Honeywell Suit Claims Alarm.com’s Deal With Icontrol Amounts to a Monopoly
SSI spoke with several industry observers who commented on allegations by Honeywell that Alarm.com’s acquisition of two Icontrol divisions would result in a monopoly.
NEWARK, N.J. – Asserting that a planned merger agreement struck by Icontrol Networks and Alarm.com would result in a monopoly in the smart home services market, Honeywell has filed an antitrust lawsuit to quash the $140 million deal.
Honeywell seeks to stop the acquisition of two divisions of Icontrol Networks by Alarm.com, claiming the combined entity would have a 70% share of the market for software allowing remote operation by smartphone or computer of a home alarm system and other connected devices. (First announced in June 2016, the proposed merger also calls for Comcast to take over Icontrol’s Converge platform, which is the foundation of Comcast’s Xfinity Home service. Alarm.com would also acquire Icontrol’s Piper smart home hub and its Connect platform, which is the basis for ADT’s Pulse service.)
At issue is control of the market for software platforms that are used with alarm systems purchased through installing security contractors. Honeywell stresses the deal would permit Alarm.com to insist that third-party manufacturers of security hardware and smart home devices, such as thermostats, lights and security cameras, use its platform exclusively.
Courts have held that a 65% market share is sufficient to establish a prima facie case that the merger is anticompetitive, according to Honeywell’s lawsuit, filed here Feb. 22 in federal court.
In a Feb. 23 SEC filing, Alarm.com said it was “proceeding with activities required to close the acquisition” and that it “intends to defend itself vigorously in this matter.”
“When the word first came out that Alarm.com and Icontrol were going to merge, there were a lot of conversations amongst industry people about the size of the intellectual property portfolio that would be controlled by one entity,” says Avi Rosenthal, president of San Diego-based IoT Consulting.
Rosenthal said the proposed merger should be reviewed to fully understand the breadth of the combined portfolios and to gauge whether or not it truly could be considered a monopoly.
“The CTA [Consumer Technology Association] talks a lot about a lack of innovation in tightly held intellectual property areas of technology,” Rosenthal said. “If a single company owns a big portfolio of intellectual property what it means is a lot of other companies won’t necessarily innovate in that space because they are afraid of the big guys.”
Antitrust Violation Claims
The proposed acquisition would violate section 7 of the Clayton Act and section 1 of the Sherman Act, according to the suit, which seeks a judgment that the deal violates antitrust laws and an injunction barring the planned acquisition or any other transaction that would combine portions of the two companies providing remote services for security systems.
Although the smart home space remains highly fragmented with diverse players competing within various products segments, there are currently far fewer competitive software platform providers.
“When we did our smart home research late last year, I looked at about 85 different monitoring companies. About 38 of those essentially use Icontrol or Alarm.com, and 18 use [Honeywell’s] Total Connect,” said Blake Kozak, a principal analyst for research firm IHS Markit who covers smart home and security technology. “Of the top 10 monitoring companies that have connected services – ADT, Vivint, Comcast, Protection 1, etc. – seven out of the top 10 have ties to Alarm.com or Icontrol. Of the 85 companies that we have looked at, about 18 of them use Total Connect. Obviously, Alarm.com and Icontrol have a much larger share.”
Honeywell, which has an estimated 12% share of the market for remote services, said the deal between its rivals would hamper its ability to connect its software platform to other manufacturers’ smart home devices.
The deal would also allow Alarm.com to undermine Honeywell’s years-long relationship with ADT, the suit says. ADT has stated that, if the deal goes through, it will switch from Honeywell to Alarm.com remote services software, according to the complaint.
Open Vs. Closed Platforms
Both Icontrol and Alarm.com use open architecture, which allows its software to be used with sensors and control panels made by other vendors, including 2GIG, DSC, Interlogix and Qolsys. Honeywell uses closed architecture, requiring security dealers to use the company’s own security and home automation panels, although some third-party Z-Wave and IP devices are compatible.
Still, Honeywell maintains in the suit that it designed its software to support ADT’s hardware after considerable time and expense.
The merger would cause Honeywell to lose sales just as it will be forced to make additional investment in its platform, according to the suit.
The nature of the suit, according to Michael Barnes, founding partner of consulting firm Barnes Associates, would seem to be about barriers. That is, does the market configuration preclude or make it unnaturally difficult for new and existing competitors of Alarm.com to the detriment of consumers?
“It would seem to me the deeper issue might be about the status – or lack thereof – of patents around the needed technology to provide the SHaaS [smart home as a service] provided by Alarm.com, and others,” Barnes said. “If somehow this combination brings together an effective blocking move on the needed technology, then I would think there would be merit to the litigation, potentially.”
Still, Barnes said he is skeptical that Honeywell or other competitors would be precluded from achieving compelling economics and pricing in competition with Alarm.com or from providing comparable products and services.
“It feels to me like we are in the beginning phases of smart home technology and the specific functionality provided by Alarm.com and other competitors, and that the untapped market is an order of magnitude or more larger,” he said. “In my mind, assuming none of the previously mentioned barriers, I think there is plenty of room for competition and a number of successful players.”
Les Gold, a partner at Mitchell, Silberberg & Knupp, said he is surprised Honeywell would pursue the lawsuit given the proliferation of companies that are marketing and developing similar type products.
“My initial reaction is that they have a competitive product they are working on and they’re trying to slow this thing down so they can get it into the marketplace. That’s what it sounds like to me, but I do not know,” Gold said. “I do think Honeywell is going to have their hands full here.”
Honeywell would suffer injury if the merger went forward, and because its injury would flow from the reduction in competition caused by the merger, as well as anti-competitive acts made possible by the deal, the injury to Honeywell would constitute antitrust injury, the company said.
Private actions to enforce antitrust law are specifically authorized by section 16 of the Clayton Act and encouraged by Congress and the Supreme Court, according to Honeywell.
Toward the end of last year, the Federal Trade Commission began scrutinizing the proposed acquisition.
With the election of the Trump administration and the expectation it would usher in a highly pro-business environment, Rosenthal posits Honeywell may have been concerned the transaction could simply be “rubber stamped.”
mption is,” said Rosenthal, “Honeywell saw the writing on the wall and decided, ‘We’d better step in with a lawsuit so at least we get our day in court.'”
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