American Airlines Inc v. Travelport Limited et al

Filing 111

REPLY filed by Orbitz Worldwide, LLC re: #77 MOTION to Dismiss Plaintiff American Airlines, Inc.'s First Amended Complaint (Yates, Christopher)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
FORT WORTH DIVISION

AMERICAN AIRLINES, INC.,
a Delaware corporation,
Plaintiff,
vs.
SABRE, INC., a Delaware corporation;
SABRE HOLDINGS CORPORATION, a
Delaware corporation and SABRE
TRAVEL INTERNATIONAL LTD., a
foreign corporation, d/b/a SABRE TRAVEL
NETWORK;
TRAVELPORT LIMITED, a foreign
corporation, and TRAVELPORT, LP,
a Delaware limited partnership, d/b/a
TRAVELPORT;
and
ORBITZ WORLDWIDE, LLC, a Delaware
limited liability company, d/b/a ORBITZ,
Defendants.

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Civil Action No. 4:11-cv-00244-Y

DEFENDANT ORBITZ WORLDWIDE, LLC’S REPLY IN SUPPORT
OF ITS MOTION TO DISMISS PLAINTIFF’S FIRST AMENDED COMPLAINT

TABLE OF CONTENTS
Page(s)
I.

INTRODUCTION ...............................................................................................................1

II.

ARGUMENT.......................................................................................................................3
A.

American Cannot Plead the Requisite Market Foreclosure to Support a
Sherman Act Claim Against Orbitz .........................................................................3
1.

The Parties Agree that Any Foreclosure from the SSA is
Insufficient. ..................................................................................................3

2.

American Cannot Rely on the Cumulative Foreclosure From Every
Travelport Subscriber Agreement to Support a Claim Against
Orbitz. ..........................................................................................................4

B.
C.
III.

The FAC’s Claims Against Orbitz Should Be Dismissed for the
Independent Reason That They Are Precluded Under Copperweld........................7
The Balance of the FAC’s Allegations Relating to Some Vast Conspiracy
to Monopolize the Distribution of Airline Tickets Fails Under Twombly ...............9

CONCLUSION..................................................................................................................10

i

I.

INTRODUCTION

The issue presented by this motion is whether an agreement between Orbitz and
Travelport which, at most, forecloses three percent of the pleaded market, is sufficient to state a
Sherman Act claim against Orbitz, a single online travel agent.
American’s lawsuit is based upon allegedly “unlawful behavior, including by Orbitz,
designed to foreclose ‘AA Direct Connect’ from the market for the provision of airline booking
services.” (Opp. at 1.) The First Amended Complaint (“FAC”) names Orbitz, alone among
thousands of travel agents, because it entered into an alleged exclusive dealing contract with
Travelport, the Subscriber Services Agreement (the “SSA”), which supposedly restricted Orbitz
from expanding its direct-booking relationship with American. In its opening brief, Orbitz
demonstrated that the antitrust claims against it fail for two independently dispositive reasons:
first, the SSA does not foreclose a “substantial” portion of the relevant market (even as pleaded);
and second, because the SSA was formed when Orbitz was wholly owned by Travelport, there
can be no conspiracy within the meaning of the Sherman Act.
Shown its own judicially noticeable SEC filings, American now concedes that the SSA
does not result in adequate foreclosure to state a claim. American’s response to this problem is
to recast the FAC to argue that the SSA is part of a broader “web of agreements between
[Travelport] and virtually all of its subscribers.” (Id. at 12.) That way, American argues, it can
add Orbitz’s minimal market share to the market share of all other travel agents that have
subscriber agreements with Travelport—such that, in aggregate, Travelport’s entire alleged 30%
market share can be attributed to Orbitz. This attempt to aggregate the market shares of various
“spokes” in a rimless wheel conspiracy fails as a matter of law. American cannot base claims
against Orbitz on other travel agents’ market shares absent allegations of a horizontal conspiracy
between Orbitz and all other travel agent subscribers to Travelport’s GDS. American does not
plead any such conspiracy among travel agents—nor could it, consistent with its Rule 11
obligations.

