American Airlines Inc v. Travelport Limited et al

Filing 142

RESPONSE filed by Sabre Inc re: #138 Sealed and/or Ex Parte Response/Objection (Attachments: #1 Exhibit(s) A, #2 Exhibit(s) B) (Scott, Donald)

EXHIBIT B

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------x
US AIRWAYS, INC.,
Plaintiff,
v.

11 CV 2725(MGC)

SABRE HOLDINGS CORPORATION,
et al.,
Defendants.
------------------------------x
September 8, 2011

Before:
HON. MIRIAM GOLDMAN CEDARBAUM,
District Judge
APPEARANCES
CADWALADER WICKERSHAM & TAFT, LLP
Attorneys for Plaintiff
BY: CHARLES F. RULE
PETER MOLL
CLEARY GOTTLIEB STEEN & HAMILTON
Attorneys for Defendants
BY: GEORGE S. CARY
LEV DASSIN
STEVEN KAISER
BARTLIT BECK
Attorneys for Defendants
BY: DONALD E. SCOTT

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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(In open court)
THE DEPUTY CLERK: US Air ways against Sabre holdings.
THE COURT: I have admitted several lawyers pro hac
vice in this case. One is Andrew Polovin. Another is Chris
Lind. A third is Katherine Swift, who is not here, I take it?
MR. CARY: That's correct, your Honor.
THE COURT: And a fourth is Kenneth Reinker.
I don't know if any of these people are present in the
courtroom.
MR. CARY: Mr. Reinker is here, your Honor.
THE COURT: Very well. All right.
Now, this is a motion to dismiss the complaint. And I
will hear first from the proponent of the motion.
MR. CARY: Good morning, your Honor. George Cary for
Cleary Gottlieb Steen & Hamilton for Sabre.
Arguing with me also will be Mr. Donald Scott from
Bartlit Beck, who will address Count Four of the complaint.
I'll address Count One, Two and Three, if it pleases the Court.
THE COURT: Very well.
MR. CARY: Your Honor, we brought the exhibit just to
put the entire dispute here into context. As with most
antitrust cases, it's very important to understand exactly who
is dealing with whom, how the product is sold to the consumer
in order to put into context the allegations that various
provisions or activities hurt the consumer. Our position -SOUTHERN DISTRICT REPORTERS, P.C.
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THE COURT:

Right.

Well, we're all consumers of air

travel.
MR. CARY: Exactly. And our position is that the
provisions that are challenged here help the consumer, that
they make the market more competitive and that they do not
restrict competition; rather, they are the embodiment of
competition.
THE COURT: Well, do I understand that it is really
business travelers that we're talking about? Ordinary citizens
like the rest of us don't use any of these big platforms.
MR. CARY: That's not correct, your Honor. The way
that the complaint is styled, it has to do with travelers.
They try to limit the travelers to those that use travel
agents. A large portion of people that use travel agents
happen to be business travelers, but business travelers also
book directly. They also book on websites. And nonbusiness
travelers use travel agents. So it is not correct to say that
this is limited to business travelers. The allegation in the
complaint -THE COURT: Well, do I understand we're talking -- the
main customers of these -- of Sabre and Travelport and Amadeus
are large travel agencies?
MR. CARY: No. They're all travel agencies, your
Honor, large and small.
THE COURT: What percentage of the travel agencies
SOUTHERN DISTRICT REPORTERS, P.C.
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that work through Sabre are small travel agencies, travel
agencies that primarily cater to individuals travelling for
pleasure?
MR. CARY: Well, numerically, I would expect that it's
a very large percentage. In terms of dollars -THE COURT: When you say you would expect, do you have
a basis for your expectations?
MR. CARY: The basis for my expectation is that there
are lots and lots of travel agents. Travel agents used -THE COURT: That is correct. There are many travel
agents who, I'm sure, do not use this kind of arrangement if it
costs them money.
MR. CARY: Very few, your Honor, very few. Travel
agents use these arrangements, small and large. And the reason
is because travel agents -- when you call up the travel agent,
the travel agent wants to know what are the options, what are
the possibilities for the itinerary you're proposing and what
are the prices. And they want to look across all their lines
and they want to find the itinerary. And they want to know
what the prices are -THE COURT: All travelers want that.
MR. CARY: And all travel agents are in the business
of providing that, and that's why they use the GDSes. That's
what the GDS is -THE COURT: Surely there are other entities that
SOUTHERN DISTRICT REPORTERS, P.C.
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can -- we are living in an age of computer expertise. Surely
there are other people with the technological know-how to find
out all of the flights available at any particular time on any
particular day, isn't that right?
MR. CARY: Yes, it is right, your Honor. That's why
we have up there, for example, the Internet metasearch Kayak
box, the Brown box at the top. There are absolutely other ways
to do it, yes, your Honor. But for the travel agents, I mean,
the travel agents can use other ways as well. As you can see,
they can go to the airline web page. They can go -THE COURT: Is there any study really, a statistical
study of how many individuals or small travel agents use these
mega intermediaries?
MR. CARY: Yes, your Honor. I can't tell you that
there are not travel agents that don't, but the vast
preponderance, large and small, of travel agents subscribe to
these services in order to be able to compare flights.
THE COURT: All right. Well, is it accurate that no
other entity has entered the same field for 25 years?
MR. CARY: If we define -THE COURT: Because that's what the complaint alleges.
MR. CARY: If we define it the way you've defined it
in terms of sites like the Internet search site Kayak and the
like, it's not correct. As you point out, there are lots of
ways that one can do this. If you're talking -SOUTHERN DISTRICT REPORTERS, P.C.
