News / Paycargo/Cargosprint freight payment case a fascinating fight to the finish

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Some court cases have it all: allegations of theft, racketeering, wire fraud, defamation and big cargo names.

But, above all the noise, is an interesting legal argument on the potentially monopolistic position of technology companies at the forefront of change. And a snapshot of the industry as it undergoes that change, and new players come in.

The case here centres on PayCargo and competitor CargoSprint. The pair have quite a history, the plot is thick.

PayCargo has claimed that Cargosprint pretended to be a customer, reverse engineered its technology and then set up as a competitor, calling itself PayAirCargo. The obvious trademark issue appears more or less to have been settled (it’s complex), after a bout or two in court.

But the main current complaint – and there are a few  – centres on Cargosprint’s position in the dock delivery services market in the US, and whether it is an abuse of its market position for it to force customers who want to use its technology to also use its payment system.

Some of the best parts of this court case involve a widely held recognition that the cargo industry is very slow to adapt to new technologies, despite the efficiencies and advances that would bring… as we all know, of course.

PayCargo has argued that Cargosprint’s Sprintpass, a technology platform enabling efficient airport pick-ups and drop-offs, is in a ‘tying’ arrangement with SprintPay (which must be used), effectively locking competitors out of the market.

That argument requires an examination of the market and what is available.

PayCargo said: “Most cargo handlers and freight forwarders have historically made do with internal processes for scheduling pick-ups, often no more sophisticated than first-in, first-out deliveries or round-robin priorities.

“Accordingly, cargo pick-up often can involve substantial scheduling issues, with long lines of trucks waiting their turn to make pick-ups, particularly at congested, high-volume locations.

“These self-help procedures should not be considered a part of the dock delivery services market any more than people choosing to wash their own dishes in a sink should be viewed as part of the dishwasher market.

“Even if some carrier or cargo handler had a sophisticated system (and existing congestion at high-volume airports suggests that they do not), none of these systems is sold commercially. They are thus not available to the many cargo handlers that lack the capabilities to develop such systems for themselves.

“There is little or no existing competition for the SprintPass software at present,” it concluded, which “is particularly strong in the sub-market of high-volume locations, in which long delays and congestion are a substantial problem. CargoSprint’s tying arrangement has restrained a substantial amount of commerce….”

It cited use at “major air freight terminals that serve the international airports in San Francisco, Los Angeles, Atlanta, Newark, and Chicago (O’Hare)” and indicated that in Los Angeles alone, “SprintPay is handling approximately 50,000 transactions per month. At $10 per transaction, at that location alone defendants are earning an additional half million dollars of revenue every month”.

PayCargo said it would charge $5, and that “well-known” handlers had complained about the tying arrangement.

So far, so good. But the interesting aspect comes in Cargosprint’s response. Going back to the (rather peculiar) dishwasher analogy, it said it was “faulty”.

“But unlike automated dishwashers, …  standalone software like SprintPass is a very new product, and [PayCargo] has not provided any allegations that plausibly suggest customers have within two years completely abandoned self-help methods as viable alternatives.

“Many cargo handlers and freight forwarders continue to rely on these “internal processes”, which should therefore be included in the relevant market,” it said.

“In fact, [PayCargo] acknowledges that electronic “cargo payment services” in the alleged tied product market currently account for only 10% of all transactions made by freight and cargo shipping industry participants … despite the fact these products were introduced over 10 years ago.

“As a whole, cargo and shipping consumers are actually slow to switch to electronic options or solutions and they will continue to consider traditional methods as viable alternatives. [PayCargo’s] allegation, that this same set of customers will no longer consider the solutions they have relied on prior to the introduction of SprintPass within the last two years, simply is not plausible.”

It also argued against PayCargo’s claim that offering Sprintpass for free was unfair.

“Low prices, by definition, do not permit the firm offering them to achieve monopoly returns — if the existing firm ever tried to charge supracompetitive prices, the supposed ‘entry barriers’ (consisting of low prices) would break down,” it pointed out.

The judge threw out PayCargo’s first attempt at the case, saying “it fails to allege [CargoSprint’s] market power over competitors and fails to sufficiently allege an anti-competitive effect on more than a de minimis amount of business in the tied market”.

But he allowed PayCargo a second shot, which Cargosprint is trying to get dismissed for the same reasons.

Whatever the merits of this case, Cargosprint continues to have a fight on its hands over the allegations of theft and wire fraud.

So get out the popcorn, it could be fascinating to watch.