLC's Non-Profit Cooperative Status?
The lawsuit repeatedly questions OCLC's nonprofit cooperative status. The filing alleges "OCLC is not a true cooperative in that its members do not share its revenues or control its management, operations, or policies." Although OCLC would likely still be a formidable competitor in the ILS market, OCLC's non-profit status provides a significant tax advantage over other competitors in the ILS marketplace. To support the notion that OCLC may not be acting in a non-profit manner, the lawsuit points out that OCLC "generated tax-free profits averaging over $17 million per year" from 2005 through 2008, "only a small fraction of OCLC's revenues comes from contributions, grants, or membership fees", "a majority of [OCLC's] Board of Trustees are elected by the Board itself" instead of by members, and "[r]ather than operating with transparency [...] OCLC charges different prices to its members for the same services and conceals them from its members."
Claims for Relief
When asked how Innovative Interfaces became involved with this lawsuit, Straus said that when SkyRiver first started investigating legal action they did not intend to have a co-plaintiff but as issues larger than the alleged punitive fees quoted to MSU and CSULB surfaced, their legal counsel recommended that Innovative join the suit. When reached for comment Gene Shimshock, Innovative Interfaces' vice president for marketing said that, "In general, Innovative is sympathetic to SkyRiver's situation and has joined in on the suit. Our goal is a level playing field where we can compete fairly and offer libraries a choice of technologies." Straus similarly added that "We (SkyRiver) are after a level playing field and we are here to stay."
The plaintiffs have a number of claims for relief. They have asked the court to prohibit OCLC from "denying access to the WorldCat Database to for-profit firms that provide library services for commercial use." They also have asked the court to prevent OCLC from using punitive pricing for uploading records to the WorldCat database and from "engaging in selective and discriminatory pricing through tying and bundling arrangements." The plaintiffs have also asked for damages, attorney fees, and other costs in amounts to be determined at trial.
Ex Libris, a library services company, could benefit should SkyRiver and Innovative win this suit and OCLC is compelled to open up access to WorldCat to commercial vendors. This is especially true for Ex Libris because it is currently developing a new offering known as the Unified Resource Management (URM). URM contains "a central repository of bibliographic and authority records" known as the community zone.  If Ex Libris is able to populate the community zone with records directly from WorldCat or from OCLC member libraries, it may make the URM more attractive to potential customers. Carl Grant, president of Ex Libris North America, when asked for comment replied:
OCLC is, of course, a major asset for the library profession. Some of their decisions in recent years however have been troubling. Particularly for those of us who must deal with their data usage policies and product offerings without the advantage they're afforded by their data ownership policies and non-profit tax status.
We need to remember that OCLC is playing a dual role: as a membership organization building assets such as WorldCat, and as a commercial vendor marketing solutions, products, and services. The problems start when they leverage the first to meet the commercial goals of the second.
We're hopeful this action will clarify the situation and result in a fair and competitive environment for the library profession.
Joseph Lucia, University Librarian at Villanova University-the library behind the Open Source discovery layer knows as VuFind  -when asked for comment replied:
OCLC continues to send mixed signals to the library community about the core values by which it operates and this lawsuit is another instance of the complexity of the situation. On the one hand, OCLC asserts that it embraces and effectively stands as the embodiment of the library community's long-term commitment to cooperation, collaboration, and resource sharing. Recent developments in support of open data sharing as exemplified by the WorldCat API, linked data in the Identities project, and provision of access to linked subject thesauri send a very positive signal in this regard. On the other hand, the record use fiasco that asserts OCLC's continuing interesting in restricting possible uses of a common resource-and their ostensibly retributory pricing actions against those who've opted to seek alternatives for access to bibliographic data-send a different and in many ways contradictory signal. While most of us in the library world understand OCLC's interest in preserving a revenue base that keeps it viable as an organization working for and on behalf of libraries, the real challenge of the moment is that emerging open data and open source technologies require deeper library collaboration and less restrictive frameworks for the development of new tools and services. This lawsuit is unfortunate in many ways, because it was avoidable. The key development we need to see within OCLC to get past this is a sustainable business framework that positions OCLC as a non-proprietary partner in support of common resources and the intellectual commons that is at the heart of the library mission. Perhaps this is a teachable moment in which we can re-activate a serious conversation about how that might happen.
Reaction on library blogs and by librarians on social media sites has been mixed. Some commentators have questioned the motives of SkyRiver and Innovative Interfaces while still being sympathetic with their cause. Rick Mason blogged that "This is a lawsuit that might be necessary to bring some pressing problems into the open, but I am not so sure that SkyRiver/III is the right combination of companies to champion the cause." [7a] On Karen Schneider's Free Range Librarian blog, Jonathan Rochkind commented, "I don't trust SkyRiver/III one bit, and I don't wish OCLC to die" but he is "highly annoyed (to put it lightly) at OCLC's anti-competitive practices. If those practices are actually illegal or not, well the judge will decide. I am not at all unhappy to have OCLC's bluff called here." 
Schneider, in the blog post that Rochkind responded to, called OCLC "a galumphing behemoth, often clumsily distant from its own kith and kin, with chronic governance issues, a deficit of social acumen, and a palpable mistrust of its membership. But OCLC is our behemoth-yours and mine. If we are going to have a worldwide catalog, it's going to be a behemoth." 
Eric Hellman, whose company Openly Informatics was acquired by OCLC in January 2006 (and a former OCLC employee), tweeted that after his initial reading of the complaint, "Legit or no, It's hard to tell the vinegar from the whine."  He and others also said that the "bad blood between III and OCLC runs deep. Antitrust suit is another tactic in nasty head to head competition." 
At this point it is unclear what the outcomes of this lawsuit will be. Some people have commented that even if all of the allegations are true and possibly unethical, they are not sure if they rise to the level of being unlawful. One thing for sure is unless SkyRiver, Innovative, and OCLC come to a quick out of court settlement, which appears unlikely, there will be not be a resolution anytime soon. When contacted for comment, a legal expert familiar with libraries said "Antitrust law is a complex specialty. The suits also take years to resolve."
Note: For more background information, see the Guide to the SkyRiver vs. OCLC lawsuit created by Marshall Breeding.