1

American’s other argument, that the FAC pleads a “second agreement” through which
Travelport provided “subsequent financial assistance to Orbitz in its dispute with [American],”
also cannot save the complaint. This alleged November 2010 agreement provided compensation
from Travelport to its sister company, Orbitz, for revenue losses caused by American’s decision
to terminate Orbitz’s ticketing authority. American mischaracterizes this agreement in an
attempt to sidestep the Copperweld barrier to its claims based on the SSA. It cites the FAC’s
allegation that this agreement provided for payments “conditioned only on Orbitz’ continued
refusal to adopt AA Direct Connect.” (Opp. at 7.) But, American attached the actual agreement
to its Appendix and the agreement contains no such provision. Instead, it provides for payments
while Orbitz’s ticketing authority remained terminated by American. (See American’s Appendix
in Support of Response in Opposition to Orbitz’s Motion to Dismiss, Doc. 94 (“AA APX”), at
Tab 3.) More importantly, because this agreement was formed after American chose to
terminate Orbitz, it could not result in any market foreclosure because Orbitz had no ability to
sell tickets for American flights—either directly or otherwise—at that time.
At every turn, American’s arguments against Orbitz converge on the alleged exclusive
dealing provisions in the SSA. The FAC’s fundamental problem is that the 3% market
foreclosure from the SSA, an agreement formed when Orbitz was wholly owned by Travelport,
cannot support a Sherman Act claim. That is not something which further amendment can fix.
And, because American cannot in good faith plead any type of horizontal conspiracy among
Orbitz and all other travel agent subscribers, the cumulative impact of all Travelport subscriber
agreements provides no cover. Nor can American cure this deficiency by mischaracterizing a
subsequent arrangement through which Travelport provided financial assistance to Orbitz, after
American chose to terminate its ticketing authority. Because the FAC cannot state viable
antitrust claims against Orbitz as a matter of law, dismissal is warranted.

2

II.
A.

ARGUMENT

American Cannot Plead the Requisite Market Foreclosure to State a Sherman Act
Claim Against Orbitz
1.

The Parties Agree that Any Foreclosure from the SSA is Insufficient.

American contends that Orbitz violated Sections 1 and 2 of the Sherman Act by entering
into the SSA, which required it to use Travelport “exclusively” as its GDS provider for North
American air travel bookings, and provided “powerful financial incentives” to restrict Orbitz
from entering into any new “direct connect” relationships with an airline. (FAC ¶¶ 69-71.)
These allegations purport to allege an “exclusive dealing” arrangement between Orbitz and
Travelport. See Apani Southwest, Inc. v. Coca-Cola Enterprises, Inc., 300 F.3d 620, 625 (5th
Cir. 2002). An exclusive dealing agreement violates the Sherman Act only if it locks-up or
“forecloses” a “substantial” portion of the pleaded market—which, under the case law, is at least
30% or more. (See Orbitz’s Brief in Support of its Motion to Dismiss, Doc. 77-1 (“Mot.”), at 2,
10-15); see also Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327-328 (1961); Jefferson
Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984); Apani, 300 F.3d at 625; Star Tobacco, Inc.
v. Darilek, 298 F. Supp. 2d 436 (E.D. Tex. 2003).
The FAC’s allegations against Orbitz cannot meet this threshold requirement, because the
SSA forecloses, at most, only Orbitz’s three percent share of the pleaded market.1 Thus, even if
the SSA resulted in a complete foreclosure of American’s ability to sell tickets directly on
Orbitz, the Sherman Act claims fail. See Jefferson Parish, 466 U.S. at 45; Kidd v. Bass Hotels &
Resorts, Inc., 136 F. Supp. 2d 965, 969 (E.D. Ark. 2000) (“Since the early 1970’s, ‘judicial
decisions have established a virtual safe harbor for market foreclosures of 20% or less,’” quoting
ABA Section of Antitrust Law, Antitrust Law Developments, 214 (4th ed. 1997)).