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THE COURT: Right. But if you're not adept at the
computer and you want to use an agent who will fill in your
inadequacy through the computer, what are the entities that are
middle people?
MR. CARY: The travel agents, as illustrated in the
chart, can use the global distribution systems, the GDSes.
They can go directly to a direct connect to an airline, such as
Southwest; if the airline has a direct connection, they can go
to -THE COURT: Well, no. I'm talking about those who
want to know all of the flights on a particular day of any
airline to a particular destination. Isn't that really what
we're talking about?
MR. CARY: It is, your Honor. And the most efficient
way to do that is the global distribution systems, the GDSes.
THE COURT: Why is it, then -- isn't it unusual that
no one has entered the field for 25 years?
MR. CARY: I don't think it is, your Honor. The
reason no one has entered the field for 25 years is because the
players in this field have provided excellent service and have
competed aggressively with each other and have competed to win
the business of the travel agents. Mr. Rule calls that
kickbacks, but that is a sharing commissions, which is a
discount to the traveler ultimately and because they -THE COURT: I understand, but presumably other
SOUTHERN DISTRICT REPORTERS, P.C.
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entities could offer the same blandishments, isn't that right?
MR. CARY: They could, yes.
THE COURT: But for 25 years nobody has entered the
field?
MR. CARY: In terms of the GDSes, yes, that's
accurate.
THE COURT: That's an allegation that gives pause.
MR. CARY: Well, I don't think it should give too much
pause, your Honor. It doesn't demonstrate -- it is equally as
consistent with a very competitive market as it is with
anything else.
THE COURT: I wouldn't say equally consistent. It may
not show that it's not a competitive market, but I don't think
it's equally consistent with a highly competitive market.
MR. CARY: The point here, your Honor, is that these
plaintiffs have alleged in terms of their -THE COURT: I'm looking only at the complaint. I
don't know anything about the field.
MR. CARY: Right. In terms of the monopolization
claim here, these plaintiffs have alleged -THE COURT: That's a different issue. That's a
different issue. Clearly everybody is a monopolist of his own
clients.
MR. CARY: Exactly.
THE COURT: So to use a market of Sabre clients is not
SOUTHERN DISTRICT REPORTERS, P.C.
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realistic. But I'm talking about the bigger market, not the
market of Sabre clients.
MR. CARY: So in the market for the bigger clients,
we'd like to address what the allegations are with respect to
that market. So that market is not part of their
monopolization claim. It's part of their Sherman Act claim.
THE COURT: Yes.
MR. CARY: Agreements in restraint of trade claim. So
we would like to address that.
Again, I mean, the travelling public can use all of
these options. And ultimately what we're talking about here is
a way for the airlines to reach the travelling public. And so
what do they say are the anticompetitive agreements that are at
issue here?
They highlighted in their complaint two sets of
agreements. One set of agreement is the agreements between the
GDSes on the one hand and the travel agents on the other. The
other sets of agreements are the agreements between the GDSes
on the one hand and the airlines on the other. And they say
these are the two agreements that violate the Sherman Act. So
let's talk about the agreements first between the GDSes and the
airlines that they complain about.
THE COURT: Yes. No, there's no question. The
plaintiff is complaining about the contract that it signed.
MR. CARY: Right. So what do they say is wrong with
SOUTHERN DISTRICT REPORTERS, P.C.
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that contract? If you read the complaint in its totality, it
is very clear what they're complaining about is the so-called
full content requirement in the contract. What is that?
That's a requirement that the airline provide to Sabre its full
array of prices so that when it displays US Air's prices and
American's and Southwest's and Delta, etc., that it's an
apple-to-apple comparison.
What Sabre is selling is exactly that comparison.
That's the basis for the entire product. Without that, Sabre
really doesn't have that much to offer the travel agent. It's
that ability to instantaneously shop so the travel agent, the
agent for the traveler, can pick the best flight. There is
nothing anticompetitive -THE COURT: Yes, but the best flight may not entirely
depend on price.
MR. CARY: That's right. And the travel agent, if it
has that full picture of what the flights are, what the prices
are, what the ancillary fees are, which is part of price, how
much you'll be charged for the extra bag, how much you'll be
charged to get the aisle seat in the exit row, if Sabre cannot
provide all that information to the travel agent, its product
is worse. Its product is not as good. An agreement that makes
Sabre's product better is procompetitive because it serves
consumer interest.
US Air is arguing, well, but because your product is
SOUTHERN DISTRICT REPORTERS, P.C.
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better because of full content, it makes it harder for other
people to compete. That's not what antitrust is about.
Antitrust law does not require that a competitor hobble itself,
put forward an inferior product just so that others can look
better in comparison. That's what they're asking. There is
nothing anticonsumer about the full fare requirement in these
agreements.
And that's the heart of what we're talking about here.
They're saying we require full fare. They're saying we require
nondiscrimination. Those things help consumers. They're not
anticonsumer.
So turning from the agreement with the airlines then
to the agreement with the travel agents, what's the thrust of
their complaint there? The thrust of their complaint there is
that the GDSes who get paid by the airlines to find bookings is
passing on some of that commission to the travel agents. How
is that anticompetitive? The travel agents are intensely
competitive, and they earn income by selling airplane tickets.
And they're either going to charge the traveler for that
service or they're going to charge the airline for that
service. The GDS sits in between.
THE COURT: I know, but don't they, in effect, give a
big discount on the air prices to the travel agents in order
for them to sell cheaper tickets to their clients?
MR. CARY: Yes, exactly. That's procompetitive. That
SOUTHERN DISTRICT REPORTERS, P.C.
