Antitrust Law Daily US Airways’s $15 million verdict reversed in light of Supreme Court ruling on transaction platform analyses
Thursday, September 12, 2019

US Airways’s $15 million verdict reversed in light of Supreme Court ruling on transaction platform analyses

By Robert B. Barnett Jr., J.D.

The Second Circuit reversed both the jury verdict on the restraint of trade claim and the lower court’s dismissal of the monopolization claim, paving the way for a new trial involving both Sherman Act §1 and §2 claims.

A $15 million verdict in favor of US Airways finding that Sabre, an airline ticketing platform, violated §1 of the Sherman Act was reversed and remanded in light of a Supreme Court decision rendered after the verdict requiring that restraint of trade analyses involving transaction platforms consider the impact on both sides of a transaction (the airline side and the travel agent side), an analysis that was not properly undertaken at trial, the U.S. Court of Appeals in New York City has ruled. The Second Circuit also ruled that the lower court erred when it dismissed US Airways’s monopolization claim under §2 because antitrust law permits the relevant market to be a single brand of a particular product or service. As a result, the new trial will give US Airways the opportunity to pursue claims under both §1 and §2 of the Sherman Act. And, finally, in a matter of first impression, the Second Circuit joined the Sixth, Eighth, and Ninth Circuits in adopting the statute of limitations rule that the decision to enter a contract is the overt act and that each action under that contract is only a manifestation of the original overt act and not a separate violation. Thus, the lower court was correct when it refused to allow the jury to consider any damages from an earlier 2006 contract on statute of limitations grounds because each payment of a fee by US Airways to Sabre was not a new violation of antitrust law (US Airways, Inc. v. Sabre Holdings Corp., September 11, 2019, Chin, D.).

Background. Sabre is one of three companies in the U.S. that currently owns and operates a travel technology platform known as a global distribution system (GDS). Originally, airlines used in-house reservation systems, until the Department of Transportation in 1992 began requiring that airlines offer the same fares to a GDS that they were offering in-house. Shortly thereafter, the airlines abandoned their in-house platforms, leaving four independent GDS platforms, including Sabre, the largest platform. In 2004, the DOT deregulated the GDS industry, giving them significant market power over airlines. The DOT’s hopes for more industry competition never materialized, ultimately leaving only three GDS platforms and no new market entrants since the 1980s.

US Airways signed contracts with Sabre in 2006 and 2011. For purposes of the antitrust allegations, the most important terms were a series of "full content" provisions, common in the industry, that required US Airways to offer the same fares through Sabre that it offered through any other means. US Airways sued Sabre in New York City federal court in 2011 alleging four violations of the Sherman Act: (1) the full content provisions created an unlawful vertical restraint of trade in violation of §1, (2) Sabre monopolized the distribution of GDS services in violation of §2, (3) Sabre conspired to monopolize the services in violation of §2, and (4) Sabre engaged in a horizontal agreement with its competitors in violation of §1. The original judge (she later died) dismissed counts 2 and 3. The new judge denied Sabre’s summary judgment, and the case proceeded to trial in late 2016. The nine-week trial resulted in a jury verdict for US Airways of $5,098142, which was trebled. The court then denied Sabre’s post-trial motions. Sabre appealed to the Second Circuit, and US Airways cross-appealed.

Legal developments. Meanwhile, as the case continued, important legal developments were occurring elsewhere that would have a significant impact on this case. At about the time the trial was scheduled to begin, the Second Circuit rendered its opinion in United States v. American Express Co., 838 F.3d 179 (2nd Cir. 2016), which addressed for the first time the rules when the relevant market in an antitrust case were considered to be "two-sided." The Second Circuit ruled that a two-sided analysis would require that the challenged restraint be judged by the net impact on customers on both sides—and not just on either side—of the market. As the case was being appealed to the Supreme Court, the trial court in this case, aware of the Second Circuit decision, tried to hedge its bets by giving jury instructions that asked the jury to also consider the market to be two-sided and to render its analysis accordingly. The jury found for US Airways under both the one-sided and the two-sided analyses. In March 2018, after post-trial briefing was completed, the Supreme Court rendered Ohio v. American Express Co., 138 S. Ct. 2274 (2018), which affirmed the Second Circuit decision but mostly on other grounds. The trial court then solicited additional briefing based on Amex II.

