Antitrust Law Daily Wrap Up, ANTITRUST—NDCal: Antitrust and Unfair Business Practice Claims Fail Against Provider of In-flight Internet Access, (Apr 12, 2013)

By Tobias J. Gillett, J.D., LL.M.

Airplane passengers who purchased in-flight Internet access failed to state Sherman Act, California Cartwright Act, and California Unfair Competition Law (UCL) claims against the provider of Internet access because the passengers did not explain why the relevant market should be limited to United States aircraft currently equipped with Internet access, rather than including all other aircraft that could be equipped with Internet access, the federal district court in San Francisco has ruled (Stewart v. Gogo, Inc., April 10, 2013, Chen, E.).

Gogo, Inc. is a provider of in-flight Internet access on commercial aircraft. It has contracts with major airlines that bind the airlines on an aircraft-by-aircraft basis to exclusively use Gogo for ten years.

A class of airline passengers that purchased in-flight Internet access filed suit against Gogo, alleging that it had unlawfully monopolized the "United States market for in-flight internet connectivity on domestic commercial aircraft." The passengers alleged that 85% of North American aircraft that are equipped to provide Internet connectivity are equipped by Gogo and that 95% of those aircraft are subject to the ten-year contracts.

The passengers alleged that the market presented additional high barriers to entry, including the cost of infrastructure to provide connectivity and the need to meet regulatory requirements. Gogo has only two competitors, both of which provide their services through satellites, rather than through cellular towers like Gogo, according to the passengers. The passengers alleged that Gogo charged higher prices than the competitors and provided more limited coverage due to its reliance on land-based towers, but that its exclusive contracts shielded it from competition.

The passengers asserted that Gogo violated Sections 1 and 2 of the Sherman Act, the Cartwright Act, and the UCL. Gogo moved to dismiss.

Relevant market. Gogo contended that the passengers had improperly defined the market as limited to aircraft currently equipped with Internet access, in which Gogo equipped 85% of the aircraft, rather than including all aircraft capable of being equipped with Internet access. The court explained that defining the relevant market required considering the "full range of selling opportunities reasonably open to [competitors], namely all the product and geographic sales they may readily compete for."

Here, the passengers did not allege "why airplanes that could be equipped should not be included in the full range of selling opportunities reasonably open to a competitor." The court concluded that, in the absence of such allegations, their "allegation that Gogo dominates the market with respect to North American aircraft that are actually equipped to provide Internet connectivity to passengers (85%) shows little." The court noted in a footnote that, although market power could also be shown through evidence of restricted output and supracompetitive prices, the passengers did not allege restricted output. Therefore, the court granted Gogo’s motion to dismiss the Sherman Act claims.

Exclusive contracts. Since the court granted Gogo’s motion to dismiss, it observed that it did not have to address Gogo’s additional argument that the contracts permitted the airlines "to terminate their dealings with Gogo whenever a rival offers a superior service or business arrangement," and therefore that the contracts did not exclude competitors. The court noted that the contracts permitted such termination only if "failing to adopt [the competitor’s] service would likely cause competitive harm to the airline, or if the percentage of passengers using Gogo Connectivity on such airline’s flights falls below certain negotiated thresholds." Therefore, an airline could not terminate a contract simply because a competitor offered "a superior service or business arrangement."

Cartwright Act. Since the passengers’ Cartwright Act claim relied on the same conduct underlying their Sherman Act claims, and since the legal analysis of the Cartwright Act claim "should mirror the analysis under the Sherman Act claims," the court dismissed that claim as well.

Unfair Competition Law. Because the court dismissed the Sherman Act and Cartwright Act claims, the claims could not serve as the basis for an unlawful or unfair business practice under the UCL. Therefore, the court dismissed the passengers’ UCL claims.

The case is No. C-12-5164 EMC.

Attorneys: Azra Z. Mehdi (The Mehdi Firm) for James Stewart. James Donato (Shearman & Sterling LLP) for Gogo, Inc.

Companies: Gogo, Inc.

Cases: Antitrust StateUnfairTradePractices CaliforniaNews