American Airlines Inc v. Travelport Limited et al

Filing 74

Appendix in Support filed by American Airlines Inc re #73 Reply, to Travelport's and Orbitz Opposition to a Rule 16(a) Conference and Response in Opposition to the Motion to Stay Discovery (Attachments: #1 App. 1-18) (Hartmann, Michelle)

EXHIBIT 1

BEFORE THE
DEPARTMENT OF TRANSPORTATION
WASHINGTON, D.C.
__________________________________________
)
)
NOTICE OF PROPOSED RULEMAKING
) Docket Nos.
COMPUTER RESERVATION SYSTEM
)
REGULATIONS
)
)
__________________________________________)

OST-97-2881
OST-97-3014
OST-98-4775
OST-99-5888

REPLY COMMENTS OF THE DEPARTMENT OF JUSTICE
Communications with respect to this document
should be addressed to:
R. Hewitt Pate
Acting Assistant Attorney General
Antitrust Division
Deborah P. Majoras
Deputy Assistant Attorney General
Antitrust Division

Craig T. Peters
Economist

Roger W. Fones
Chief
Donna N. Kooperstein
Assistant Chief
Robert D. Young
Jennifer L. Cihon
Attorneys
Transportation, Energy, and
Agriculture Section
U.S. Department of Justice
325 Seventh Street, N.W.
Washington, DC 20530
Telephone: [phone]
Facsimile: 202/307-2784
E-mail: [e-mail]

June 9, 2003

1

DOJ Reply Comments June 9, 2003

efficiencies, explicit rules prohibiting such conduct are justified.
A.

Potential Harm From Strategic Exercise of CRS Market Power

Despite the airlines’ CRS divestitures, some incentives and ability to engage in strategic
conduct to limit airline competition remain. On the one hand, CRSs retain their ability to exercise
their market power in ways that favor one airline over another, but, on the other hand, without
airline ownership, CRSs have no direct incentive to do so. Conversely, airlines have a clear
incentive to use CRS market power to disadvantage competitors, but, without ownership of CRSs,
the airlines have no ability to do so. The airlines’ and CRSs’ respective incentives and abilities to
exercise market power can be aligned through contract to their mutual advantage -- an airline can
pay a CRS to use its market power to disadvantage the airlines’ competitors in the airlines’ hub
markets. As before, the CRS could bias against the targeted airlines in display and functionality.
And, as before, display and functionality bias would divert passengers without regard to airlines’
prices or quality. In each case, the effect would be to deter expansion and entry by potentially
more efficient competitors and perhaps even cause their exit from some markets.26
While the likelihood of “bias buying” cannot be predicted with certainty, CRSs apparently
are already planning on its sale.27 Experience shows that bias is easy to implement and effective
26

Costs of providing airline service in any market are lumpy. The variable costs that an
airline incurs depend, in large part, on the number of flights, rather than the number of
passengers flown in the market. Thus, an airline will still incur most of its costs even if it carries
a few less passengers. In addition, the number of flights in a market often cannot be decreased
without jeopardizing profitability. Therefore, even if an airline carries only slightly fewer
passengers, it might not be able to cover its costs, and the market would no longer be profitable.
27

See Comments of Amadeus Global Travel Distribution, S.A. at 53-54 (arguing that if
DOT deregulates booking fees and mandatory participation, then DOT should allow CRSs to
(continued...)
19
2

DOJ Reply Comments June 9, 2003

in limiting competition. Experience also shows that CRSs and airlines are able to estimate the
value of incremental rents that could be shared through bias. As DOJ noted in its 1989
Comments, CRS vendors were able to estimate and document the incremental earnings achieved
through bias. Indeed, CRS vendors used these estimates to determine how to price their systems
to different subscribers. The vendors would assume that as a result of placing their system with
an agent, their affiliated carriers would earn a certain percentage of additional revenues by
booking more passengers on their flights than they otherwise would, and the vendors would then
use those expected revenues in determining the amount of the discount to give the agent.28 In
1988, CRS vendors’ estimates of the additional airline revenues earned from their subscribers as a
result of bias ranged from nine to fifteen percent of airline revenues sold through the CRS,
amounting to approximately $900 million to $1.5 billion of airline revenue.29
The continued disproportionate strength of CRSs in the hubs of their former airline
owners makes for natural partners. If the dominant CRS and airline in a city can reach an
acceptable bargain, both can profit. And if bias buying does occur, consumers will be the
ultimate losers – paying higher fares in the “protected” markets. For these reasons, DOT should

