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Judge Rules on FICO Vs. VantageScore

Mixed rulings for three credit agencies

July 30, 2009

By staff

A federal judge has dismissed a claim that the one of the three credit agencies violated its contract with FICO by developing a competing credit scoring model. She also dismissed claims of antitrust violations and false advertising -- despite the possibility that the three might have tried to put FICO out of business. But FICO can proceed with its claim of trademark infringement tied to range of credit score values used in the VantageScore.

The lawsuit was originally filed in U.S. District court for the District of Minnesota on Oct. 11, 2006, by Fair Isaac Corp., which now operates as FICO, and myFICO Consumer Services Inc. Named as defendants were Equifax Inc., Experian Information Solutions Inc., TransUnion LLC and VantageScore Solutions LLC, according to court records.

The three defendant credit agencies began meeting in late 2003 to discuss the joint development of a tri-bureau score. The goal was to shift earnings from FICO to themselves. Each agreed to pay an annual licensing fee of $300,000 for unlimited utilization of the VantageScore.

In contrast, TransUnion's royalty payment to plaintiff FICO is $44 million.

FICO claimed that the defendants' launch of VantageScore was done through unfair and anticompetitive practices that would harm the FICO credit score brand. The company alleged that the defendants were trying to squeeze FICO out of the credit scoring market.

"The recent agreement between the three powerhouse agencies unfairly threatens our ability to compete, and inhibits the ability of consumers and lenders to enjoy the benefits of continued innovation, choice and competition in the credit information marketplace," FICO Chief Executive Officer Tom Grudnowski said in an October 2006 statement to

In June 2008, FICO dropped Equifax Inc. from the lawsuit as the two announced an alliance that would leverage Equifax's consumer credit data to enhance FICO 08 -- the latest credit scoring model.

In a Memorandum Opinion and Order filed last week, U.S. District Judge Ann D. Montgomery, granted TransUnion and VantageScore a Mortgage for Summary Judgment Dismissing Contract Related Counts.

At issue was whether an agreement with TransUnion prohibited the company from developing competing scoring models that use publicly available concepts and ideas even if those concepts are used in the FICO model. She determined that even if TransUnion had schemed to eliminate FICO from the market, it would not have been breaching its contract with FICO.

FICO's allegations that the joint development of VantageScore violated antitrust laws and that VantageScore's pricing was model was anticompetitive didn't hold up. The judge granted the defendants' Motion for Summary Judgment Dismissing Antitrust Counts.

She noted that while FICO did lose business because of legitimate competition, it couldn't not prove it had been harmed by the alleged anticompetitive activity.

"Anticompetitive conduct is conduct designed to destroy competition, not just to
eliminate a competitor," the ruling stated.

Montgomery explained the FICO scoring model, which was developed in the late 1980s, represented more than three-quarters of the credit-scoring market by 2005 -- near its level today. In the business-to-business market, the share was 94 percent.

In contrast, VantageScore's market share has only reached 5.7 percent since it launched three years ago. In addition, it has had little impact on the business-to-business market -- pushing down FICO's share by only 1 percent.

Even Professor Roger Noll -- who testified as an expert witness for FICO -- acknowledged that "VantageScore isn't very

The judge also dismissed charges of false advertising.

The defendants allegedly exaggerated the extent to which lenders actually used VantageScore credit scores and TransUnion's and Experian's in-house credit scores. They also allegedly overstated VantageScore's predictive ability compared to other scores on the market. FICO claims less than 1 percent of lenders were using TransUnion's score and no lenders were using the scores of Experian or VantageScore -- even though they were claiming "an appreciable number of lenders" in advertisements at the time.

The court, however, was convinced by the defendants' argument "that the statements on which Fair Isaac relies fail to
convey the implied message that an appreciable number of lenders use the in-house scores of VantageScore in making lending decisions." It also found that VantageScore's claims about its superior predictive ability were too vague to be considered false advertising that harmed FICO.

The judge granted the defendants' Motion for Summary Judgment Dismissing False Advertising Counts.

An April 2007 amended complaint by FICO accused the defendants of "passing off" FICO's trademarked scoring range. VantageScore's range is 501 to 990, while FICO's is 300 to 850. The defendants were accused of trademark infringement because their new model was confusingly similar with FICO's.

TransUnion had argued that developing alternative scoring models would be a big expense, while regulatory approval of a new model could prove a mammoth task.

FICO successfully argued that the use of "300-850" in connection with credit scoring products or services infringes on its trademark. The company also found support in its claim that sponsored search ads by VantageScore using the phrase "FICO" infringed on its trademark.

"In sum, genuine issues of material fact preclude summary judgment on Fair Isaac's
claims based on allegations that defendants infringed on Fair Isaac's trademarks," the judge wrote.

Montgomery denied the defendants' Motion for Summary Judgment Dismissing Trademark-Related Counts.

Fair Isaac Corporation and myFICO Consumer Services Inc., Plaintiffs, v. Equifax Inc. Experian Information Solutions Inc., Trans Union LLC and VantageScore Solutions LLC.
Case 0:06-cv-04112-ADM-JSM, Oct. 11, 2006 (U.S. District Court for the District of Minnesota)

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