Case 1:20-cv-03441-ABJ Document 1 Filed 11/25/20 Page 1 of 12
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`UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`
`Plaintiff,
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`
`UNITED STATES OF AMERICA,
`U.S. Department of Justice
`Antitrust Division
`450 Fifth Street, N.W., Suite 8000
`Washington, DC 20530
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`
`
`v.
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`INTUIT INC.
`2700 Coast Avenue
`Mountain View, CA 94043
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`and
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`CREDIT KARMA, INC.,
`760 Market Street, Floor 2
`San Francisco, CA 94102
`
`
`
`Defendants.
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`
`COMPLAINT
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`The United States of America, acting under the direction of the Attorney General of the
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`United States, brings this civil antitrust action to prevent Intuit Inc. from acquiring Credit Karma,
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`Inc. The United States alleges as follows:
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`I.
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`INTRODUCTION
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`1.
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`Each year, nearly 140 million individuals, families, and households around the
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`country file U.S. federal and state income taxes. The tens of millions of filers who choose a
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`digital do-it-yourself (“DDIY”) tax preparation product have some choice, but one product
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`dominates this market: TurboTax. Intuit, the maker of TurboTax, is by far the largest provider of
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`Case 1:20-cv-03441-ABJ Document 1 Filed 11/25/20 Page 2 of 12
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`DDIY tax preparation products, with a 66% market share. For more than a decade, Intuit’s
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`dominance has been nearly as certain as taxes themselves.
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`2.
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`Since 2008, Credit Karma has operated a popular personal finance platform that
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`offers consumers a variety of free services, including credit monitoring and financial
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`management. When Credit Karma launched its own DDIY tax preparation product in 2017, it
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`was the first meaningful DDIY tax preparation product entry in at least a decade. Credit
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`Karma’s goal was clear: “Just like it did with credit scores in 2008, Credit Karma plans to
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`change the tax preparation industry so people won’t ever have to pay to do their taxes again.”1
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`Credit Karma quickly became a significant competitor to Intuit, despite its recent entry and
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`relatively small market share, because Credit Karma has always offered its DDIY tax preparation
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`product to consumers entirely for free. This business model remains unique among DDIY tax
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`preparation product providers.
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`3.
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`Through Credit Karma’s personal finance platform, Credit Karma offers its more
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`than 100 million members free personal finance tools, such as free credit scores and monitoring,
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`and tailored, third-party financial offers, including credit card, personal loan, and refinancing
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`opportunities. Credit Karma is paid only by the third parties, and only when consumers take
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`advantage of these customized offers. Credit Karma can take the data gathered from tax filings,
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`with the filers’ consent, to improve Credit Karma’s offerings to its members. This, in turn,
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`improves the likelihood that a consumer will take advantage of the offer. This process enables
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`Credit Karma to provide a DDIY tax preparation product for free regardless of the U.S. federal
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`or state tax forms used and complexity of the tax return.
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`1 https://www.creditkarma.com/ourstory.
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`4.
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`Thanks to its always-free strategy and enormous member base, Credit Karma
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`became the fifth-largest DDIY tax provider after its first tax season and has grown significantly
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`each year since, with over two million filers in 2020. Credit Karma has projected additional
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`growth in the future as its product continues to get traction, and as it continues to add features
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`and expand the scope of its DDIY tax preparation product.
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`5.
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`Although as the new player in the market Credit Karma serves only 3% of
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`customers, Intuit has recognized that Credit Karma represents its most disruptive competitor for
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`DDIY tax preparation. Credit Karma’s always-free model poses a unique threat to Intuit because
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`Intuit (and all other DDIY tax preparation providers) charges consumers for DDIY tax
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`preparation products for anything beyond the most basic filings as well as often for state filings.
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`Intuit relies on these fees for revenue. For example, Intuit charges individual filers substantial
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`fees to use TurboTax to claim itemized deductions, report investment income, or claim self-
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`employed business expenses, among other complex tax filings. The majority of TurboTax
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`customers pay Intuit to use one of its DDIY tax preparation products. By contrast, Credit Karma
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`offers these same services for federal and state tax returns to individuals for free, and there is no
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`up-charging for additional complexity.
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`6.
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`Over the last four tax seasons, Credit Karma has begun to erode Intuit’s
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`dominance in the market for the development, provision, operation, and support for DDIY tax
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`preparation products. Credit Karma has constrained Intuit’s pricing, and has also limited Intuit’s
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`ability to degrade the quality and reduce the scope of the free version of TurboTax in order to
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`drive customers to the paid versions. Customer losses to Credit Karma have also represented lost
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`revenue to Intuit because many switchers were purchasing TurboTax paid products, not using
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`TurboTax free offerings. Faced with stiff competition from Credit Karma and mounting losses of
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`Case 1:20-cv-03441-ABJ Document 1 Filed 11/25/20 Page 4 of 12
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`paying customers to Credit Karma’s always-free product, Intuit responded aggressively. Intuit
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`lowered the prices and increased the quality of some of its products. This head-to-head
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`competition with Credit Karma has benefitted many of the millions of Americans who use
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`TurboTax each year, constraining Intuit’s ability to charge higher prices and leading Intuit to
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`increase the quality of its products.