27

(...continued)
bargain with airlines for display bias); Comments of Sabre, Inc. at 141-142. Bias already occurs
in Internet travel websites. For example, Delta’s agreement with Priceline prevents other
carriers from offering seats on Priceline on routes to and from Delta’s Atlanta hub. Scott
Thorston, Northwest-Delta Feud over Priceline.com Goes Public, ATLANTA JOURNAL
CONSTITUTION, Mar. 3, 2000; see also Comments of Midwest Airlines, Inc. at 12-17 (discussing
bias in online travel agency websites).
28

1989 Comments at 15-16.

29

1991 Reply Comments at 3.
20
3

DOJ Reply Comments June 9, 2003

make it clear that future contracts and transactions between CRSs and airlines will be monitored
closely to ensure that they do not result in re-integration. Also, as discussed below, some
continued regulation may be advisable as well.
B.

Potential Harm From Nonstrategic Exercise of CRS Market Power

The airlines’ CRS divestitures leave unaffected the incentive and ability of CRSs to fully
exercise their market power in nonstrategic ways. The CRSs may still have incentives to charge
supracompetitive booking fees and, absent a price rule, the only constraint on their ability to do so
would be any countervailing airline bargaining power.
DOT has not proposed a rule to remedy nonstrategic supracompetitive pricing by CRSs.
In the past, DOJ advocated the zero price rule to constrain both the strategic and nonstrategic
exercise of CRS market power over price. We pointed out the advantages of a structural rule,
which relies on properly-aligned incentives. We also noted that because the zero price rule would
prevent any airline from paying the CRS to disadvantage its competitors, it could eliminate the
need for other rules designed to constrain the strategic exercise of CRS market power. It is clear
from the NPRM, however, that DOT is unlikely to adopt the zero price rule or any other measure
aimed generally at supracompetitive booking fees. 67 FR 69399.
Instead, DOT will be relying on countervailing market power by airlines to constrain CRS
booking fees. Although airline bargaining power has not in the past been sufficient to produce
competitive booking fees, bargaining power of airlines could increase if their ability to shift sales
to the Internet and other alternative channels continues to increase significantly. DOT should
assess, after some reasonable transition period, whether the alternative distribution channels have

21
4

EXHIBIT 2

Justice Department Opens Probe of Airline Fare
Distributors
By Mary Schlangenstein - May 20, 2011

The U.S. Justice Department is investigating possible antitrust violations by companies that
distribute airline fare and flight data as they spar with carriers over control of the information.
Sabre Holdings Corp., of Southlake, Texas, and Atlanta- based Travelport Ltd. said today they
were asked by the agency for information. Delta Air Lines Inc. (DAL), AMR Corp. (AMR)’s
American Airlines and US Airways Group Inc. (LCC) also received requests.
The inquiry escalates tensions between airlines led by American and the so-called global
distribution systems over the handling of price and schedule data used by most consumers to
purchase travel. Sabre and Travelport are the largest U.S.-based GDS operators.
“This has been going on for many, many years and it’s culminated in a situation where the
airlines feel they’re being bullied very harshly,” Richard Clarke, director of Travel Technology
Research, said in an interview. “The GDSs feel they have the right to exercise their economic
influence the way they have. To go to court now, on the basis of antitrust, is kind of the last
straw.”
Gina Talamona, a Justice Department spokeswoman, said the agency is investigating possible
anticompetitive practices in the global-distribution industry. Sabre and Travelport said they are
cooperating.

