Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Foreign airline allegedly engaged in global air cargo price fixing conspiracy, (Dec 16, 2014)

By Linda O’Brien, J.D., LL.M.

China Airlines engaged in a global conspiracy with several other foreign airlines to fix the prices of airfreight shipping services for air cargo shipments to and from the United States by agreeing to increase fuel and other surcharges, according to a complaint filed in the federal district court of Brooklyn, New York (DPWN Holdings (USA), Inc. v. China Airlines Ltd., December 15, 2014).

China Airlines is a foreign company headquartered in Taiwan that provides airfreight shipping services throughout the world, including the United States. DPWN Holdings (DHL), the holding company for all domestic DHL operating companies, provides logistics and freight forwarding services to manufacturers and other businesses that require the transportation of goods to and from the United States and is one of the largest global purchasers of U.S. airfreight shipping services.

The complaint alleges that, in 1996, competition in the airfreight services industry was causing a reduction in the price of airfreight shipping services. The International Air Transport Association (IATA), an airline industry trade association, created the Fuel Price Index (FPI) based on the average of the spot price of aviation fuel in various markets around the world. By March 1997, the FPI remained above 110 and IATA held a meeting to develop coordinated industry action for the imposition of fuel surcharges.

In 1997, IATA met to further discuss the implementation of a fuel surcharge. Notwithstanding the antitrust risk, the group developed a resolution that contained a mechanism for imposing a fuel surcharge on a global basis. The fuel surcharge was tied to percentage changes in the spot price of aviation fuel as tracked by the FPI and would remain in effect until the FPI fell below 130. Although the resolution was approved in 1997, IATA did not complete the required filing formalities with the U.S. Department of Transportation (DOT) until 2000 when the FPI exceeded 130 for the first time since the resolution’s adoption, the complaint charged.

According to the lawsuit, in 2000, the DOT denied providing antitrust immunity for the resolution and IATA ceased publishing its FPI. However, China Airlines allegedly communicated, secretly and regularly, with other members of the conspiracy about coordinating the fuel surcharges and the members exchanged mutual assurances that they would charge fuel surcharges on slightly staggered dates in order to conceal the conspiracy. Over the course of the conspiracy, the fuel surcharge increased more than 600 percent, imposing substantial overcharges on DHL. The airfreight carriers, including China Airlines, also agreed to impose another surcharge for the purported purpose of recouping security-related costs. The security surcharge was set at a flat rate based on weight and not calculated based on actual security-related costs.

In September 2010, China Airlines signed an agreement with the U.S. Department of Justice to pay a $40 million criminal fine and admitted to criminal violations for its participation in a conspiracy to fix cargo rates on routes to and from the United States from January 2001 until February 2006. To date, 19 airfreight carriers, including the defendant, have pleaded guilty to felony antitrust violations in the United States pursuant to an investigation by the Justice Department and have paid criminal fines totaling $1.75 billion. In May 2014, the defendant has reached a settlement in a civil antitrust class action with direct purchasers of airfreight shipping services. DHL timely excluded itself from the settlement with the defendant in accordance with the court’s opt out procedures, the complaint states.

China Airlines and its co-conspirators fraudulently concealed their unlawful conduct by engaging in secret communications, giving false and pre-textual reasons for the various fuel surcharges, and sending confidential emails, the complaint charged. In addition, each co-conspirator’s surcharge announcements were intentionally written to convey the impression that the surcharges were imposed unilaterally and were necessary to cover increased costs.

The plaintiff asserts claims for violations of Section 1 of the Sherman Act. The action seeks declaratory and injunctive relief, damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 1:14-cv-07296.

Attorneys: J. Peter Coll, Jr., Garret G. Rasmussen, and Antony P. Kim (Orrick, Herrington & Sutcliffe LLP) for DPWN Holdings, Inc.

Companies: DPWN Holdings, Inc.; China Airlines Ltd.

News: Antitrust NewYorkNews