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`7.
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`Intuit’s proposed acquisition of Credit Karma will eliminate the growing threat
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`posed by Credit Karma and further cement TurboTax’s dominance. If the proposed transaction
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`proceeds in its current form, consumers are likely to pay higher prices, receive lower quality
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`products and services, and have less choice for DDIY tax preparation products. To prevent those
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`harms, the Court should enjoin this unlawful transaction.
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`II.
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`JURISDICTION AND VENUE
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`8.
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`The United States brings this action pursuant to Section 15 of the Clayton Act, 15
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`U.S.C. § 25, to prevent and restrain Defendants from violating Section 7 of the Clayton Act, 15
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`U.S.C. § 18.
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`9.
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`Defendants are engaged in, and their activities substantially affect, interstate
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`commerce. Intuit and Credit Karma both provide DDIY tax preparation products that serve
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`federal and state tax filers throughout the United States. The Court has subject matter
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`jurisdiction over this action pursuant to Section 15 of the Clayton Act, 15 U.S.C. § 25, and 28
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`U.S.C. §§ 1331, 1337(a), and 1345.
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`10.
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`Venue is proper under Section 12 of the Clayton Act, 15 U.S.C. § 22, and under
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`28 U.S.C. §§ 1391(b) and (c).
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`11.
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`This Court has personal jurisdiction over each Defendant. Intuit and Credit
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`Karma both transact business and are found within the District of Columbia.
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`12.
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`Intuit and Credit Karma have each consented to personal jurisdiction and venue in
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`this jurisdiction for purposes of this action.
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`III. DEFENDANTS AND THE PROPOSED TRANSACTION
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`13.
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`This case arises from Intuit’s proposed acquisition of Credit Karma for
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`approximately $7.1 billion, pursuant to an Agreement and Plan of Merger entered on February
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`24, 2020.
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`14.
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`Intuit is a large, public software company based in Mountain View, California that
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`offers tax preparation, accounting, payroll, and personal finance solutions to individuals and
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`small businesses. Intuit offers DDIY tax preparation products under the TurboTax brand.
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`Approximately 41 million individuals filed individual federal tax returns in 2020 using
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`TurboTax. Intuit, through its TurboTax business, is the largest provider of DDIY tax preparation
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`products for U.S. federal and state tax returns. In 2019, Intuit earned over $6.5 billion in
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`revenue, including over $2.5 billion from sales of TurboTax products.
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`15.
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`Credit Karma is a privately-held technology company based in San Francisco,
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`California that offers an online and mobile personal finance platform. Credit Karma’s platform
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`provides individuals with access to free credit scores, credit monitoring, and DDIY tax
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`preparation, among other products and services. Credit Karma is home to more than one
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`hundred million customers, and in any given month, over thirty-five million customers are
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`actively engaged on the Credit Karma platform. Credit Karma’s DDIY tax preparation business,
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`known as Credit Karma Tax, is the fifth-largest provider of DDIY tax preparation products for
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`U.S. federal and state tax returns. Approximately two million individuals filed U.S. federal tax
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`returns with Credit Karma Tax in 2020.
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`IV. THE RELEVANT MARKET
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`A. Relevant Product Market
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`16.
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`Intuit and Credit Karma compete to develop, provide, operate, and support DDIY
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`tax preparation products that help individuals file U.S. federal and state tax returns (“DDIY tax
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`preparation products”) to millions of Americans. DDIY tax preparation products enable
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`individuals to prepare their own U.S. federal and state tax returns on the provider’s website or
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`mobile application or using the provider’s software installed on a personal computer. The
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`development, provision, operation, and support of DDIY tax preparation products is a relevant
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`product market and line of commerce under Section 7 of the Clayton Act, 15 U.S.C. § 18.
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`17.
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`A hypothetical monopolist would impose at least a small but significant and non-
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`transitory increase in the price of DDIY tax preparation products. Such a price increase for these
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`products would not be defeated by substitution to alternative products. Other methods of
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`preparing individual U.S. federal or state income tax returns are not close substitutes for DDIY
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`tax preparation products because those methods of tax preparation do not offer comparable
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`functionality or are less convenient, more cumbersome, or more expensive. For example, hiring
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`an accountant—i.e., “assisted tax preparation”—is substantially more expensive and less
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`convenient than using DDIY tax preparation products. Similarly, completing U.S. federal and
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`state tax returns manually using the “pen-and-paper” method is a substantially more tedious and
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`error-prone process and thus less efficient than using DDIY tax preparation products.