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is competition at its best. And Sabre and Travelport and
Amadeus are out there competing for these travel agents by
offering what US Air calls kickbacks, incentives. That's a
commission for a booking. And as long as that commission for a
booking is competitively set as between those airlines, it's
not predatory. It's not designed to be so high that they're
actually paying those travel agents more than they're getting
in a commission in order to run the others out of business.
The Warehouser case in the Supreme Court is very clear
that that's procompetitive. It lowers prices to consumers.
It's good for consumers. And it's the artifact, it's the
manifestation of competition among the GDSes that cannot be a
Sherman Act violation.
So what do we have? We have contracts with the
airlines that enable the product, make it better because it's
fully inclusive, make it harder for the airlines to -- pardon
the euphemism -- rip off the consumer by having a victim show
up at the gate and say, by the way, it's 50 bucks for that bag.
THE COURT: Why has no other entity entered the field
for 25 years? I still go back to that. That's really a
somewhat -- obviously it's not proof of anticompetition, but it
is surprising, if this is an open market.
MR. CARY: Your Honor, there are lots of markets with
three players.
THE COURT: Which, for example? Why don't you cite me
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a few.
MR. CARY: Airplanes, to name one.
THE COURT: There are more than three airlines.
MR. CARY: No, three -- airplanes, I'm talking about
Boeing and Airbus, intensely competitive. Aircraft engines.
There are lots of markets with three players. In this market
the department -- the Federal Trade Commission reviewed the
merger of Galileo and -THE COURT: Airbus and Boeing are the only
manufacturers of airplanes in the world? I don't think so.
MR. CARY: They are predominant manufacturers -there's a Chinese manufacturer that doesn't sell to the US, but
the airlines basically, in terms of the jet fleet, they're
Airbus or Boeing. There used to be -THE COURT: That's true for the military as well?
MR. CARY: I think Lockheed also makes jets.
THE COURT: I think that's right. So immediately
we're increasing the number.
MR. CARY: Well, but that's not for commercial
aviation. But, I mean, one can think of lots of markets where
there are three players, four players. In this case the FTC
reviewed the merger of Galileo and Worldspan and said a
three-player market here is competitive, we're going to allow
the deal.
THE COURT: It depends on the market, of course, but
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when you say there are lots, if so, we're not doing a very good
job.
MR. CARY: But, your Honor, the main point is that the
things that have been cited here, these contracts, those
contracts make the Sabre product a better product. And if
that's the reason that others can't compete, that's not
violative of the -THE COURT: What does that mean? Translate that for
me.
MR. CARY: Full content, we've already talked about.
THE COURT: We've been through full content.
MR. CARY: The incentives that Sabre offers the travel
agents, they are induced to offer a high incentive because
they're competing with Travelport and Amadeus, who are offering
incentives. They are able to secure the business because they
are aggressively competing for that business.
THE COURT: Why isn't it anticompetitive to ordinary
consumers -MR. CARY: Because, as your Honor pointed out -THE COURT: -- who have to pay more as a result.
MR. CARY: They don't pay more, they pay less. Those
incentives are passed on to the traveler because the travel
agents in turn are competing. And as this Court said on the
verge -THE COURT: Is there any evidence that the travel
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agents pass on their fees to the customer?
MR. CARY: Absolutely there is, your Honor.
Absolutely there is.
THE COURT: What evidence?
MR. CARY: The evidence is that travelers are
basically -- some travelers are able to get their travel agent
services at no cost at all because of these incentives. Others
are able to get them at a lower cost because the travel agents
are competing with each other and they're lowering their prices
in light of the incentives that they get from the GDSes, who in
turn get a commission from the airlines.
As this Court found in the Virgin Atlantic/British
Airways case, those kinds of discounts are the result of
competition. They're procompetitive.
THE COURT: But it depends on what we're talking
about. These are not identical cases.
MR. CARY: They're pretty close. The case in Virgin
Atlantic dealt with travel incentives paid to the travel agents
by the airlines. Those went through the GDSes. It's very
analogous. Once the travel agent gets it, the travel agent
market is very competitive. The airlines stopped paying
commissions to the travel agents directly. They started to
have to charge fees. Those fees are lower than they otherwise
would have to be because the GDSes pass on incentives to the
travel agents, who in turn, in a competitive market, share
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those with their travelers. It's all procompetitive. It's
output expanding and it's good for the consumer.
THE COURT: Well, it's the consumer that I'm not clear
it's so good for, but that's a separate problem. We have a
plaintiff here who's an airline.
All right. Let me hear from your adversary.
MR. RULE: Thank you, your Honor.
First point I guess I would make is just to remind
Mr. Cary and everyone else that we're here on the motion to
dismiss.
THE COURT: Yes.
MR. RULE: I heard a lot of -THE COURT: We're here on the face of the complaint.
I don't really consider matters outside the complaint.
MR. RULE: So I think pretty much 90 percent of what
Mr. Cary said is outside the complaint. Obviously they are
going to want to try to defend what has gone on. We understand
that. But, again, that's for later in the process, for summary
judgment and that sort of thing.
I think it's helpful, your Honor, to give you a little
bit of background as to why there are only three of these guys.
You know -THE COURT: Yes. Why is travel logic not more widely
used?
MR. RULE: Farelogix.
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THE COURT: Farelogix.
MR. RULE: Our allegations are it's because of the
conduct and agreements that the GDSes have imposed on travel
agents and on airlines. But there have -- if you go back, this
all started in 1962 when the first systems came up based on big
IBM mainframes. I think they had five IBM mainframes. It used
to be that that travel agents -- this may be what you recall
and what I recall -- had this ticket system. And they'd sit
there, look things up in the OAG and write up a ticket. In the
'60s they came up with a computer way to do it. Back in the
days before computers were familiar to all of us, they had dumb
terminals, and that didn't have the graphic interface we're all
used to. And that was great back in the '60s.