1

In its SEC Form 10-Q, filed April 20, 2011, American stated: “On December 21, 2010, American
terminated its agreement with Orbitz. Prior to termination of such agreement, approximately 3% of
American’s passenger revenue, on an annualized basis, was generated from bookings made via
Orbitz.” [OWW APX 5-6 (Document 78)] As noted in Orbitz’s opening brief, the pleaded market is
implausible, but Orbitz is entitled to dismissal even accepting that market for purposes of this motion.

3

Even American concedes that any foreclosure from the SSA, alone, does not meet the
threshold under Jefferson Parish. (Opp. at 12) (“And AA does not contend that those provisions
violate the Sherman Act because, viewed in isolation, those agreements foreclose competition
from alternatives to [Travelport]’s GDSs.”) This is fatal to both of its claims against Orbitz.2
2.

American Cannot Rely on the Cumulative Foreclosure From Every Travelport
Subscriber Agreement to Support a Claim Against Orbitz.

Faced with the reality that the only agreement pleaded as to Orbitz, the SSA, cannot
support a Sherman Act claim, American recasts the FAC to argue that Travelport “has locked up
all of its travel agent subscribers, including, but not limited to, Orbitz.” (Opp. at 2, 12 (emphasis
in original).)3 Then, it argues, because Travelport “controls GDSs that together account for over
30% of all airline ticket sales made by U.S.-based travel agencies,” its “exclusionary agreements
with Orbitz and other [Travelport] subscribers forecloses over 30%” of the pleaded market. (Id.)
In other words, American’s Sherman Act claims against Orbitz hinge on being able to impute the
aggregate market share of “all of [Travelport’s] travel agency subscribers” to Orbitz. (Id.)
In its moving papers, Orbitz showed that aggregating foreclosure from Travelport’s
separate agreements with other travel agents to support a claim against Orbitz was improper.
(Mot. at 13-14.) Instead, the foreclosure analysis is limited to the individual agreement alleged
to be in restraint of trade; here, the SSA. See Dickson v. Microsoft Corp., 309 F.3d 193, 210 (4th
Cir. 2002). Dickson affirmed a Rule 12(b)(6) dismissal of Sherman Act claims against Microsoft
2

American’s inability to plead sufficient foreclosure precludes both its Section 1 and Section 2
Sherman Act claims against Orbitz. (See Mot. at 15, citing Tampa Elec., 365 U.S. at 327;
Ticketmaster Corp. v. Tickets.com Inc., 127 Fed. App’x. 346 (9th Cir. 2005); and R.J. Reynolds
Tobacco Co. v. Philip Morris, Inc., 199 F. Supp. 2d 362, 394-395 (M.D. N.C. 2002).)

3

American also makes passing reference to—and mischaracterizes—a November 2010 agreement
between Travelport and Orbitz. (Opp. at 12.) This agreement is inapposite. First, on its face, the
agreement relates to payments for losses caused by American’s termination of Orbitz’s ticketing
authority. (See AA APX at Tab 3.) It was formed after American chose to terminate its business
relationship with Orbitz. Thus, by definition, it could not result in any foreclosure, insofar as Orbitz
had no ability to book American flights at that time, either directly or through a Travelport GDS.
Indeed, the entire agreement was a result of American’s choice to terminate Orbitz’s ticketing
authority and its advertisement of that fact to the market. (See Mot. at 6-7.)

4

and two PC manufacturers which entered into supposedly anticompetitive agreements with
Microsoft: “the district court correctly determined that it could not consider the cumulative harm
of Microsoft’s agreements with all OEMs but instead was required to consider—individually—
Microsoft’s agreements with Compaq and Dell to evaluate each agreement’s potential for
anticompetitive effects.” Id.
American tries to distinguish Dickson by claiming the FAC “alleges that [Travelport] and
its subscribers, including Orbitz, have entered into agreements that have effectively foreclosed
virtually all of the market for the provision of airline booking services to [Travelport]
subscribers.” (Opp. at 12-13.) Critically, however, American does not—nor could it in good
faith—plead the existence of horizontal agreements between Orbitz and the other (unidentified)
travel agency subscribers. The FAC does not allege that Orbitz is a party to any other travel
agent’s subscriber agreement, that it participated in or otherwise influenced the negotiations or
terms of such agreements, or that Orbitz in anyway conspired or agreed with other travel agents
to require particular terms or conditions in their various subscriber agreements with Travelport.
American thus purports to plead a “rimless wheel” conspiracy, whereby various
defendants enter into separate agreements with a common defendant, but have no connection
with one another other than the common defendant’s involvement in each transaction.4 See, e.g.,
Precision Assocs. v. Panalpina World Transp., 2011 U.S. Dist. LEXIS 51330 (E.D.N.Y. Jan. 4,
2011). However, in the absence of horizontal conspiracy allegations among the spokes (here,
Orbitz and the other travel agents), there is no basis for aggregating the market shares from the
separate travel agents’ agreements to plead a Sherman Act claim against Orbitz. See id. at *99-

