A recent
court decision on alleged "signaling" of
competitive plans between airlines highlights the antitrust risks
of making detailed public statements about future business plans.
On August 2, 2010, a federal district court in Atlanta refused to
dismiss an airline passenger class action alleging that AirTran and
Delta agreed—through statements made in analyst calls,
speeches, and airline industry conferences—to coordinate
capacity, fares, and fees.
AirTran and Delta are each other's primary competitor on routes
to and from Atlanta. According to the plaintiffs' complaint, in
2008 AirTran initiated a six-month dialogue with Delta on
competitive plans, not through direct communication, but through
carefully-timed public statements. The complaint details a series
of statements made by each airline to investors and analysts in
earnings calls and in speeches and breakout groups at industry
conferences. As characterized by the plaintiffs, the airlines used
these public statements to communicate to each other their
competitive plans and gauge the other's likely response before
implementing them. The plaintiffs claim that the airlines thereby
formed an "agreement" to coordinate their competition, in
violation of Sherman Act § 1, which prohibits agreements that
restrain trade.
For example, according to the complaint, in an earnings call
AirTran announced its belief that the industry should cut capacity
in response to high fuel prices. That was followed by similar
statements by both airlines, each saying capacity should be cut and
that it was watching to see whether other airlines would withdraw
capacity from the market. "Delta can't do it alone. We
have to do it in conjunction with other carriers," said Delta.
Both airlines thereafter cut capacity on routes on which they
compete, the plaintiffs allege, as a result of their
"agreement" to do so. Similarly, AirTran announced it
wanted to implement a first-bag fee, but preferred to follow Delta.
After Delta imposed its own first-bag fee, AirTran followed. The
plaintiffs characterized these public statements as
"invitations to collude" followed by acceptances.
Rejecting the airlines' motion to dismiss the complaint, the
district court highlighted the low threshold a plaintiff must meet
at the motion to dismiss stage: "a plaintiff is only required
to allege enough facts to raise a reasonable expectation that
discovery will reveal evidence of an illegal agreement," said
the court, citing the Supreme Court's 2007 Twombly
case. The court also noted that the familiar "conscious
parallelism" rule—that a plaintiff with evidence of
parallel, possibly-coordinated conduct by competitors must also
show "plus factors" or evidence that excludes the
possibility the competitors acted independently—applies
at the summary judgment stage, not on a motion to dismiss.
The court emphasized that agreements to coordinate need not be
explicit and therefore may be inferred by the jury from even
indirect communications between competitors followed by a change in
their business practices. Given this standard, the court ruled that
the plaintiffs had alleged facts that made their claim of an
unlawful agreement plausible.
The court recognized that the defendants might be able to show they
had independent reasons to take the actions they did. But these
could not be evaluated at the motion to dismiss stage:
Can Defendants' conduct be characterized as merely conscious parallelism that is inevitable in an oligopolistic market?...It would be improper and imprudent to dismiss a case of this magnitude, where the interests of consumers are at stake, on the mere hunch that Defendants' conscious parallelism defense (and their other defenses for that matter) may prove valid.
Addressing the airlines' formal defenses, the court held that
the antitrust action was not precluded by the securities laws
merely because the statements were made in the context of advising
investors and analysts. The plaintiffs had alleged the statements
went well beyond the disclosures required by securities
regulations, and the defendants had not cited any particular
securities regulation that covered these disclosures.
While allowing the Sherman Act § 1 claim, the court dismissed
the claims under § 2, which prohibits monopolization. The
court found it implausible that the alleged output and pricing
agreements would give either airline a "monopoly" and
rejected any "joint monopolization" theory. The Sherman
Act § 1 claim against AirTran and Delta will go forward,
exposing the airlines to the costs of litigation and continued risk
of antitrust liability.
The Delta/AirTran case follows close attention in the
1990s by the Department of Justice to alleged fare signaling by
airlines through "footnote" information exchanged in the
electronic fare distribution system. More recently, the Federal
Trade Commission has challenged alleged invitations to collude
extended to competitors through public statements. The
Delta/AirTran court cited the FTC's 2006 action
against Valassis Communications, in which a newspaper
advertising publisher announced in an analyst call that it planned
to increase prices, but stated it would keep its current pricing if
its competitor did not follow the price increase.
This decision highlights the caution with which companies in any
industry should make public disclosures, especially where
describing future business plans that may be contingent on the
reaction of competitors. This decision also indicates that at least
some disclosures may be challenged under the antitrust laws even if
made in statements to investors not mandated by the securities
laws.
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