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`B. Relevant Geographic Market
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`18.
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` The DDIY tax preparation products that Intuit and Credit Karma offer assist
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`individuals with filing their U.S. federal and state income tax returns. Customers that are
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`required to file tax returns in jurisdictions outside of the United States cannot use the DDIY tax
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`preparation products at issue for those purposes. Similarly, DDIY tax preparation products that
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`have been designed to assist individuals with filing tax returns in jurisdictions outside of the
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`United States cannot be used by customers to prepare U.S. federal and state tax returns. Both
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`customers and suppliers of DDIY tax preparation products predominantly are located within the
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`United States. However, because many DDIY tax preparation products are provided over the
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`internet, there do not appear to be any physical restrictions on the location of suppliers or
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`customers—that is, any consumer who is required to file U.S. taxes can generally choose
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`between the same DDIY tax preparation products, regardless of whether the customer or DDIY
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`product supplier is physically located inside the United States. Therefore, a worldwide market is
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`a relevant geographic market within the meaning of Section 7 of the Clayton Act, 15 U.S.C. § 18
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`for the purposes of analyzing this transaction.
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`V.
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`INTUIT’S ACQUISITION OF CREDIT KARMA IS LIKELY TO RESULT IN
`ANTICOMPETIVE EFFECTS
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`A. The Transaction is Presumed Likely to Enhance Intuit’s Market Power and
`Substantially Less Competition
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`19.
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`The relevant market is highly concentrated and would become significantly more
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`concentrated as a result of the proposed transaction. The more concentrated a market and the
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`more a transaction increases concentration in that market, the more likely it is that the transaction
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`will reduce competition. Concentration is typically measured by market shares and by the well-
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`recognized Herfindahl–Hirschman Index (HHI). If the post-transaction HHI would be more than
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`2,500 and the change in HHI more than 200, the transaction is presumed likely to enhance
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`market power and substantially lessen competition. See, e.g., United States v. Anthem, Inc., 855
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`F.3d 345, 349 (D.C. Cir. 2017).
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`20.
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`In 2020, approximately 41 million individuals filed a federal tax return using
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`Intuit’s TurboTax, accounting for about 66% of the total market for DDIY tax preparation
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`products. During the same time period, approximately two million individuals filed a federal tax
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`return using Credit Karma’s DDIY tax preparation product, accounting for about 3% of the total
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`market. H&R Block, the second-largest provider of DDIY tax preparation products, has about a
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`15% market share. The post-transaction HHI would be over 5,000, with an increase in excess of
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`400. Given the high concentration level and increases in concentration in the market for DDIY
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`tax preparation products, the proposed acquisition presumptively violates Section 7 of the
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`Clayton Act.
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`21.
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`These concentration measures understate the likely anticompetitive effects of the
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`transaction. Because Credit Karma is the only competitor that provides DDIY tax preparation
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`products for free to consumers regardless of the complexity of the federal tax return or state tax
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`return required, it plays a uniquely disruptive role in the market. Further, Credit Karma is poised
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`to continue with substantial growth in the near- and long-term.
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`B. The Transaction Would Eliminate Head-To-Head Competition Between
`Intuit and Credit Karma and an Important Competitive Constraint
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`Intuit’s acquisition of Credit Karma would remove a significant competitor that
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`22.
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`has been an important competitive constraint on Intuit. Intuit’s TurboTax offers consumers a
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`limited free option for simple individual federal tax filings, but it charges consumers fees for
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`more complicated federal tax filings, including filings with itemized deductions, investment
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`income, and self-employed income and expenses. Intuit also charges consumers fees for their
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`state tax filings. Unlike Intuit, Credit Karma does not charge consumers for any of the products
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`and services that it offers. Instead, Credit Karma uses the data that it collects from users to
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`create targeted offers on financial products and services and collects a commission from financial
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`institutions when users accept these offers. In addition, Credit Karma has an existing customer
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`base of over a hundred million users that it can cost-effectively target for DDIY tax preparation
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`products.
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`23.
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`Intuit and Credit Karma compete head-to-head to provide DDIY tax preparation
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`products to tens of millions of Americans. This head-to-head competition has led to lower prices
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`and increased quality for DDIY tax preparation products. In response to competition from Credit
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`Karma, Intuit has strategically lowered prices on some of its DDIY tax preparation products,
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`such as by extending promotions for free state tax filing with TurboTax (up to a $50 value). In
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`addition, to compete with Credit Karma, Intuit has expanded the scope and quality of services it
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`offers to TurboTax users at no additional cost to consumers, including by granting customers free
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`access to their prior year’s tax returns.
