Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Space launch systems provider alleges agreement between competitor and rocket engine manufacturer to deprive it of access to manufacturer’s unique rocket, (Jun 24, 2013)

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

Collusion between a manufacturer of a unique kind of rocket engine and a provider of space launch systems and services, including an exclusive supply agreement, has deprived a competitor of the provider of access to the manufacturer’s rocket, preventing the competitor from effectively competing in the market for medium-class space launch systems and services, according to a complaint filed by the competitor in the federal district in Alexandria, Virginia (Orbital Sciences Corp. v. United Launch Alliance, LLC, June 20, 2013).

According to the complaint, United Launch Alliance, LLC (ULA) is a joint venture between Lockheed Martin Corp. and The Boeing Corp. that is the dominant provider of space launch systems and services in the United States. Orbital Sciences Corp. competes with URL in the provision of small- and medium-class rocket and space launch systems and services.

In 2008, Orbital was selected by the National Aeronautics and Space Administration to create a space transportation system to deliver supplies to the International Space System (ISS), and was awarded a contract by NASA to provide cargo transportation services to the ISS using Orbital’s Antares launch vehicle. For demonstration purposes and for purposes of the contract, Orbital has used an AJ26 liquid propulsion rocket engine that is now out of production and now only available in limited quantities.

Orbital’s complaint asserts that only one alternative to the AJ26 engine exists, an RD-180 engine produced by RD AMROSS, LLC. Similarly, only two alternatives exist in the market for medium-class space launch systems and services, Orbital’s Antares system and a Delta II rocket produced by ULA, which is now discontinued, although a few remain in inventory.

Orbital allegedly strongly preferred the RD-180 engine for its Antares system, due to its reliable track record, active production, and possible economies of scale resulting from ULA’s use of the engine in its Atlas V rocket.

Therefore, Orbital alleges, it approached RD AMROSS about acquiring the RD-180 engine. Although RD AMROSS previously had a ten-year exclusive supply agreement with Lockheed Martin that Lockheed purportedly contributed to the ULA joint venture, that agreement had expired in 2006. Nonetheless, following a RD AMROSS board of directors meeting attended by ULA’s chief executive officer, RD AMROSS informed Orbital that it would only offer the RD-180 engine through ULA. According to Orbital, using ULA’s Atlas system incorporating the RD-180 engine would not be an economically viable option for Orbital, and would force it to rely on its competitor for its engine supply.

In 2010, ULA and RD AMROSS executed an extension of the expired exclusivity agreement, extending its term through 2016. RD AMROSS subsequently rejected an Orbital proposal to supply as many as 20 RD-180 engines in mid-2016, after the expiration of that extension, and ULA and RD AMROSS agreed to an another extension through 2018.

Orbital alleges that the exclusivity agreement is anticompetitive, and permits ULA to maintain a monopoly on the market for medium-class space launch systems and services. Orbital asserts that the initial ten-year exclusivity period was sufficient to compensate Lockheed for any contributions it may have made to development of the engine. Moreover, the agreement had been expired for nearly two and a half years before its revival, and the extensions were “facially unreasonable and anticompetitive in design.” Further, nothing indicated that the agreement was necessary to ensure that ULA had a sufficient supply of engines, or “that RD AMROSS did not have the production capacity to satisfy the requirements of both ULA and Orbital.”

The resulting loss in competition has harmed and will continue to harm customers such as NASA and the Department of Defense, according to the complaint. Orbital claims that its Antares system is significantly less expensive than ULA’s Delta II rocket. Moreover, ULA has ceased production of the Delta II rocket, which will force customers to rely on ULA’s Atlas V and Delta IV intermediate-class systems for medium-class missions. These systems are more expensive to purchase and operate for medium-class missions than engines optimized for such missions. The agreement also reduces choice and innovation in the market.

Orbital also alleges that the exclusivity agreement harms Orbital by depriving it of access to the RD-180 engine, which Orbital deems to be “critical” for it “to be a viable long-term competitor in the medium-class space launch systems and services market.” The agreement allegedly will cause Orbital to lose the value of its investment to enter the market for medium-class space launch systems and services and to lose profits on future Antares sales, among other damages. Moreover, Orbital’s inability to obtain the RD-180 engine has already led it to sustain losses resulting from excess engineering, development, and logistics costs incurred from having to employ the AJ26 engine instead.

Orbital seeks a judgment that the exclusivity agreement restrains trade in violation of Section 1 of the Sherman Act, and that ULA’s and RD AMROSS’s monopolization of, attempt to monopolize, and conspiracy to monopolize the market for medium-class space launch systems and services violate Section 2 of the Sherman Act. Orbital requests injunctions against the agreement and the defendants’ other allegedly unlawful conduct, as well as “damages in an amount to be proved at trial but no less than $515 million, such damages to be trebled pursuant to Section 4 of the Clayton Act.” Finally, Orbital asks for costs, expenses, attorneys’ fees, interest, and any other just and proper relief.

The case is No. 1:13-cv-00753-LMB-JFA.

Attorneys: Eugene N. Hansen (Fried, Frank, Harris, Shriver & Jacobson LLP) for Orbital Sciences Corp.

Companies: Orbital Sciences Corp.; United Launch Alliance, LLC; RD AMROSS, LLC; Lockheed Martin Corp.; The Boeing Corp.

News: Antitrust