Market Control
The two closely held companies, along with Amadeus IT Group SA in Europe, handle more than
90 percent of worldwide airline data distribution, AMR said in an earlier legal filing. Sabre and
Travelport dominate the U.S. market.
Credit-default swaps on Sabre rose 57 basis points to 738 basis points, according to data
provider CMA, the highest since September 2009. The swaps protect against a default on a
company’s debt, and typically climb as investor confidence worsens.

5

American in April sued Travelport and its Orbitz Worldwide Inc. (OWW) unit for alleged
antitrust violations, and is in talks with Sabre to settle a separate suit over distribution of data.
The Fort Worth, Texas-based airline wants to use its Direct Connect system to provide data to
online and traditional travel agents, cutting distribution costs and letting American sell travel
packages tailored for individual fliers. These may include services such as early boarding that
would add revenue.

AMR’s View
“We need to raise more money to be successful,” American Chief Executive Officer Gerard Arpey
told shareholders on May 18. “More merchandising is part of that, and Direct Connect is a
vehicle for it.”
Travelport “is confident that it is in complete compliance with the antitrust laws,” Jill Brenner, a
spokeswoman, said in an interview. “Travelport welcomes the GDS industry investigation.”
Sabre was asked for information and is cooperating, Nancy St. Pierre, a spokeswoman, said in an
e-mail. The request, she said, included “no allegations.”
Spokesmen for American and Atlanta-based Delta said they were cooperating with the Justice
Department, while Tempe, Arizona-based US Airways declined to comment. Spokesmen for
Southwest Airlines Co. and United Continental Holdings Inc. (UAL), which together with the
other three carriers make up the five biggest in the U.S. industry, also declined to comment.
GDS companies historically have collected fees from the airlines for handling fare and flight
data, and have shared a portion with the travel agents who sell the tickets.
US Airways also has sued Sabre for alleged antitrust violations. More than 35 percent, or $3.5
billion, of the Tempe, Arizona-based airline’s annual revenue is booked through Sabre or Sabreaffiliated travel agents.
AMR fell 6 cents to $6.66 at 4:02 p.m. in New York Stock Exchange composite trading. Delta
rose 13 cents to $11.51 and US Airways slipped 15 cents to $10.17.
To contact the reporter on this story: Mary Schlangenstein in Dallas at [e-mail]
To contact the editor responsible for this story: Ed Dufner at [e-mail]
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.

6

EXHIBIT 3

Antitrust Division Manual

U.S. Department of Justice
Antitrust Division
Fourth Edition
Last Updated December 2008

7

depositions, and forward a recommend ation (with, if applicable, a revised order
of proof and any proposed pleadings) to the Office of Op erations. Merger case
recomm endations generally should be provided to the Front Office three business
days before any Front Office meeting w ith the parties.

4.

Procedures for Recommending Suit
From the outset of its investigation, staff should be constantly assessing the
possibility of challenging the proposed transaction and should conduct the
investigation with an eye on proving any violation in court. If it appears likely
that staff will recommend challenging the acquisition prior to consummation,
staff should prepare the order of proof, evidentiary attachments, and proposed
pleadings at the earliest point practicable. Staff should prepare affidavits and
exhibits as it completes its investigation. W hen staff plans to accompany its
motion papers, if suit is brought, with a declaration from an economist, the
testifying economist assigned to the case should begin to prepare a declaration
and accompanying exhib its. The legal basis for challeng es to acquisitions prior to
consum mation is set forth in detail in Chapter IV, Part B , and staff should consult
this analysis in preparing the necessary papers. In ad dition , staff should consult
the Division’s Internet site for specific pleadings filed in other matters.
Because of the time constraints placed on staff by the HSR A ct and Premerger
Notification Rules, staff should notify the O ffice of Operations as soon as it
believ es a recommendation to file suit is likely. Staff should also coordinate with
the A ppellate Section , as their assistance may be useful in the event that it
becomes necessary to seek a tem porary restraining order or preliminary
injunction. For more information on recommend ing a merger case, see Chapter
III, Part G.2.b.

E.

Issuing Civil Investigative Demands
1.

