Antitrust Law Daily Wrap Up, ANTITRUST NEWS: U.S., New York Challenge Tour Bus Joint Venture, (Dec 12, 2012)

By Jeffrey May, J.D.

A New York City tour bus joint venture formed in 2009 by Coach USA Inc. and City Sights LLC, known as Twin America LLC, is an effective merger to monopoly, according to a complaint filed by the Department of Justice Antitrust Division and the State of New York on December 11 in the federal district court in New York City (U.S. v. Twin America LLC, 12 CV 8989). The complaint alleges violations of Sec. 7 of the Clayton Act, Sec. 1 of the Sherman Act, and Sec. 340 of the New York Donnelly Act.

The government contends that the joint venture harms competition in the hop-on, hop-off bus tour market. Hop-on, hop-off bus tours combine sightseeing and transportation by providing tourists with a professionally-guided tour of New York City, while giving them the ability to "hop off" the tour bus at various locations to further explore attractions of interest and later "hop on" another bus to continue along the tour route using the same ticket. The tours are offered on open-top double-decker buses, which enable passengers to view New York City's attractions and neighborhoods from a heightened vantage point, the Department of Justice explained.

Coach was the long-standing market leader through its "Gray Line New York" brand. According to the complaint, Coach—concerned that City Sights was challenging Gray Line's dominant position—approached City Sights with a proposal to create a joint venture that would be the "sole player" in the market. Coach anticipated that one of the benefits of the combination would be that the parties could implement a price increase of approximately 10 percent.

The complaint states that in a board presentation a Coach executive advised that one of the key "benefits of combining businesses" was "[i]mproved profitability," which was driven, in part, by "assum[ing] [a] 10% fare increase. " The presentation explained that without the transaction, there would be no fare increase "due to competition. " After Coach and City Sights executed the agreement forming Twin America, each allegedly implemented the price increase discussed during negotiations.

The complaint also asserts that the parties began operating the joint venture without first seeking approval from the federal Surface Transportation Board (STB). The transaction was not reportable under the Hart-Scott-Rodino Antitrust Improvements Act. STB approval would have exempted the parties' transaction from the antitrust laws, according to the Justice Department. The STB, however, denied approval of the transaction as not in the "public interest." It directed the parties to either dissolve Twin America or terminate minimal interstate operations that provided the basis for STB jurisdiction. Coach and City Sights chose the latter option and continue to operate their illegal joint venture, according to the Justice Department.

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