Tuesday, October 12, 2010

Preliminary Injunction Denied in Private Suit to Block Airline Merger
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

After the merger of UAL Corporation, parent of United Airlines, and Continental Airlines, Inc, received regulatory approvals from the Department of Justice, the Department of Transportation, and the European Commission, the federal district court in San Francisco rejected a request for a preliminary injunction blocking the merger in a private suit.

Forty-nine named plaintiffs who had purchased commercial air travel for personal use, and intended to purchase tickets in the future, sought the temporary relief pending trial on the merits.

A private plaintiff may obtain injunctive relief upon a showing of threatened loss or damage, and only when the antitrust injuries are personal. To advance the requisite showing of an antitrust violation—and thereby warrant injunctive relief—both the existence of a relevant market and the pending acquisition’s likelihood of causing anticompetitive effects had to be established.

Relevant Market

The plaintiffs failed to define a valid relevant market for purposes of evaluating the competitive effects of the transaction. The court rejected the three proposed alternative relevant markets:

(1) A market for business passengers served by “network carriers,” characterized as airlines operating on a “hub-and-spoke” business model;

(2) A market of 13 “airport-pairs,” as opposed to “city-pairs”; and

(3) A market consisting of the United States airline industry as a whole.

“Despite a vigorous and forceful attempt, plaintiffs have not carried their burden, under any injunctive relief merits standard, of demonstrating the existence of a viable relevant geographic and product market,” the court said.

The plaintiffs failed to show why "low cost carriers" or LCCs, which traditionally operate on a point-to-point basis, focus on high density routes rather than small communities, and utilize a single aircraft type, should be excluded from a relevant product market limited to business passengers served by network or legacy carriers. The substantial evidence suggested that the LLCs should not be excluded.

With respect to the proposed market defined by "airport-pairs," the expert for the plaintiffs contended that there were "time-sensitive passengers" who were willing to pay more for access to a preferred airport in a particular metropolitan area. Even if some passengers would not use an alternative airport, city-pairs remained the appropriate market, according to the court. Competition from adjacent airports disciplined pricing and had to be considered when defining the relevant market. According to the defendants' expert, twelve of thirteen airport-pairs cited by the plaintiffs' expert were subject to competition from adjacent airports. The court questioned the plaintiffs' expert's "failure to conduct any significant economic or other analysis."

As for the third proposed market, the court said that it "can be more quickly dispatched than the two previously discussed alternatives." The proposed nationwide market failed to examine individual markets involving passenger origins and destinations. Boundaries of a product market were determined by the reasonable interchangeability for or the cross elasticity of demand between the product itself and substitutes for it. The plaintiffs failed to show how, for example, a flight from San Francisco to Newark would compete with a flight from Seattle to Miami, the court explained.

Standing, Injury

Although the plaintiffs had established standing as consumers of airline tickets, they failed to establish any significant harm they would personally suffer that would warrant preliminary injunctive relief. The plaintiffs failed to demonstrate any irreparable harm as a result of the merger or that the balance of equities tipped at all, let alone sharply in their favor.

The plaintiffs did not demonstrate in any way that they themselves would suffer any specific harm were preliminary injunctive relief denied. Because the plaintiffs failed to satisfy their burden on the merits and failed to prove irreparable harm, the court denied the motion for a preliminary injunction.

The decision is Malaney v. UAL Corporation, 2010-2 Trade Cases ¶77,187.

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