Function of Civil Investigative Demands
a.

Where CIDs Can Be Used
In most of the civil matters handled in the Antitrust Division, CIDs can be used
to compel production of information and documents if volun tary requests, see
Chapter III, Part C.3, are judged to be inadequate or inappropriate for the
Division’s needs. Under the ACPA , 15 U.S.C. §§ 1311-14, CIDs may be served
on any natural or juridical perso n, includin g suspected violators, potentially
injured persons, witnesses, and record custodians, if there is “reason to believe”
that the person may have documentary m aterial or information “relevant to a civil

Antitrust Division Manual, Fourth Edition

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antitrust investigation.” 15 U.S.C. § 1312(a). If there is “reason to believe” that
any violation w ithin the Division’s scope of authority has occurred , there is
sufficient au thority to issue a CID even in the absence of “probable cause” to
believ e that any particular violation has occurred . See, e.g., Australia/Eastern
U.S.A. Shipping Conference v. United States, 1982-1 Trade Cas. (CCH) ¶ 64,721,
at 74,064 (D.D .C. 1981 ), modified, 537 F. Su pp. 807 (D .D.C . 1982), vacated as
moot, Nos. 82-1516, 82-1683 (D.C. Cir. Aug. 27, 1986).
The AC PA defines “antitrust investigations” to include “any inquiry” by an
“antitrust investigator” to ascertain if “any person is or has been engaged in any
antitrust violation or in any activities in preparation for a merger, acquisition,
joint venture, or similar transaction, which, if consummated, may result in an
antitrust violation.” 15 U.S.C. § 1311(c). An “antitrust investigator” is “any
attorney or investigator employed by the Department of Justice who is charged
with the duty of enforcin g or carrying into effect any antitrust law” 15 U.S.C. §
1311(e). “Antitrust violation” means as “any act or omission in violation of any
antitrust law, any antitrust order or, with respect to the International Antitrust
Enforcement Assistance Act of 1994, any of the foreign antitrust laws.” 15
U.S.C. § 1311(d).
CIDs are the compulsory process tool of choice in civil antitrust investigations of
potential violations of the Sherman Act, 15 U.S.C . §§ 1-7, or the W ilson Tariff
Act, 15 U.S.C. §§ 8-11, and in civil investigations under the International
Antitrust Enforcement Assistance Act of 1994, 15 U.S.C. §§ 6201-6212. CIDs
are also available for use in investigations of potential violations of the Clayton
Act, 15 U.S.C . §§ 12-27; however, in merger investigations, secon d requests are
usually the preferred form of compulsory process for obtaining information from
the parties. Service of C IDs does not extend the initial waiting period. How ever,
in bankruptcy and cash tender transactions, a second request to the acquired
person does not extend the w aiting period; to ensure that the necessary
information is obtained in a timely fashion, the Division will generally issue both
a seco nd request and a CID to the acqu ired person in su ch a transaction. See
Chapter III, Part D.1. In addition, CID s are usually the only form of com pulsory
process available to compel production by third parties. Moreover, brief CIDs
served on parties in such investigations early in the w aiting period may serve to
permit more precise drafting of second requests in some instances. CID s can also
be served on parties to supplem ent the seco nd request, although obtaining timely
production of material so requested may prove problematic.
Wh ile CIDs can be served only before the Division institutes a civil or criminal
action , see 15 U.S.C. § 1312(a), they may be issued after the Division has
decided to file a civil case and not yet actually filed the case. CIDs cannot be
enforced after a complaint is filed. C IDs can also be used to investigate
Antitrust Division Manual, Fourth Edition

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com pliance with final judgments and ord ers in antitrust cases, although in
specific situations it may be more efficient to gather compliance evidence by
relying upon the “visitation” provisions incorporated in most of the Division’s
civil judgments. A decision to issue CIDs generally involves a significant
expansion in resources committed by the Division and should be made only after
serious consideration and a thoughtful reassessment of the matter’s potential
significance.
b.

