Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Airfare info distributors may be liable for conspiracy that led to increased airline fees for passengers, (Jul 6, 2016)

By Jody Coultas, J.D.

Airline ticket purchasers had standing to bring Sherman Act antitrust claims against Amadeus IT Group, S.A., Sabre Corporation, and Travelport Worldwide Limited based on an alleged conspiracy to restrain competition in the airline information market, according to the federal district court in New York City. However, the court granted dismissal of the purchasers’ state antitrust and consumer protection law claims on the basis of preemption by federal aviation law (Gordon v. Amadeus IT Group, S.A., July 6, 2016, Failla, K.).

Defendants control nearly the entire U.S. market for global distribution systems (GDS). These systems allow airlines to distribute information about available services and fares to travel agencies. When consumers book a flight segment from a travel agent using a GDS, the airline supplying the flight must pay a fee to the GDS.

In 1984, the Department of Transportation began regulating the GDS market, requiring them to charge the same fees to each airline and requiring airlines to offer the same content to all GDSs. Airlines began divesting themselves of their GDS ownership, such that by the end of 2003 no GDS remained affiliated with an airline. Following deregulation of the GDS market, consumers could use traditional travel agencies, which used GDS services, as well as the airlines’ own websites. Also available were GDS new entrants, which developed Internet-based software to connect airlines with travel agents more efficiently and at a fraction of the price charged by GDSs, online travel agencies, meta-search engines that aggregated links to airlines’ websites, and new direct-connection platforms developed by traditional travel agencies.

Beginning in 2006, the GDSs allegedly entered into a multi-part plan to stifle airlines’ ability to negotiate fees and offer differentiated content. Defendants allegedly promised to supply each other with any content that airlines provided to only one of them, and each required airlines to accept a "nearly identical" contract provision prohibiting the airlines from offering different content or lower prices through other distribution channels. Defendants then allegedly charged inflated GDS fees, which led to increased airline distribution costs and fares for all travelers. Airline ticket purchasers alleged these actions amounted to an unlawful horizontal restraint of competition, in violation of the Sherman Act, state antitrust laws, and state consumer protection laws.

Preemption. The court found that the state antitrust and consumer protection claims were preempted by the Airline Deregulation Act of 1978 (ADA) as they were necessarily related to airlines’ ticket prices and services, according to the court. The ADA explicitly preempted states from exercising regulatory authority over airlines, such that states "may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier." The Supreme Court has stated that state guidelines establishing requirements "as to how [airline] tickets may be marketed" unavoidably "related to" airline rates, despite the fact that such guidelines did not directly regulate the fares or services themselves, but rather restricted the way in which such fares and services could be advertised. ADA preemption was not limited to claims brought directly against air carriers, as argued by the purchasers. Also, the express decision to deregulate GDSs as independent entities was further support to the view that ADA preemption reached the instant claims, as the DOT clearly considered GDSs’ function to be integral to the fares and services offered by air carriers.

Federal antitrust standing. When assessing whether a plaintiff seeking damages under § 4 of the Clayton Act satisfies the "efficient enforcer" component of antitrust standing, courts must consider (1) the "directness or indirectness of the asserted injury," viewed in light of the "chain of causation" linking a plaintiff’s alleged injury and the defendant’s anticompetitive conduct; (2) the "existence of more direct victims of the alleged conspiracy;" (3) whether damages are "highly speculative"; and (4) whether allowing the claim would pose "either the risk of duplicate recoveries on the one hand, or the danger of complex apportionment of damages on the other."

The purchasers had standing to assert the federal antitrust claims at issue, according to the court. Purchasers alleged that the fees charged by GDSs were incorporated into airline ticket prices and passed along to consumers, regardless of whether they purchased tickets from a provider who used a GDS’s services. The court noted that while there might be other motivated parties, it did not negate the purchasers’ standing to bring their federal injunctive claim. Also, the fact that the purchasers did not purchase GDSs’ services did not preclude them from having standing.

While an unduly speculative injury may preclude standing even in the injunctive context, typically "[w]hether an injury is speculative in the antitrust standing context requires inquiry into the calculation of damages." However, calculation of damages was not relevant here. The purchaser pleaded with sufficient certainty that they incurred damages as a result of defendants’ anticompetitive conduct.

Laches. Because the purchaser sufficiently pleaded equitable reasons why laches should not bar their claims at this juncture, the court denied defendants’ motion to dismiss for laches. Defendants alleged that the claim accrued outside the four-year statute of limitations period applicable to damages claims. Regardless of whether the claims accrued within the limitations period, the purchasers sufficiently alleged equitable reasons why the doctrine of laches should not be applied to bar their claims at the motion to dismiss stage. The purchasers alleged that defendants misrepresented their actions and made a concerted effort to keep the details of their scheme confidential, such that due diligence could not have discovered the full facts underlying their claims.

The case is No.15 Civ. 5457 (KPF).

Attorneys: Ian F. McFarland (Heins Mills & Olson PLC) for Daniel Gordon. David L. Meyer (Morrison & Foerster LLP) and David H. Coburn (Steptoe & Johnson LLP) for Amadeus IT Group SA, Amadeus North America, Inc., and Amadeus Americas, Inc.

Companies: Amadeus IT Group, S.A.

Cases: Antitrust NewYorkNews