Airline passengers allege antitrust violations
In this week’s article, we examine the recent case of Gordon v. Amadeus IT Group, S.A., 2016 WL 3676678 (S.D.N.Y.
In this week’s article, we examine the recent case of Gordon v. Amadeus IT Group, S.A., 2016 WL 3676678 (S.D.N.Y. 2016) in which airline passengers “who purchased airline tickets from nine major air carriers during the past ten years” brought a class action against “a group of global distribution systems (GDSs) through which airlines provide fare and schedule information to travel agents (alleging that the GDSs) conspired to restrain competition in violation of various federal and state antitrust and state consumer protection laws”.
Terror Targets Update
Zika, Zika, Zika
In Steinmetz, Another Zika virus region: Singapore, a tourism hub in Southeast Asia, www.eturbonews.com (8/28/2016) it was noted that “Tourism has been under threat from the Zika virus in numerous parts of the world. Now the city state of Singapore reported 40 more cases of locally-transmitted Zika virus infections on Sunday, most of them foreign workers at a construction site”.
In Tavernise, U.S. Funding for Fighting Zika Virus is Nearly Spent, C.D.C. Says, nytimes.com (8/30/2016) it was noted that “The director of the Centers for Disease Control and Prevention warned on Tuesday that federal funds to fight the Zika virus were nearly exhausted, and that if Congress did not replenish them soon, there would be no money to fight a new outbreak. As of Friday, the C.D.C. had spent $194 million of the $222 million it was allocated to fight the virus…On Tuesday, Florida officials announced three new Zika cases in Miami-Dade County. One was in Miami Beach where the virus is already circulating”.
In Ackerman, The Spread of Zika Virus: What U.S. Employers Should Know, New York Law Journal (8/29/2016) it was noted that “As the threat of Zika spreads, employers should be cognizant of the employment-related legal issues stemming from the outbreak of the virus. This article explores an employer’s legal obligations to protect the health of its employees, while simultaneously abiding by anti-discrimination and other laws with respect to this unique virus”.
Don’t Wear Skirts, Please
In Victor, Safety Tip for Visitors From India’s Culture Minister: ‘Don’t Wear Skirts’, nytimes/2c6M02F (8/30/2016) it was noted that “Mahesh Sharma, India’s cultural minister, said this week that foreign women should not wear skirts while visiting the country, drawing broad criticism in a nation trying to assure female tourists they do not need to fear sexual assault…’For their own safety, women foreign tourists should not wear short dresses and skirts’…He later said he meant it as ‘an advisory when going to religious places’, comparing it to removing shoes when going into a temple”.
Don’t Eat Whale Meat, Please
In 100,000 tourists and locals sign petition against whale meat consumption in Iceland, www.eturbonews.com (8/31/2016) it was noted “A petition signed by tourists and locals pledging not to eat whale meat in Iceland and calling on the country’s government to end the cruel practice of whaling has beaten all previous records and now passed 100,000 signatures. It was started by the International Fund for Animal Welfare…which works to end commercial whaling in Iceland, Japan and Norway and provide lasting protection for whales”.
Burkini & Bikini Update
In Baker, Israel Joins Bikini Fray, Ordering Concert Singer to Cover Up, nytimes.com (8/28/2016) it was noted that “Even as France has started an international debate about whether some women cover up too much on the beach, Israel has gone the other way, with fresh concerns about whether some cover up too little. The Israeli Ministry of Culture and Sport said on Sunday that it would insist on modest dress by performers at government-sponsored musical events after a signer said she was forced to leave the stage for wearing a bikini top at a beachside concert near here last week”.
Are Free Wi-Fi Kiosks Safe?
In Biersdorfer, Are the Free Wi-Fi Kiosks on New York Streets Safe?, nytimes.com (8/26/2016) it was noted that “The LinkNYC Kiosks that began to supplant aging pay phones on the sidewalks around New York City this year can also make calls-but they do so in a very 21st-century manner. Passers-by can make free phone calls to anywhere in the United States through the Vonage service on each kiosk, using the smaller display screen, microphone and keypad on the front of each unit…Each of the slender vertical LinkNYC towers also provides a fast, free Wi-Fi connection for mobile devices and laptops. The display screen offers free web browsing and each Link station has USB ports for charging phone and tablet batteries…Using any public wireless network or computer terminal brings a risk of compromised security…Even will all of the safeguards in place, it is a good idea to treat the LinkNYC kiosks as you would any public network anywhere in the world. Do not log in to sites that store your financial information, do not enter your credit card number into any web forms and stay aware of others on the street who may be paying close attention to your online activity”.