Turned out these guys were owned by the airlines.
They ended up getting sufficient market power that I think, you
know, after all the industries that were being deregulated in
the '70s and '80s, this happened to be the one industry that
got regulated in the '80s. CAB and DOT imposed regulations
after a DOJ investigation, and part of that was based on a
conclusion that the CRSes, collectively but also individually,
had market power with respect to not only travel agents but
also airlines.
That regulation stayed in place. During the course of
that regulation there was no new entry. Then in 2004 the
Department of Transportation, along with DOJ, basically said,
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well, they still have market power but there's this thing
called the Internet, and there's all this great opportunity out
there for new competition. And one of the folks they pointed
to were the online travel agencies like Orbitz and others. And
they said, let's deregulate, because one thing that the
airlines can do is they can come up with special fares to try
to help foster these new competitors. They can work with these
new competitors to try to pass on the efficiencies that they
have. And there's going to be the antitrust laws.
Well, you know, it's now seven years later. Hardly
any of the travel agents, as we allege, have switched. There
have been no new entrants. The OTAs, online travel agents, in
the meantime have been acquired or coopted, as we allege in our
complaint. So today they are all dependent on the GDSes.
THE COURT: Why are you suing only Sabre?
MR. RULE: We're suing only Sabre because that was the
one -- A, they're the largest, and that gave them the most
power over us; B, they forced us into an agreement with these
provisions that basically make it impossible for us to work
with Farelogix.
THE COURT: The other travel agents -- GDSes do not
have such agreements?
MR. RULE: There are existing agreements that are in
place, but those agreements have not changed since 2006. They
have been extended, but they have not been changed.
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THE COURT: But do they have the same provisions?
MR. RULE: Yes.
THE COURT: Well, then what difference does it make?
MR. RULE: Well, your Honor, again, as the plaintiff
we do, I think, have the right to decide who we actually want
to -THE COURT: I understand. I was just curious, since
you describe all three of them as doing the same thing.
MR. RULE: Well, again, we have decided to sue Sabre
in part because we believe that there's very clear Section 2
case. And I'll come to the market definition. Also, because
of the recent experience that we went through in trying to
negotiate the agreement and trying to get these provisions out
of the -THE COURT: But at one point you were willing to put
them in.
MR. RULE: Your Honor, yes. And I think that, you
know, that goes back to the last time we were here, we talked
about PermaLife. They have not discussed PermaLife in their
reply. I don't know whether that means they've conceded it or
not. But as your Honor, I hope, will know now, having read the
briefs and looked at the cases, it's very clear that unless we
were equally responsible for the offending provisions, we have
a right to challenge them.
THE COURT: I'm not questioning your right. I'm
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asking you why, if all three have agreements with you of the
same kind, why are you choosing Sabre rather than suing all
three?
MR. RULE: We could do that, your Honor. Not saying
we will never do that.
I am saying that this is an important case because we
believe that the provisions -- that if they're illegal with
respect to Sabre, we believe that that will in effect mean that
they're illegal with respect to the other GDSes. Now, it's
worth noting that, of course, American Airlines has filed a
lawsuit -THE COURT: I saw.
MR. RULE: They actually had gotten -- they filed an
amended complaint yesterday. And I haven't seen it but I've
seen reports on it.
THE COURT: Because this is a part of an effort to
multidistrict, I see what happens.
MR. RULE: But they apparently have gotten some
interesting things in discovery. We haven't gotten to that
point in discovery in terms of relationships between the GDSes
and the travel agents. But whatever happens here will apply.
Now, if I might, your Honor, go for a minute to the
market definition.
THE COURT: Right. Let me stop you for a minute.
Every business has a monopoly, more or less, on its
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own customers. So to make a market of the customers of any
particular business doesn't make sense.
MR. RULE: Your Honor can -THE COURT: A market has to be bigger than the
business of just one entity.
MR. RULE: And, your Honor, as a general matter -- and
if you look at the Todd v. Exxon case in this circuit, the
Court basically noted that our obligation as a plaintiff is to
allege a market that has a rational relationship to the methods
of market definition. And I can take you through the complaint
as to how we do that, both with respect to the broader,
broadest GDS market and with respect to the Sabre travel agent
market.
After that, in the Todd v. Exxon case, there is a
statement that says that, but that's not just a single brand
or -- if plaintiffs don't explain why the market is limited as
they explain it is. But that doesn't say that you can never
have a single entity.
THE COURT: I understand, but that's the most
vulnerable part of your complaint.
MR. RULE: And if I might, your Honor, just explain
how we get to the point that Sabre is its own market. First,
the fact is that you have to look at the market from the
perspective of us. And we basically -- one of the problems
with what Sabre has argued is they kind of confound what the
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airlines are and what they are. I mean, they're in effect The
Post Office. They're Fed Ex. They're a logistics company that
essentially facilitate transactions between airlines and travel
agents.
THE COURT: It's true, but they're not the only one.
MR. RULE: Absolutely. But let me just -- so they
facilitate those transactions, your Honor. And they're saying
that they can go -- it's like The Post Office. When their
monopoly ends, they go to everybody and say, look, you know, if
you receive mail, we're going to give you a little bit of extra
money, if you agree not to receive any packages from Fed Ex.
And then they go to the people who want to send overnight
packages and they say, look, if you want to send an overnight
package, guess what, you can't do it if you want to have the
rest of your mail picked up and delivered. And in that way
they essentially ensure that they preserve their monopoly.
And the fact that it's The Post Office and there's
Fed Ex, who are doing something similar, because The Post
Office has essentially gathered all of those parties and we
can't reach them any other way than through them, it becomes -THE COURT: Well, analogies are never perfect.