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`24. Moreover, without this merger, competition between Intuit and Credit Karma
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`would intensify as Credit Karma continues to grow and erode Intuit’s substantial base of
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`TurboTax customers. Credit Karma has consistently and significantly grown its market share
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`year over year and is forecasting continued significant growth over the next few years.
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`25.
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`By eliminating head-to-head competition between Intuit and Credit Karma, the
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`proposed acquisition in its current form would result in higher prices, lower quality, and reduced
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`choice. Thus, the merger would substantially lessen competition and harm millions of
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`consumers in the development, provision, operation, and support of DDIY tax preparation
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`products.
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`VI. ABSENCE OF COUNTERVAILING FACTORS
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`26.
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`New entry and expansion by competitors likely will not be timely and sufficient
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`in scope to prevent the acquisition’s likely anticompetitive effects. Apart from Credit Karma, no
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`other companies have successfully entered the market for the development, provision, operation,
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`and support of DDIY tax preparation products in over a decade. As Intuit’s and Credit Karma’s
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`executives have recognized, barriers to entry are high. Barriers to entry and expansion include
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`(i) large sunk costs and significant other expenditures to develop easy-to-use, robust DDIY tax
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`preparation products; (ii) significant time and expense to build a trusted brand; and (iii)
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`substantial marketing dollars and effort to promote the DDIY tax preparation products and attract
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`customers.
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`27.
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`The proposed acquisition is unlikely to generate verifiable, merger-specific
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`efficiencies sufficient to reverse or outweigh the anticompetitive effects that are likely to occur.
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`VII. VIOLATION ALLEGED
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`28.
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`The United States hereby incorporates the allegations of paragraphs 1 through 27
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`above as if set forth fully herein.
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`29.
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`Intuit’s proposed acquisition of Credit Karma is likely to substantially lessen
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`competition in the relevant market, in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18.
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`30.
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`Unless enjoined, the proposed acquisition would likely have the following
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`anticompetitive effects, among others:
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`(a)
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`eliminate present and future competition between Intuit and Credit Karma
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`in the market for the development, provision, operation, and support of
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`DDIY tax preparation products;
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`(b)
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`cause prices for DDIY tax preparation products to be higher than they
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`would be otherwise;
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`(c)
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`lessen innovation; and
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`(d)
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`reduce quality, service, and choice for Americans that file U.S. federal and
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`state tax returns.
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`Case 1:20-cv-03441-ABJ Document 1 Filed 11/25/20 Page 11 of 12
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`VIII. REQUEST FOR RELIEF
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`31.
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`The United States requests that the Court:
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`(a)
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`adjudge Intuit’s acquisition of Credit Karma to violate Section 7 of the
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`Clayton Act, 15 U.S.C. § 18;
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`(b)
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`permanently enjoin Defendants from consummating Intuit’s proposed
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`acquisition of Credit Karma or from entering into or carrying out any other
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`agreement, understanding, or plan by which the assets or businesses of
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`Intuit and Credit Karma would be combined;
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`award the United States its costs of this action; and
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`grant the United States such other relief the Court deems just and proper.
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`(c)
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`(d)
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`Case 1:20-cv-03441-ABJ Document 1 Filed 11/25/20 Page 12 of 12
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`Dated: November 25, 2020
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`Respectfully submitted,
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`FOR PLAINTIFF UNITED STATES:
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`
` /s/ Brian Hanna
`BRIAN HANNA*
`MICHELE B. CANO
`J. RICHARD DOIDGE
`RACHEL A. FLIPSE
`JOHN A. HOLLER
`MICHELLE LIVINGSTON (D.C. #461269)
`MICHAEL T. NASH
`SETH J. WIENER (D.C. #995383)
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`Attorneys for the United States
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`U.S. Department of Justice
`Antitrust Division
`450 Fifth Street, NW, Suite 8000
`Washington, DC 20530
`Tel: (202) 598-8360
`Fax: (202) 616-2441
`Email: brian.hanna2@usdoj.gov
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`*LEAD ATTORNEY TO BE NOTICED
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` /s/ Makan Delrahim
`MAKAN DELRAHIM (D.C. #457795)
`Assistant Attorney General for Antitrust
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` /s/ Michael F. Murray
`MICHAEL F. MURRAY (D.C. #1001680)
`Deputy Assistant Attorney General
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` /s/ Kathleen S. O’Neill
`KATHLEEN S. O’NEILL
`Senior Director of Investigations & Litigation
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` /s/ Robert A. Lepore
`ROBERT A. LEPORE
`Chief
`Transportation, Energy & Agriculture Section
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` /s/ Katherine A. Celeste
`KATHERINE A. CELESTE
`Assistant Chief
`Transportation, Energy & Agriculture Section
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