Sherman Act §1. The key issue in the §1 restraint of trade analysis was the identification of the consumers in the relevant market. In the Amex cases, the relevant market was defined not as two separate markets (credit card company/cardholders and credit card company/merchants) but as a single, two-sided market involving merchants on one side and cardholders on the other. In affirming the Second Circuit decision, the Supreme Court ruled that in Sherman Act claims involving a "two-side transaction platform," the relevant market must always include both side of the platform. This analysis is required wherever the platform acts as an intermediary between two groups that both need the other group for the platform to succeed. Thus, for example, the analysis would not be required for a newspaper because, though it acts as an intermediary between advertisers and readers, the readers do not care whether the newspaper attracts advertisers. Because this case involved a two-sided transaction platform, the Second Circuit said, it was error, based on Amex II, not to analyze both sides of the platform. Furthermore, the court said, the trial court’s efforts to address the side-sided issue, though well intentioned in a shifting legal environment, were insufficient to meet the Supreme Court’s requirements. The jury’s primary verdict, which was based a one-sided analysis, was therefore erroneous. It was error to ask the jury to decide if the platform was one-sided or two-sided because the Supreme Court deemed it to be two-sided.

New trial. Having found the verdict in error because of Amex II, the Second Circuit addressed the question of whether it should order a new trial on count 1 or enter a judgment as a matter of law for Sabre. The Second Circuit chose to order a new trial because a new jury could reasonably find for US Airways. No new competitors have entered the market in 30 years even though return on investment in the industry is "strikingly high." No reasonable jury would be compelled to accept Sabre’s view. The question of whether Sabre violated §1 was still to be determined.

Sherman Act §2. The Second Circuit also concluded that the lower court erred when it dismissed counts 2 and 3 alleging violations of §2. The lower court dismissed the claims on the ground that antitrust allegations in which market monopolization is limited to the defendant’s product or service are not viable. The Second Circuit disagreed with that conclusion, ruling that the distribution of GDS services to Sabre subscribers was a legally cognizable submarket and that the complaint plausibly pleaded a violation of §2. The two Sabre competitors, Amadeus and Travelport, are not reasonably interchangeable with Sabre. Thus, the cross-elasticity of demand for Sabre GDS services was at or near zero. No switching ever occurs. In fact, as the complaint alleges, Sabre had designed its system to discourage switching. Furthermore, in Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992), the Supreme Court rejected the idea that a single brand of a product or service can never be considered a relevant market for purposes of the Sherman Act. In that case, Kodak tried to quash an independent market that had grown up around companies that serviced Kodak equipment more effectively and more cheaply than Kodak could. The Supreme Court said that the relevant market was properly determined by the choices available to Kodak equipment owners. Thus, if no substitute existed for that brand’s products or services, the single brand or service could be a relevant market under the Sherman Act. Applying that analysis, the Second Circuit concluded that US Airways had pleaded a market that was capable of being monopolized under §2 of the Sherman Act. The lower court’s decision was reversed, and the case was remanded for further proceedings.

Statement of limitations. The lower court had denied US Airways the right to assert any damages from the 2006 contract on statute of limitations grounds. US Airways sought reversal of this ruling on the "continuing violation" theory. US Airways argued that each payment it made to Sabre over the course of the contract was a new antitrust violation. The issue had not been addressed in the Second Circuit. The court, therefore, looked to decisions in other districts, ultimately opting for a rule adopted in the Sixth, Eighth, and Ninth Circuits. They have held that, in a breach of contract situation, the overt act that begins the running of the statute of limitations was the decision to enter into the contract. As a result, each later performance in terms of payment to Sabre was merely a manifestation of the overt act and not an overt act itself. Thus, the act of entering into the 2006 contract triggered the running of the statute of limitations and any claims for damages more than four years before suit was filed were not recoverable. The court, therefore, affirmed the lower court’s decision to deny US Airways any damage claims from the 2006 agreement.

In reaching its decision, the court acknowledged that its ruling had the effect of rendering the nine-week trial, and its accompanying preparation and expert witness costs, essentially a waste of time. Nevertheless, the law is the law, and it thus affirmed the lower court’s ruling in part, reversed it in part, vacated it in part, and remanded it in part for further proceedings.

The case is Nos. 17-960 and 17-983.

Attorneys: Andrew Frackman (O'Melveny & Myers LLP) for US Airways, Inc. Evan R. Chesler (Cravath, Swaine & Moore LLP) for Sabre Inc., Sabre Holdings Corp. and Sabre Travel International Ltd.

Companies: US Airways, Inc.; Sabre Inc.; Sabre Holdings Corp.; Sabre Travel International Ltd.

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