MR. RULE: They're never perfect, but that one's a
pretty close one, because it's the same sort of deregulated
entity. And it really is -- in order to get to what amounts to
35 percent, as we've alleged in the complaint of US Airways'
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business, we have to go through Sabre. And in our contracts -THE COURT: Well, you have to go through the other two
also, presumably.
MR. RULE: Not for that 35 percent.
THE COURT: For a different 35 percent.
MR. RULE: But, your Honor, that 35 percent is
critical. In the absence of that 35 percent of business there
is no US Airways. And there's no other way to get to those
travel agents. There's no other way to get to -- that's what
we've alleged. And that's what we think we can prove.
And so they can raise -THE COURT: I understand, but that's the weakest part
of your complaint.
MR. RULE: It may be, your Honor, you may -- it may
appear that way. I think, though, if you look at the
precedents, considering that we're at a motion to dismiss
stage, we have alleged enough to get to be able to get
discovery. And we can deal with this on summary judgment at
trial.
The points that I would make -THE COURT: I think that may well be true of a lot of
the other things here, but this one, charging monopoly as
distinguished from a contracted restraint of trade based on the
market of a particular one of several GDSes is very hard even
on the face of the complaint.
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MR. RULE: Well, your Honor, again, the question is
plausibility.
THE COURT: That's correct.
MR. RULE: And if you look at the fact that both the
Department of Justice and the Department of Transportation in
that proceeding in 2004 that's cited in our complaint, and
quoted, I think, even, basically found that each GDS has market
power and monopoly power. We have the fact that DOJ is
currently investigating horizontal agreements among the GDSes
as well as Section 2 claims -THE COURT: But you're not suing on the horizontal
agreements. You're only suing one GDS.
MR. RULE: I'm only suing -- we are only naming one
defendant. We are suing horizontally all three.
THE COURT: I understand, but you're not suing all
three. You're suing Sabre for many things. But the one thing
that's most difficult in your complaint is that Sabre is a
monopoly in its own market.
MR. RULE: Your Honor, I understand. I hear what you
say. But I'm saying that if the Department of Justice and the
DOT are on record in proceedings finding that, in fact, Sabre
is its own market, it's hard to say that's not plausible.
Moreover, and the only case -THE COURT: What kind of a proceeding are we talking
about?
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MR. RULE: This was the deregulation proceeding.
THE COURT: Well, I understand. You know, comments
made in the course of various proceedings are not like holdings
of cases.
MR. RULE: But, your Honor, then let's go to a holding
of a case.
The only case that's reported that involves a similar
allegation against Sabre is a case in California in the late
'80s where the Court at the summary judgment stage, in similar
arguments that Sabre was its only market, found that there was
a genuine issue of material fact and let it go to trial. Now,
we quoted actually that provision.
THE COURT: Well, what happened after trial?
MR. RULE: Well, we quoted -- so it's clear, we quoted
that provision in our complaint. It wasn't even addressed in
their motion to dismiss. We pointed it out -THE COURT: Well, because you're going here and there.
The question is: What authority do you have for the
proposition -MR. RULE: That authority.
THE COURT:
-- that an entity which is not the only
entity in the field or in the general market can be treated as
a separate market, as a monopoly in a separate -- in order to
make it a monopoly, treat it as a separate market?
MR. RULE: Okay. Let me give you several. One, the
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Kodak case, which is the leading Supreme Court case. Now, they
argue why this is a different factual situation from the
Kodak -THE COURT: Facts are what make it law. I have a late
colleague who said, you give me the facts and I'll give you the
law.
MR. RULE: Absolutely, your Honor. And that's why,
we've alleged, why as airlines they cannot avoid Sabre; why
they have to go to Sabre; why Sabre has the power to raise
price and restrict output. They have monopoly power. So
there's the Kodak case. And the Kodak case says that one
brand, one product can be a market.
The other two cases that I would mention from this
circuit, one is Geneva Pharmaceutical.
THE COURT: Just a moment. When you say one brand,
you're not -- when you're talking about trademark and brands,
that's an entirely different kind of a brand. Sabre, the name
Sabre doesn't make you have to go to Sabre to get a particular
product. You can go to either one of the other two.
MR. RULE: But, your Honor, they can't. The reason
you can't is because for 25 -- you know, for many years -THE COURT: It's not because you can't. It's because
you're saying that that would ruin your business.
MR. RULE: You can't because there's no way to get to
those travel agents. They have exclusive deals with a series
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of travel agents, including online travel agents, that they've
either bought or they've coopted. So the only way to get to
them today is through Sabre. It's just like The Post Office.
There's no other way to get to it. That's the only way I can
get to them as an airline. And that's the only way -THE COURT: You can get to 65 percent of the market.
MR. RULE: But, your Honor, as the Court said in the
Dentsply case, basically the whole point of antitrust is, you
know, those 35 percent of consumers, those 35 percent who
basically deal with those travel agencies, either because they
have corporate contracts or whatever else, have a right to sort
of have competition.
THE COURT: Let me understand: Is it your position
that each of the other GDSes has its own -- is a monopolist in
its own market?
MR. RULE: Your Honor, we don't address that question.
THE COURT: No, but that's an important issue, isn't
it, if you're arguing that it applies to Sabre but it doesn't
apply to the other two, who you say are doing exactly what
Sabre does, and you have contracts with them just like your
contract with Sabre?
MR. RULE: Your Honor, again, if and when we get to
the point of ever suing them, we will make a determination as
to whether or not we have the same kind of evidence and
arguments for them.
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THE COURT: The real point is if there are three of
them, it's hard to call one of the three a monopolist.
MR. RULE: Absolutely. And it is true that if you
look at what DOJ and DOT said, they have found that the other
GDSes have market power.