4

A “rimless wheel” involves a “hub” (here, Travelport) entering into a series of agreements with
unrelated “spokes” (here, various travel agents). Where a horizontal agreement (or “rim”) among the
spokes exists, the hub and all of the spokes may be jointly liable for the overarching “hub-and-spoke”
conspiracy. See, e.g., Toys ‘R’ Us, Inc. v. FTC, 221 F.3d 928 (7th Cir. 2000); In re Microsoft Corp.
Antitrust Litig., 127 F. Supp. 2d 728, 733 (D. Md. 2001). In contrast, as Dickson recognized, “[a]
rimless wheel conspiracy is one in which various defendants enter into separate agreements with a
common defendant, but where the defendants have no connection with one another, other than the
common defendant’s involvement in each transaction.” 309 F.3d at 203.

5

100; Dickson, 309 F.3d at 203-204 (finding that “a wheel without a rim is not a single
conspiracy,” and thus the agreements must be evaluated individually); Total Benefits Planning
Agency v. Anthem Blue Cross & Blue Shield, 552 F.3d 430 (6th Cir. 2008) (affirming dismissal
where plaintiff identified the hub as Anthem and independent insurance agents as spokes, but
failed to allege any agreements among the competing agents that could constitute a rim);
Columbus Drywall & Insulation Inc. v. Masco Corp., 2009 U.S. Dist. LEXIS 30937, at *56-57
(N.D. Ga. Feb. 9, 2009) (dismissing Sherman Act claims because there was no basis for
considering the combined effects of multiple vertical agreements between a large insulation
contractor and various fiberglass insulation manufacturers in the absence of concerted action
among the individual manufacturers); Stand Energy Corp. v. Columbia Gas Transmission Corp.,
2008 U.S. Dist. LEXIS 63913, at *52-54 (S.D. W.Va. Aug. 19, 2008) (same); accord PSKS, Inc.
v. Leegin Creative Leather Prods., Inc., 615 F.3d 412, 419-420 (5th Cir. 2010) (where there was
no allegation of “an agreement among retailers to implement the [retail price maintenance]
policy” from their separate agreements with a defendant wholesaler, “there is no wheel and
therefore no hub-and-spoke conspiracy, and that allegation was properly dismissed”). An
illustration below demonstrates the distinction:
What Must be Alleged to
Aggregate Foreclosure

What the FAC Has Alleged
Unnamed
Travel Agent
Unnamed
Travel Agent

Unnamed
Travel Agent

Unnamed
Travel Agent

Unnamed
Travel Agent

Unnamed
Travel Agent
Unnamed
Travel Agent

6

In short, American’s request that the Court aggregate a rimless hub-and-spoke conspiracy
is without support. Indeed, the sole case American cites, Omega Envt’l. v. Gilbarco, Inc., 127
F.3d 1157, 1162-1164 (9th Cir. 1997), provides no authority for its argument. (Opp. at 13.) In
Gilbarco, the Ninth Circuit considered the combined foreclosure of Gilbarco’s own contracts
with various distributors to determine its market share, ultimately finding that a 38% market
foreclosure was not sufficient to support a Sherman Act claim. It did not hold or suggest that an
individual distributor (or spoke) in an alleged rimless wheel conspiracy was liable for the
cumulative foreclosure of Gilbarco’s (the hub) agreements with other, unrelated spokes.
American provides no authority for basing its claims against Orbitz on the aggregated
market shares of all other travel agents that have deals with Travelport, when there is no alleged
agreement—express, tacit, or otherwise—between or among them.5 And as even American
concedes, without aggregation the FAC’s antitrust claims against Orbitz cannot survive.
B.

