Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Market definition analysis in airline merger challenge questioned, (Jun 18, 2014)

By Jeffrey May, J.D.

Airline customers have asked the U.S. Supreme Court to consider their rejected Clayton Act challenge to the 2010 combination of United and Continental Airlines. At issue is a decision of the U.S. Court of Appeals in San Francisco, affirming dismissal of their antitrust claims. A petition for certiorari was filed on June 13 (Malaney v. UAL Corp., Dkt. 13-1494).

The petitioners take issue with the appellate court's rejection of their proposed “national market for air transportation.” In their suit challenging the now-consummated merger, the plaintiffs argued that “the national market for air transportation was the relevant product market, that the airlines were actual and potential competitors in the United States market for air transportation, and that the ability of airlines to enter markets where it would be profitable to do so, must be considered in relevant market definition.”

The merger proceeded after the plaintiffs were denied a preliminary injunction, and the Department of Justice approved the transaction. In May 2011, the Ninth Circuit upheld the denial of the preliminary injunction (2011-1 Trade Cases ¶77,463).

The suit was subsequently dismissed. In January, the appellate court affirmed dismissal (2014-1 Trade Cases ¶78,649). The Ninth Circuit held that the district court properly declined to apply the judicial estoppel doctrine in its rejection of the plaintiffs’ proposed national market theory. The customers unsuccessfully argued that the district court should have estopped the airlines from opposing a national market theory.

The appellate court also concluded that the district court did not err in rejecting the plaintiffs’ proposed market definition because they failed to show that any reasonable interchangeability of use or cross-elasticity of supply was relevant to an analysis of the airline industry. The district court had noted that flights between distant cities were simply not reasonably interchangeable.

Relevant market. According to the petitioners, the Ninth Circuit panel “rubber stamped an erroneous, one-dimensional approach to defining a relevant market.” The petitioners contend that “the relevant market analysis validated by the panel is erroneous as a matter of law because cross-elasticity of supply should and must be considered in relevant market definition, rather than the one-sided demand elasticity approach it upheld.” The plaintiffs suggest that the relevant market analysis should have considered the ability of airlines to enter markets where it would be profitable to do so.

The Ninth Circuit's decisions conflict with a number of other federal circuit court decisions and the precedents of the U.S. Supreme Court, the petitioners argue. They contend that the Ninth Circuit panel “simply ignored” a line of Supreme Court decisions from the 1960s under which “the defendants’ merger was and is presumptively illegal.” Noting the consolidation in the airline industry in recent years, the petitioners state that, “under the authority of these cases, an order of divestiture should ultimately be mandated in this case.”

In their petition, the customers ask specifically:

1. whether it is erroneous to define a relevant market, for purposes a claim under Sec. 7 of the Clayton Act, based on demand considerations alone;

2. whether it is a violation of Due Process for a lower court to use its application of standards for preliminary injunctive relief under Sec. 16 of the Clayton Act to subsequently bind a litigant in a claim for damages under Sec. 4 of the Clayton Act; and

3. whether U.S. Supreme Court decisions enjoining mergers under Sec. 7 of the Clayton Act, which have been interpreted by the Seventh Circuit to collectively stand for the proposition that a nontrivial acquisition of a significant rival in an industry with a trend towards concentration is presumptively illegal, are still binding.

Attorneys: Joseph M. Alioto (Alioto Law Firm) for Michael C. Malaney.

Companies: Continental Airlines, Inc.; UAL Corp.

News: Antitrust