Now, the interesting thing is that Sabre is the only
one that has a court case where the court found on summary
judgment that the plaintiff got past it and could go to trial
on whether Sabre was its -THE COURT: Well, I understand, but that's not
authority for me on the antitrust law.
MR. RULE: Your Honor, could I mention two other cases
in this circuit? One is the Geneva Pharmaceutical case,
where -THE COURT: Why don't you tell me the facts of that
case.
MR. RULE: In that case there's something called
Coumadin, I think -THE COURT: Coumadin, yes. It's a blood thinner.
MR. RULE: Yes, your Honor. It's been around for a
long time. It's made out of something called -- and you can
maybe correct my pronunciation here, but Warfarin sodium.
THE COURT: Yes.
MR. RULE: Did I get that one right? And Warfarin
sodium, essentially that case was a case of a new generic brand
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coming into the market on top of -- I forgotten who had the
Coumadin branded product. And the court was faced with the
question, was that new product, generic brand in the same
market as the existing brand, the Coumadin? And the court
found that it wasn't, that there was -THE COURT: I understand. And I have had several
similar cases, and I can understand the difference between the
generic market and the brand market. They're not particular
entities. They're -MR. RULE: Absolutely -- well, but in that case they
said Coumadin, one product, one manufacturer was different from
this provider of a generic.
THE COURT: Usually it's the same manufacturer who
makes both.
MR. RULE: In this case there were both, and they said
it was two separate markets.
THE COURT: Right, because people -- doctors either
prescribe the brand or the generic.
MR. RULE: Absolutely. But, your Honor, those are
questions of fact. And, again, I think if you look at the
allegations -THE COURT: Well, I'm not sure that's accurate here
because you're not alleging differences in these brands.
MR. RULE: I am, your Honor. We are, and we're doing
it on the basis of -SOUTHERN DISTRICT REPORTERS, P.C.
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THE COURT: You're only saying that you have a
bigger -- a bigger piece of your business comes through Sabre.
MR. RULE: Your Honor, we're looking at whether you
apply cross elasticity of demand tests, which is what the
courts talk about, or the so-called sniff test. We've alleged
that under both of those tests that you would conclude that
they are -- that is, Sabre is its own market.
We've also alleged that looking at the Brown Shoe
factors, industry recognition and that sort of thing, that
there's evidence that it is its own market.
THE COURT: Well, you're now tell me things your
complaint doesn't allege.
MR. RULE: My complaint does allege it, your Honor.
It does.
THE COURT: It's a very long complaint before you even
get to the claim.
MR. RULE: Well, that's right, because it's important
to give a background.
THE COURT: But you do not explain why you can sue one
of three as a monopoly by making the market limited to that
entity.
MR. RULE: But, your Honor, we do say that, because
the -THE COURT: We've exhausted this.
MR. RULE: Can I just mention one other case, your
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Honor? Because it's an important precedent. It's Judge
Buchwald in this court within the last six months or so, it's a
case called Meredith v. SESAC. SESAC is one of three licensing
rights agencies, similar to the GDSes.
THE COURT: What do you mean "licensing rights
agencies"? What is the product we're talking about?
MR. RULE: ASCAP, BMI and SESAC are all copyright
licensing -THE COURT: They are holders of the right to license
copyrights, yes.
MR. RULE: And the television stations in that case
have sued SESAC and argued that SESAC has a monopoly and has
violated Section 2 by virtue of the copyright holders that it
signed up, even though it's the smallest of those rights
organizations, because they are critical. And the only way to
get to those copyright holders is through SESAC. And because
of arrangements that SESAC has entered into, basically has
made -- has forced television stations to deal with it.
And the Court, Judge Buchwald, found that those
allegations, even though it was a single entity, even though
there were competitors in the marketplace, essentially had -THE COURT: Because copyright is itself a monopoly.
MR. RULE: Well, your Honor, I'm not sure that -that's a factual question, I think, in terms of whether -THE COURT: No, that's a legal point.
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MR. RULE: But whether -- the relevance of whether
it -- that point is different from the lockin of travel agents,
and the fact that travelers, as we allege essentially, will
only buy tickets from travel agents. And if the GDS that
travel agent uses, Sabre, doesn't provide US Airways fares or
provides them only discriminatory terms by its terms, what we
allege what the user will do is go buy airfare somewhere else.
There's also these -- there are the various provisions
that these folks do that, like, for example, we can't
surcharge. Now, Mr. Carey says that's efficient. That's an
issue, I think, for litigation, because what it means is even
though Farelogix, for example, allows us to do the same thing
at basically a fraction of the cost -THE COURT: This has nothing to do with monopoly.
This has to do with your antitrust claim.
MR. RULE: Your Honor, it has to do with both the
Section 2 and the Section 1.
THE COURT: I understand, but -MR. RULE: And just to make it clear, if you accepted
the arguments of Mr. Cary and you applied them to the Court of
Appeals decision in Microsoft, frankly, the US government
should have never gotten past the motion to dismiss; because
what the Court of Appeals did there was they rejected the fact
that Apple was in the same market. Even though Apple, you
know, computers do the same thing and that sort of thing, they
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rejected Apple being in the market. They rejected sort of dumb
devices, network computing devices were in the market. They
found that now it's true, they defined it by X86 Chumby
machines. But basically Microsoft was the only one who sold
those, and its market share was 90 percent or so.
THE COURT: Well, your problem really is that Sabre is
not the only one who sells them.
MR. RULE: But, your Honor, it is the only one that
you can access these travel agents, because -THE COURT: These particular ones?
MR. RULE: Absolutely. Just like in, for example -that's the only way you -THE COURT: No. No, I've heard you on this, and I've
read everybody's position.