Criminal Investigations
In the event that a civil antitrust investigation uncovers evidence indicating that
criminal prosecution is more app ropriate than civil enforcement, a grand jury
investigation should be opened. Further investigation may not be conducted by
CID but rather must proceed by the grand jury process. Thus, for instance, CIDs
may not be used to investigate violations of Section 3 of the Robinson-Patman
Act, 15 U.S.C. § 13(a), which imposes solely criminal penalties. Evidence
already obtained by CIDs may, ho wever, be presented to the grand jury. See 15
U.S.C. § 1313(d)(1).

c.

Other Matters Wherein CID Use Is Not Authorized
CIDs cannot be issued to investigate conduct that is clearly exempt from the
antitrust laws, but CID s can be issu ed to determine whether specific condu ct falls
within an exem pt category. See Chapter III, Part E.8.d. Nor can CIDs be issued
for preparing respo nses to requests for Business Review L etters, see 28 C .F.R. §
50.6, or to investigate vio lations of the Federal Trad e Co mm ission Act, see 15
U.S.C. § 1311(a). CIDs also cannot be issued to investigate violations of the
Newspaper Preservation Act of 1970, 15 U.S.C. § 1803(b); however, if the
Attorney General orders a public hearing in such a case, the presiding
administrative law judge may permit any party (including the Antitrust Division)
to conduct discovery “as provided by the Federal Rules of Civil Procedure.” 28
C.F.R . § 48.10 (a)(3).
There is also no authority to issue CID s in connection with the Division’s
participation in proceedings before federal regulatory agencies, but information
previously gathered by CIDs validly issued for other purposes may be used in
such proceedings. See 15 U.S.C. § 1313(d)(1). Given the statutory definition of
“antitrust investigation,” 15 U.S.C. § 1311(c), C IDs cann ot be used to investigate
possible terminations of judgments or violations of stipulations during the
Tunney A ct public comment period prior to entry of a consent decree.

Antitrust Division Manual, Fourth Edition

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EXHIBIT 4

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EXHIBIT 5

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EXHIBIT 6

Case 1:07-cv-12388-EFH

Document 136

Filed 09/03/2008

Page 1 of 2

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

**************************
KIRK DAHL, ET AL., Individually and
on Behalf of All Others Similarly Situated,
Plaintiffs
v.

CIVIL ACTION NO.:
07-12388-EFH

BAIN CAPITAL PARTNERS, LLC, ET AL.,
Defendants.
**************************

SCHEDULING ORDER
September 3, 2008
HARRINGTON, S.D.J.
After an initial scheduling conference held September 3, 2008, the Court rules as follows:
A.

Plaintiffs are to file their opposition to Defendants’ Motions to Dismiss on October
14, 2008;

B.

Defendants shall file their reply briefs on November 3, 2008;

C.

A hearing on Defendants’ Motions to Dismiss is set for Thursday, November 13,
2008 at 10:00 A.M., Courtroom No. 13, 5th floor;

D.

The Court sets a 15 month fact discovery period to commence on the date that the
Court rules on Defendants’ Motions to Dismiss;

E.

Expert discovery is to commence 45 days after the conclusion of fact discovery;

F.

Parties are to negotiate the expert discovery protocol;

17

Case 1:07-cv-12388-EFH

G.

Document 136

Filed 09/03/2008

Page 2 of 2

Summary judgment motions are to be filed 60 days after exchange of expert
rebuttal reports, opposition briefs are due 60 days thereafter and reply briefs are
due 30 days thereafter;

H.

Defendants are to provide Plaintiffs with 9 of the leveraged buyouts (“LBOs”)
disclosures made to the Department of Justice that are specifically alleged in the
Complaint; and

I.

The parties are to confer as to the nature and breath of the due diligence reports as
to the 9 LBOs specifically alleged in the Complaint and as to the scheduling of the
Federal Rule of Civil Procedure 30(b)(6) (“Rule 30(b)(6)”) deposition witnesses.

SO ORDERED.

/s/ Edward F. Harrington
EDWARD F. HARRINGTON
United States Senior District Judge

18