New Drone Rules
In Barber, The New Drone Rules-Three Things Companies Need to Know, law.com (8/29/2016) it was noted that “After a more than two-year debate that drew comments from tech giants Google, Inc. and Amazon.com Inc., the first set of comprehensive rules for commercial drones took effect on Monday, opening regulatory airspace that businesses will likely push to expand in coming years. The (FAA) expects the new regulatory framework to have a ‘significant positive impact because it enables new businesses to operate small (unmanned aircraft systems) for hire and will stimulate a manufacturing support industry’. Key provisions of the new regulations include a ban on nighttime operations, a 400-foot ceiling on flights and a requirement that pilots keep unmanned drones within their sight line. The FAA included a waiver process that will exempt pilots from those restrictions under certain circumstances”.
Uber & Alphabet Rivalry Heats Up
In Isaac, Uber and Alphabet’s Rivalry Heats Up as Director Chooses Sides, nytimes.com) (8/29/2016) it was noted that “The departure is a sign of the growing friction between Uber and Alphabet, which is the parent company of Google. While Google and Uber started off as partners…they have become increasingly competitive with each other. Uber is moving into self-driving vehicle technology, for example, an area Google has long been working on…In a sign of the increased rivalry, last week Uber announced it had spent nearly $700 million to acquire Otto, a 90-person start-up staffed by former Google and Carnegie Mellon University engineers who are working exclusively on autonomous vehicle technology, an area in direct competition with Google’s research”.
In Wakabayashi & Isaac, Alphabet Expands Car-Pooling Project, Casting Shadow on Uber, nytimes.com (8/30/2016) it was noted that “Alphabet…is broadening the scope of a car-pooling program that could challenge ride-hailing services like Uber and Lyft. The pilot program, operated through Google’s navigation app Waze, is limited to employees of companies near Google’s headquarters in Mountain View, Calif. In the fall, Waze plans to expand the program to users in San Francisco, where Uber is based…Waze promotes the service as Waze Carpool on its website, recruiting drivers and riders to commute together in the Bay Area. For now, Google is not pushing the service as a direct competitor to the taxi-like services of Uber and Lyft, focusing mainly on matching drivers and riders already headed in the same direction”.
Travel Law Article: The Gordon Case
In the Gordon case the Court noted that “Defendants Amadeus IT Group…(Amadeus); Sabre Corporation…(Sabre) and Travelport Worldwide Limited…(Travelport)…are technology providers known as global distribution systems (GDS), GDSs serve as a conduit between travel service providers-such as airlines-and travel agencies, through which travel providers distribute information about available services and fares. Each time a consumer books a flight segment from a travel agent using a GDS, the airline supplying the flight must pay a fee to the GDS. The major American airlines rely heavily on GDSs to disseminate information to travel agents; Defendants collectively control nearly the entire American market for GDS services, receiving approximately $2.4 billion in fees from airlines annually”.
History Of CRSs
“In the 1960’s, airlines began developing their own in-house computerized reservation systems (CRS) for aggregating and supplying flight and fare information to consumers. Eventually, airlines allowed travel agents to access these systems directly, and additionally began sharing content with each other, such that travel agents could search flight information for multiple carriers from a single airline’s CRS”.
Regulating The GDSs
“In 1984, the (DOT) began regulating the GDS market, requiring GDSs to charge the same fees to each airline and requiring airlines to offer content to all GDSs. Consequently, airlines and GDSs could not negotiated over gees or content to gain a competitive advantage in the market. Airlines were, however, able to withhold portions of their content from GDSs and offer withheld fares through alternative platforms, at whatever price point the airlines chose, so long as the content that was provided to a given GDS was the same as that provided to any other GDS. Shortly after the implementation of DOT regulations, airlines began divesting themselves of their GDS ownership, such that by the end of 2003 no GDS remained affiliated with an airline”.
Enter The OTAs
“During the early 2000s, web-based fare information providers and online travel agencies (OTA) gained increased market presence and began to pose serious competition to GDSs. During the same period, the DOT allowed its GDS regulations to expire, on the theory that deregulation would ‘enable each system and each airline to bargain over the terms on which [GDS] services should be provided’ and that ‘vigorous enforcement of antitrust policy’-as opposed to direct regulation-was the preferred means of ensuring a healthy market”.
Travel Information Distribution Market
“After deregulation “consumes had a number of choices for finding flight and airfare information. In addition to employing traditional travel agencies, which used GDS services, consumers could acquire information from airlines’ own websites, saving airlines significant cost when those consumers booked flights directly. Further competition with the GDSs came from the so-called GDS New Entrants (GNE) which developed internet-based software to connect airlines with travel agents more efficiently and at a fraction of the price charged by GDSs. Other new competitors included OTAs; meta-search engines that aggregated links to airlines’ websites; and new direct-connection platforms developed by traditional travel agencies”.