MR. RULE: And -THE COURT: And I am satisfied that you squeak past a
motion to dismiss your contract claim and the other claims you
make, but not the claim that Sabre has a monopoly on its own
market.
MR. RULE: Your Honor -MR. CARY: Your Honor, can I address the contract
claims?
MR. RULE: Before he does -THE COURT: I've really given everybody a lot of time,
and I've read a lot of -- you've given me a lot of material.
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Everybody here writes at great length.
MR. RULE: I hope you would say well as well.
THE COURT: Well, in truth, if you really want to
write very well, it's less space. But that's neither here
nor -- I'm not here as a critic of your writing style. That's
not what's important.
What's important is that I have considered all of
this. And I am going to grant the motion to dismiss the
monopoly claim; that is, the claim that Sabre is a monopoly in
its own market, has a monopoly of its own customers
essentially, because I don't think that that is what the
antitrust statute means by monopoly.
But I will deny the motion to dismiss the other
allegations of the complaint. And we will find out what we
have here.
MR. RULE: Your Honor, can I just make one other
point? I realize I'm belaboring this, but one other thing we
did not discuss is one can prove monopoly power by direct
evidence. For example, the ability -THE COURT: Look, if you can prove monopoly power, I
will not preclude you at trial from showing they're -- or at
some point along the way of showing me that they are, in fact,
a monopoly and that it's appropriate to treat their own limited
market of customers as a separate market.
MR. RULE: So, then, your Honor, we can -SOUTHERN DISTRICT REPORTERS, P.C.
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THE COURT: You have not -- the face of this complaint
does not persuade that it is plausible, as the Supreme Court
does require, especially in antitrust complaints, after
Twombly, that the customers of a particular entity constitute a
market, even though what is being sold is not limited like
copyright by a monopoly.
MR. RULE: And, your Honor, I take it we have leave to
replead?
THE COURT: Look, nobody ever prevents people from
seeking to prove what they wish they could allege. But I
really think that you have enough here without the claim the
market is a monopoly.
MR. RULE: Well, your Honor, would we have leave to
replead if we think that there is a way that perhaps there are
things that we can put in the -THE COURT: Why don't you tell me? You haven't yet
told me anything that would make a difference. I normally
grant leave to replead if there's something that can be repled,
but this does not seem to me like something that can be repled.
Now, at some point if you discover something that
shows that this should be a separate market, nobody ever gives
up. But at the moment I see no reason for repleading on that
one claim that there is a separate market in which Sabre is a
monopoly.
MR. RULE: Well, your Honor, again -- and we don't
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have to replead, but we have alleged also the GDS market, and
we have alleged that within that market -- and there's
precedent for this -- that we have direct evidence that they
have monopoly power even if you look at that market, because of
their ability to keep prices up, their ability to exclude
competitors, which is the definition of monopoly power if you
look at the Dupont case, if you look at, you know, the Kodak
case, Geneva case. We have the right to prove by direct
power -THE COURT: Look, I have considered all of this, and I
am going to dismiss your claim of monopoly in a market defined
by Sabre's customers.
MR. CARY: Your Honor, can I -THE COURT: I will deny the motion in other respects,
and we will see what it is you really can prove here, because
we don't go beyond the face of the pleadings.
MR. CARY: Your Honor, may I just address some of the
points that Mr. Rule raised on the contracts? Because, again,
I completely -THE COURT: You have addressed it. I have heard you.
I have seen it. You will have a full opportunity at some point
to move for summary judgment. And at that point, if you are
correct, it should be even easier.
MR. CARY: Thank you, your Honor.
THE COURT: Very well. Good luck to everybody.
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Well, no, off the record.
(Discussion held off the record)
MR. SCOTT: Thank you, your Honor. I'm from Denver,
and I was not on the list that you read of pro hac admissions.
I've been informed that I was admitted pro hac some time ago
for this case.
THE COURT: Very well.
MR. SCOTT: May I be heard this morning? And I'll be
very brief.
On the horizontal conspiracy allegation, Count Four,
Twombly does directly control that. It's a broader holding
than that, we now know, but it directly controls the allegation
of the horizontal conspiracy.
And the first principle of Twombly is that the Court
must unpack these allegations and look at them at this time
under 12(b)(6). You know, it needs to deconstruct the
complaint and see what is there. Now, it's a long pleading. I
had the excerpt here, but I'm going to be very brief and not
take it out.
We also know that under Twombly allegations that are
legal conclusions don't count for meeting the requirement.
THE COURT: It's not just Twombly. That was always
the case.
MR. SCOTT: Yes. Yes, and it's been elaborated. In
fact, the deconstruction, paragraph by paragraph, is not only
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what Twombly says but what Twombly does and what the Second
Circuit does in the Star case, paragraph by paragraph, and the
Second Circuit in In Re Elevator, in that case paragraph by
paragraph; the first step being take out the conclusory
allegations because they do not count as factual allegations.
In this complaint, in Count Four, the first factual
allegation is one in which, in paragraph 95, US Air -- and I
have the excerpt, if it would be convenient, your Honor. I
have this -THE COURT: I have the complaint right in front of me.
MR. SCOTT: Excellent. Thank you. I'm looking at
page 29.
The factual allegations that ostensibly support
Count Four are contained in paragraphs 95 through 132,
beginning at page 29. I would just like to address the first
page, because that will make the points I wish to make, and
I'll take no more time from the Court than that.
Paragraph 95 has an example, is talking about each GDS
agreed or ensured or avoided -- these are legal conclusions
that don't count for the factual showing required by Twombly.
