Antitrust Law Daily Wrap Up, ANTITRUST—9th Cir.: Honeywell avoids independent aircraft servicer’s claims, (Sep 12, 2016)

By Jeffrey May, J.D.

A company that services aircraft failed to establish that Honeywell International Inc.—one of the world’s two largest manufacturers of aircraft auxiliary power units (APUs)—leveraged its monopoly power over the APU parts market to harm competition in the repair services market. Summary judgment in favor of Honeywell on the independent servicer’s tying, exclusive dealing, monopolization, and price discrimination claims was affirmed (Aerotec International, Inc. v. Honeywell Int'l, Inc., September 9, 2016, McKeown, M.).

According to the plaintiff, a small APU shop that competes with Honeywell in the repair market, Honeywell leveraged its control over the parts market to pull business from independent servicers to Honeywell and Honeywell affiliates. The plaintiff alleged that Honeywell, among other tactics, maintained a "Kafkaesque" ordering process, withheld needed technical information that previously had been provided as a matter of course, lured airline clients away from independent servicers by offering steeply discounted bundles of parts and repair services, and imposed a pricing penalty on independent servicers vis-a-vis airlines and Honeywell affiliates.

Tying. The independent servicer failed to support its challenge to Honeywell’s purported practice of "tying" the purchase of Honeywell "original equipment manufacturer" or "OEM" parts to the purchase of Honeywell repair services. The court held that the claim faltered on the first, most fundamental requirement—the existence of a tie. There was no condition linked to a sale. The court refused to "stretch the tying construct to accommodate the claim that Honeywell’s conduct toward third party servicers—i.e., parts delays, pricing decisions, and removal of technical data—acts as an effective, or ‘de facto,’ condition on sale to airlines."

There was no evidence that Honeywell explicitly or implicitly tied or conditioned the sale of APU parts to APU owners on a requirement that the owners "buy and repair Honeywell" and/or forego services from independent service providers. Honeywell allowed airlines to purchase parts and services in separate transactions from other suppliers, according to the court.

Manipulative tactics imposed on a third-party competitor that made it less desirable to purchase from the third party were not sufficient by themselves to create a tie. "The claim that Honeywell clogs and complicates the parts distribution pipeline to independent servicers cannot substitute for the necessary evidence of an implied condition embedded in the sale of the tying product," the court explained.

Exclusive dealing. Claims that Honeywell forced airlines into exclusive dealing arrangements in violation of Section 1 of the Sherman Act also were rejected. None of the indicia that would ordinarily be reviewed in an exclusive dealing claim—such as requirements terms, steep market-share requirements, contract duration and other terms—were present in the record, in the court’s view. The court did not reach the question of whether a "de facto" exclusive dealing theory as recognized in the Third Circuit and Eleventh Circuit should be accepted, because a plaintiff must still show that contracts that were induced were exclusive rather than run-of-the-mill contracts, which inevitably "‘foreclose[]’ or ‘exclude[]’ alternative sellers from some portion of the market."

Monopolization. Refusal to deal and essential facilities claims also were properly rejected, according to the court. The independent servicer unsuccessfully contended that the refusal to deal was proved by Honeywell’s intent to foreclose competition or through Honeywell’s control of parts, an essential input. Intent to foreclose competition was not sufficient, standing alone, to establish liability under Section 2 of the Sherman Act. "By its very terms, § 2 of the Sherman Act regulates anti-competitive conduct, not merely anticompetitive aspirations or an independent decision on terms of dealing with a competitor," the court explained.

The essential facilities claim failed because a facility is only "essential" where it is otherwise unavailable, and there was no evidence that the independent servicer was "frozen out of—or even faced a chill in accessing—the parts supply chain." The complaining firm had access to both substitute parts and OEM aftermarket parts acquired from other servicers.

A challenge to Honeywell’s bundling practices also failed. There was no evidence of below-cost pricing or anticompetitive bundled discounting, and the independent servicer was foreclosed from asserting a "price-squeeze" claim.

Price discrimination. Lastly, the court ruled that Honeywell did not engage in price discrimination between Honeywell affiliates and independent servicers. The defending manufacturer’s tiered pricing structure could not serve as the basis of a price discrimination claim, at least insofar as the independent servicer alleged that Honeywell affiliates were the favored party. The plaintiff also could not base a claim on discounts available to affiliates under long-term contracts and the prices that independent servicers received on the spot market. Unlawful secondary-line price discrimination existed only to the extent that the differentially priced product or commodity was sold in a "reasonably comparable" transaction, the court explained. The plaintiff did not provide examples of spot sales between independent servicers and Honeywell that could be fairly compared to the terms and prices that were individually negotiated in agreements between Honeywell and its affiliates.

This is Case No. 14-15562.

Attorneys: Michael C. Blair and Craig M. LaChance (Baird Williams & Greer, LLP) for Aerotec International, Inc. William J. Maledon, Brett L. Dunkelman, Joseph N. Roth, and Eric M. Fraser, (Osborn Maledon, PA) and Richard George Parker (O’Melveny & Myers LLP) for Honeywell International, Inc.

Companies: Aerotec International, Inc.; Honeywell International, Inc.

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