Clear And Present Danger
“According to the Amended Complaint, ‘in the wake of deregulation, Defendants perceived the Airlines; content leverage and the new booking platforms and resulting market fragmentation as a clear and present danger’ to Defendants’ market dominance. Plaintiffs allege that as GDSs became more concerned about new market entrants (they) began working together to stifle the growing competition. Defendants realized that the success of platforms such as GNEs depended on airlines agreeing to offer them exclusive content or preferred status, and that the best strategy for the GDSs would be to prevent airlines from offering differentiated content to alternative platforms. Accordingly, beginning in 2006, the GDSs entered into a multi-part plan to strangle airlines’ ability to negotiated fees and offer differentiated content”.
The Alleged Scheme
Plaintiffs allege that “The first step in Defendants’ scheme consisted of the ‘Backstop Agreement’: Sabre and Amadeus promised to supply each other with any content that airlines provided to only one of them. Plaintiffs contend that the ‘purpose of the Backstop Agreement was to make sure the GDSs stood as one against the Airlines’. For the second step…Defendants ‘jointly demanded substantively identical terms on a take-it-or-leave-it basis during their 2006 contract negotiations’ with the airlines… Defendants each required airlines to accept a ‘nearly identical’ contract provision (the Contractual Restraint) prohibiting the airlines from offering different content or lower prices through other distribution channels. Plaintiffs allege that this ‘sudden lockstep’ was an ‘abrupt and radical departure from [Defendants’] previous approach to negotiations with the Airlines’. Plaintiffs allege that the Contractual Restraint prevented airlines from passing on to consumers the ‘savings realized from using less costly channels of distribution’ as a traveler who does not use a GDS must nevertheless pay ticket prices that include the GDS fees’…Both the Backdrop Agreement and the Contractual Restraint were publicly announced by Defendants at the time of their inception”.
Charging Inflated GDS Fees
“Plaintiffs claim that ‘[f]reed from external competition and agreeing amongst themselves that they could not compete for content, the Defendants charged inflated GDS fees. These supra-competitive fees increase airline distribution costs, which in turn raises fares for all travelers’. Defendants purportedly maintained their scheme in part through manipulation of travel agencies-particularly corporate travel agencies, which generate the majority of airline revenue derived from business travelers-by giving kickbacks to these agencies for every flight segment booked through a GDS. By providing financial incentives to travel agents for using GDSs, Defendants discouraged use of more efficient distribution platforms and purportedly ensured Defendants’ continued market dominance”.
The Court’s Antitrust Analysis
After dismissing Plaintiffs’ state antitrust and consumer protections claims as preempted by the Airline Deregulation Act (ADA) and finding that “Legislative history provides additional support for finding that the ADA precludes claims brought specifically against GDSs”, the Court found that Plaintiffs have adequately pleaded their federal antitrust claim by demonstrating standing.” Plaintiffs’ first claim for relief alleges unlawful horizontal restraint of competition in violation of the Sherman Act (to which Defendants) argue…that ‘better enforcers’ exist and that Plaintiffs alleged injuries are too remote and speculative to confer antitrust standings. None of these arguments succeeds in undermining Plaintiffs’ standing to bring their federal injunctive claims”.
Harms Suffered By Passengers
“Plaintiffs plead a direct path from Defendants’ anticompetitive behavior to the harms allegedly suffered by Plaintiffs. According to the Amended Complaint, Defendants conspired to force airlines to offer airfares at a uniform price inflated by GDS fees, thereby requiring consumers to pay supra-competitive rates. Notably, while the alleged violations caused harm to the airlines by restructuring their bargaining power with GDSs, the Contractual Restraint preventing airlines from offering lower fares through alternate platforms would seem to most directly harm consumers: Airlines themselves pay nothing to any GDS when they offer an airfare directly from their own website, but consumers nevertheless pay more for that fare… Recent cases addressing rate-manipulation schemes further support a finding that Plaintiffs have adequately pleaded proximate cause for their injunctive relief”.
“Defendants’ motion to dismiss Plaintiffs’ claims for violation of antitrust and consumer protection laws is granted, while their motion to dismiss Plaintiffs’ claim under federal antitrust law is denied”.
Justice Dickerson has been writing about travel law for 39 years including his annually updated law books, Travel Law, Law Journal Press (2016) and Litigating International Torts in U.S. Courts, Thomson Reuters WestLaw (2016), and over 400 legal articles many of which are available at nycourts.gov/courts/9jd/taxcertatd.shtml. Justice Dickerson is also the author of Class Actions: The Law of 50 States, Law Journal Press (2016). For additional travel law news and developments, especially in the member states of the EU, see IFTTA.org.
This article may not be reproduced without the permission of Thomas A. Dickerson.