The first facts that we encounter are in paragraph 96, where
US Air, in what is its first factual allegation -- I would
think its best, but its first one -- that the GDSes agreed
because, and then they quote a document. And this is a generic
point I wish to make to the Court. It's in our briefs.
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But they quote documents without citations, and very
often with ellipses. And what we have done in our briefing is
to show where this comes from, because they may not have
anticipated that we're able to look up those quotes and find
what documents they are. And this one, for example, is what's
attached to our brief as Exhibit C. The exhibits identified by
letters are the ones that are under seal, and the ones that are
identified by numbers are the ones that are public domain.
But what they quote here in paragraph 96 as an
example, for the GDSes be better off if we will not have to
compete for the airlines' attention. The document they cite,
document they quote without citing is an e-mail from a Sabre
fellow named Moore to a US Airways fellow named Gustoffson in
which, on its face, Mr. Moore is asking Mr. Gustoffson of
US Air, we're trying to develop a technical solution for you,
all right, if we meet with other GDSes and you to work together
to develop a technical solution. That's what it is on its
face.
And we know from the Second Circuit's precedents, from
the Kramer case and the Chambers case, this becomes integral to
their complaint, even though they don't cite it. They quote
it. And the Court is supposed to look at what the document
actually says, according to the Kramer holding. And what this
document says is, US Air, could we meet with you and the GDSes
to develop a technical solution -SOUTHERN DISTRICT REPORTERS, P.C.
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THE COURT: Why don't we look at 97 instead of 96.
MR. SCOTT: Yes. 97 is their only allegation of an
express agreement. And this is one, this is one where they
quote a document without citing it. It's our Exhibit 4, where
they say, oh, we agreed with Amadeus to eliminate competition.
And what they cite is a press release, Exhibit 4, in which we
publicly disclose over five years ago, outside the statute of
limitations, no allegation of any complaint by US Air, because
what's actually disclosed there is that Sabre agreed with
Amadeus that if one of them couldn't book for their customers
for a particular airline, the other one would back them up. It
has nothing to do with how they deal with the airlines.
It's like two manufacturers who have factories, and
they agree that if one of them can't get critical spare parts,
the other one will back them up to keep both factories running.
It has nothing to do with their dealings with the airlines and
does not support the first sentence of paragraph 97. It is not
anticompetitive to keep the two factories running or to provide
the travel agents with the ability to book if one of them
happens to be shut down or cut off by one of the airlines. It
has nothing to do with anything else in the complaint, your
Honor. They cite that only so they can claim there is some
express agreement.
Just like in paragraph 96, they quote it out of
context, no citation, because it uses the word will not have to
SOUTHERN DISTRICT REPORTERS, P.C.
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compete. They're quoting these things for snippets. And under
Twombly and under Kramer of this circuit, the Court needs to
look at those to see if they really say what they claim they
say.
These are all lead-ins to paragraph 98, which begins
the allegation of parallel conduct, nearly all about full
content, which you've already discussed with Mr. Cary. So you
have documents quoted here and in later paragraphs which do not
say what US Air claims they say. They cite documents and later
paragraphs claiming they are communications between the GDSes
and between Sabre and other GDSes, when on their face, which we
attach, they are communications by Sabre talking to its
customers to the travel agents and the Business Travel
Coalition or Business Travel Coalition talking about what the
customers want. They're not us. They are the trade
associations of the corporate travel departments.
So they quote documents. They cut and paste them
together and represent in their complaint that these documents
are things where Sabre is signaling to other GDSes what, in
fact, its business travel coalition, a customer saying
something, or Sabre communicating with it customers that it has
full content, which they want.
And so you have after this page 28, they go on and on
in quantity but the quality never improves. They've given you
the best they have on page 28, and it goes downhill from there.
SOUTHERN DISTRICT REPORTERS, P.C.
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But it's -THE COURT: Well, they're hoping they have even better
after discovery.
MR. SCOTT: Yes. But, your Honor, these documents do
not support what they say. The documents are incorporated by
reference.
THE COURT: What you're really pointing out, which is
always a problem, is information and belief without identifying
the source of the information or the basis of a belief.
MR. SCOTT: But information and belief without the
factual support does not meet Twombly.
THE COURT: Well, it doesn't meet anything.
MR. SCOTT: That's correct.
THE COURT: Information and belief always requires a
statement of the source of the information and the basis of the
belief.
MR. SCOTT: One last thing, your Honor. I understand,
this is detailed or many pages there. There is quantity. I am
suggesting that under the controlling law today, under Twombly,
the Court needs to take a look at these paragraphs and the
quoted materials which we tried to supply. I'm not going to -THE COURT: As a general matter, forgetting Twombly, I
do not like information and belief unless the information is
provided and the source of the belief. So you make a good
point, and I will direct the plaintiff to allege with respect
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to information and belief allegations, to replead to that
extent to allege the source of the information and the basis of
the belief with respect to every allegation on information and
belief. Because that really is the way in which pleadings
should run.
MR. SCOTT: Thank you for hearing me, your Honor. I
know we're running into the lunch hour. Thank you.
THE COURT: That's fine.
MR. RULE: Your Honor, we'll be happy to do that, but
may I just say that the e-mail that they have cited we would
contend, if you look at it on its face, it is -THE COURT: That's fine. So you're going to set out
the source of the information and the basis of the belief with
respect to allegations on information and belief, because
that's what the law has always required, before Twombly.
Allegations on information and belief are not favored by courts
generally.
MR. RULE: And, your Honor, we will go back and
replead for that purpose, although -THE COURT: Very well. Very well. That's a good
idea.
MR. SCOTT: Thank you so much, your Honor.
THE COURT: Very well. You're all excused. Good
luck.
(Adjourned)
SOUTHERN DISTRICT REPORTERS, P.C.
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