The FAC’s Claims Against Orbitz Should Be Dismissed for the Independent Reason
That They Are Precluded Under Copperweld
Dismissal of the Sherman Act claims against Orbitz is also warranted because Orbitz and

Travelport were not separate economic actors when the SSA was formed. It is axiomatic that a
parent and its wholly owned subsidiary are incapable of conspiring as a matter of law. See
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984); Hood v. Tenneco Texas
Life Ins. Co., 739 F.2d 1012, 1015 (5th Cir. 1984). “Indeed, the very notion of an ‘agreement’ in
Sherman Act terms between a parent and a wholly owned subsidiary lacks meaning.”

5

Although the question of whether Travelport may be liable for any cumulative foreclosure from its
own agreements with various other travel agencies is not at issue here, it bears noting that even
Travelport’s entire 30% market share, (see FAC at ¶ 3), is on the very fringe of what courts consider
sufficient for a Sherman Act claim. See, e.g., Stop & Shop Supermarket Co. v. Blue Cross & Blue
Shield of R.I., 373 F.3d 57, 68 (1st Cir. 2004) (30-40% minimum foreclosure rate required for
violation; “low numbers make dismissal easy”); U.S. v. Microsoft Corp., 253 F.3d 34, 70 (D.C. Cir.
2001) (40-50% required); Minn. Mining & Mfg. Co. v. Appleton Papers, Inc., 35 F. Supp. 2d 1138,
1143 (D. Minn. 1999) (“at least 30 percent to 40 percent” required).

7

Copperweld, 467 U.S. at 771. Here, it is undisputed that the SSA was entered into when Orbitz
was a wholly owned subsidiary of Travelport. (See Mot. at 17 (citing OWW APX 7-37).)
American’s response to this dispositive fact is misdirection. First, it makes the inapposite
argument that, “outside the context of wholly owned subsidiaries,” the Supreme Court’s
American Needle, Inc. v. National Football League ruling requires a fact-intensive inquiry into
the competitive realities of an agreement between separate economic actors. (Opp. at 5-6.)
American Needle concerned a joint venture by horizontal competitors to sell their intellectual
property. 130 S. Ct. 2201, 2208 (2010). The NFL teams at issue are not and never were
members of a corporate family—much less a parent and wholly owned subsidiary. The Supreme
Court acknowledged this distinction, and reaffirmed the Copperweld holding applicable here:
“Considering it ‘perfectly plain that an internal agreement to implement a single, unitary firm’s
policies does not raise the antitrust dangers that § 1 was designed to police,’ we held that a parent
corporation and its wholly owned subsidiary ‘are incapable of conspiring with each other for
purposes of § 1 of the Sherman Act.’” Id. at 2221 (citing, among other cases, Copperweld).
American’s attendant requests for discovery to determine “control,” and its reliance on Orbitz’s
Articles of Incorporation, (see id.), are irrelevant because they do not change the fact that the
SSA was formed and executed when Orbitz was wholly owned by Travelport. See, e.g., Rio
Grande Royalty Co. v. Energy Transfer Ptnrs., L.P., 2009 U.S. Dist. LEXIS 126696, at *21-23
(S.D. Tex. Mar. 25, 2009) (dismissing Sherman Act claims after finding, through a review of the
defendants’ corporate relationships, including public SEC filings, that the alleged conspirators
were part of a single corporate family during execution of the challenged contracts).
American’s second argument is that “Orbitz conveniently ignores” a November 2010
agreement, referenced in a single paragraph of the 165 paragraph FAC, whereby Travelport
agreed to compensate Orbitz for business losses caused by American’s termination of Orbitz’s
ticketing authority. (Opp. at 7-8 (citing FAC ¶ 101).) Because this second agreement took place
after Travelport partially divested its shares in Orbitz, but while Travelport and its affiliates still

