Antitrust Law Daily Wrap Up, ANTITRUST—C.D. Cal.: Exclusive contracts that were of short duration and easily terminable were not actionable, (Jul 31, 2013)

By Jeffrey May, J.D.

The federal district court in Santa Ana, California, has dismissed antitrust claims in a dispute between competitors in the market for the management and distribution of digital images and so-called “rich media” content for hotel and travel-related websites. Pro Search Plus, LLC failed to adequately allege that VFM Leonardo, Inc. (VFML), entered into unlawful exclusive dealing agreements with the intent to “eliminate” Pro Search “ as a viable a competitor and threat to VFML’s online hotel listings distribution business” and to reduce competition generally (Pro Search Plus, LLC v. VFM Leonardo, Inc., July 30, 2013, Tucker, J.).

A hotel wanting to advertise or distribute visual and rich content online uses an intermediary, such as a Global Distribution System (GDS) or Pegasus, the industry’s sole content and information aggregator. The four GDSs are Sabre/Travelocity, Worldspan, Galileo, or Amadeus. Pegasus works with the GDSs.

Pro Search’s antitrust claims were predicated on VFML’s exclusivity agreements with the GDSs and Pegasus. Pro Search alleged that it had been excluded from accessing the GDSs and Pegasus, and that, as a result, VFML raised its prices without fear of competition.

Because the contracts were of relatively short duration and could be terminated upon short notice, they could not support the antitrust claims, the court ruled. VFML's contracts with Galileo, Sabre, and Amadeus had a three-year duration, and its contract with Worldspan had a two-year duration. All of these contracts could be terminated with notice of 90 days or less. The contract with Pegasus had a five-year duration and could be terminated with 12 months' notice.

Moreover, there were no factual allegations that VFML obtained the exclusivity agreements through nefarious means, such as tying. Thus, the GDSs and Pegasus could switch quickly to Pro Search’s services if they preferred those services or the terms upon which Pro Search offered its services, the court explained.

The court took judicial notice of the contracts because Pro Search’s complaint relied upon them. However, it did not consider extraneous assertions regarding the contracts, including assertions to the effect that some of the contracts have already been terminated.

An exclusive dealing claim under Section 3 of the Clayton Act also was dismissed. Section 3 applies only to contracts for tangible goods. Therefore, it was inapplicable to the services Pro Search provided, the court ruled.

Lanham Act claim. The suit was not completely dismissed, however. The court allow Pro Search to proceed with a claim for “reverse passing-off” in violation of § 43(a) of the Lanham Act. The court permitted discovery with respect to allegations that VFML misappropriated Pro search's hotel photo images and other media and misrepresented the origin of such content by displaying a VFML logo on the content. VFML’s argument that the Supreme Court’s decision in Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003), precluded Pro Search’s Lanham Act claim was more appropriately addressed at a later stage in the case.

The case is NO. SACV 12-2102-JST (ANx).

Attorneys: Courtney A Palko (Blecher Collins Pepperman and Joye PC) for Pro Search Plus, LLC. Richard Joseph Doren (Gibson Dunn and Crutcher LLP) for VFM Leonardo, Inc.

Companies: Pro Search Plus, LLC; VFM Leonardo, Inc.

Cases: Advertising Antitrust CaliforniaNews