8

owned a majority of Orbitz’s stock (see Mot. at 18 (citing OWW APX 40-41)), American argues
Copperweld does not apply and discovery on issues related to “control” is needed. (Opp. at 7-8.)
Put differently, American now bases its claims on an agreement to offset Orbitz’s losses
caused by American’s own decision to terminate Orbitz. This strange antitrust theory cannot
support a Sherman Act claim. The November 2010 agreement was formed after American
terminated its business relationship with Orbitz, at a time when Orbitz had no ability to sell
tickets for American flights via Direct Connect, Travelport’s GDS or otherwise. It provides no
additional foreclosure of the pleaded market to the SSA; indeed, American foreclosed itself from
selling tickets through Orbitz during this time. Accordingly, this agreement cannot provide
American license to subject Orbitz to expensive discovery in support of a legally insufficient
claim.
C.

The Balance of the FAC’s Allegations Relating to Some Vast Conspiracy to
Monopolize the Distribution of Airline Tickets Fails Under Twombly
This antitrust case is primarily directed at GDS operators, Sabre and Travelport.

American claims both GDSs are trying to monopolize separate, implausible markets for “[t]he
provisions of airline booking services to [their respective] subscribers.” (FAC ¶¶ 68, 117-119.)
For that reason, the majority of the FAC contains general allegations about GDS market power,
the terms of American’s own contracts with Sabre and Travelport, and actions taken by the two
GDS operators. None of these allegations relate to Orbitz, a single online travel agent, or
implicate it in any conspiracy.
Despite references to “Orbitz’s agreements” to conspire, American’s opposition can
identify only two bases for its claims against Orbitz: the SSA and the November 2010
agreement, referenced in a single paragraph of the FAC. There are no other agreements.
Because the pleaded agreements could have resulted in, at most, a three percent market
foreclosure, they cannot support a Sherman Act claim as a matter of law. The remaining
generalized allegations that Orbitz and other travel agent subscribers “benefit” from booking fees

9

collected by the GDSs, simply do not meet the pleading standard required to implicate Orbitz in
a some vast alleged conspiracy to monopolize the distribution of airline tickets. See Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007); Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (to
survive dismissal, the plaintiff must allege “enough facts to state a claim to relief that is plausible
on its face”).
III.

CONCLUSION

Because the legal defects in American’s case are not something which further pleading
could address, another amendment is futile. Accordingly, Orbitz requests that the FAC’s Third
and Fourth Claims for Relief against it be dismissed without further leave to amend.
DATED:

July 20, 2011

Respectfully submitted,
s/ Christopher S. Yates
Christopher S. Yates (admitted Pro Hac Vice)
California State Bar No. 161273
Email: [e-mail]
Daniel M. Wall (admitted Pro Hac Vice)
California State Bar No. 102580
Email: [e-mail]
Brendan A. McShane (admitted Pro Hac Vice)
California State Bar No. 227501
Email: [e-mail]
LATHAM & WATKINS LLP
505 Montgomery Street, Suite 2000
San Francisco, CA 94111-6538
Telephone: [phone]
Facsimile: [phone]
and
John J. Little
Texas State Bar No. 12424230
Email: [e-mail]
Stephen G. Gleboff
Texas State Bar No. 08024500
Email: [e-mail]
Megan K. Dredla
Texas State Bar No. 24050530
Email: [e-mail]

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LITTLE PEDERSEN FANKHAUSER LLP
901 Main Street, Suite 4110
Dallas, TX 75202-3714
Telephone: [phone]
Facsimile: [phone]
ATTORNEYS FOR DEFENDANT
ORBITZ WORLDWIDE, LLC

11

CERTIFICATE OF SERVICE
On July 20, 2011, I electronically submitted the foregoing document with the clerk of the
court for the U.S. District Court, Northern District of Texas, Fort Worth Division, using the
electronic case filing system of the court. The electronic case filing system sent a “Notice of
Electronic Filing” to the attorneys of record who have consented in writing to accept this Notice
as service of this document by electronic means.

s/ Christopher S. Yates
Christopher S. Yates

1