We round up the most significant appellate decisions relevant to commercial litigation each week.

Welcome to The Contingency‘s Commercial Roundup for February 21. We have a ton of cases to catch up on, so let’s get right to it.

Spirit: The Home of the Bare Fare Keeps Flying.

On January 17, 2024, a judicial appointee of a President whose administration sharply curtailed antitrust enforcement* blocked a $3.8 billion attempt by JetBlue to merge its way into making the Big Four U.S. airlines (American, Delta, United, and Southwest) into the Big Five (with JetBlue as the fifth member).

After a 17-day bench trial, U.S. District Judge William G. Young in Boston held that JetBlue’s plan to gobble up the leading “ultra-low-cost carrier”–Spirit Airlines–“would substantially lessen competition in a relevant market.”

Judge Young’s 113-pages of Findings of Fact and Conclusions of Law detail the city-pair routes on which JetBlue and Spirit compete, discuss the experts’ forecasts of the merger’s likely effects, and sketches the legal framework for actions under Section 7 of the Clayton Act.

I recommend reading the whole thing, but I want to draw your attention especially to pages 105-06. There Judge Young explains why he rejects JetBlue’s claim that the merger would improve competition. JetBlue’s argument hinged on its plan to dump Spirit’s ultra-low-cost class of service in favor of JetBlue’s more expensive offering. Judge Young wouldn’t have it:

Throughout trial, the Government invoked the experience of the average Spirit consumer: a college student in Boston hoping to visit her parents in San Juan, Puerto Rico; a large Boston family planning a vacation to Miami that can only afford the trip at Spirit’s prices. It is this large category [of] consumers, those who must rely on Spirit, that this merger would harm; the Defendant Airlines, though exceedingly well represented, simply cannot demonstrate that these consumers would avoid harm.

In other words, because Spirit’s typical flier often can’t afford the higher fares JetBlue and Big Four airlines charge for more amenities, eliminating Spirit as an ultra-low-cost alternative by merging into JetBlue would deprive people with modest means of their most–and possibly only–affordable option.

Kudos to the Antitrust Division’s trial team for the win–and for putting ordinary people at the center of the case. That is a winning formula.

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*Ronald Reagan nominated Judge Young on September 11, 1984.

We round up the most significant appellate decisions relevant to commercial litigation each week.

Welcome to the first Commercial Roundup in 2024–and Happy New Year.

We round up the most significant appellate decisions relevant to commercial litigation each week.

Welcome to Commercial Roundup!

This issue notes an Epic antitrust win against Google, comments by yours truly on the likelihood of an Antitrust Division challenge to a $1.8 billion merger between Alaska Airlines and Hawaiian, Susman Godfrey’s National Boutique of the Year award, and tips on themes for your next jury trial. And, oh yes–a rundown of the significant appellate decisions you should know about if you handle complex commercial cases.

New Appellate Rulings

News and Tips

U.S. Circuit Judge Jennifer Sung made the comment December 6 during oral argument in the Federal Trade Commission’s ongoing effort to block Microsoft’s $69 billion purchase of Activision Blizzard, the biggest U.S. maker of video games. (Hat tip to Josh Sisco at Politico Pro.) The FTC claimed that the merger threatened to substantially reduce competition, lost after a bench trial, and sought reversal by the Ninth Circuit. The deal closed in October.

“Competition, not competitors”

Judge Sung’s remark caught my eye because it inverts a mantra you often see in court opinions rejecting antitrust claims: that antitrust law protects “competition, not competitors.”

To a normal person, “competition, not competitors” implies that harm to a species of plaintiffs–competitors–doesn’t matter for purposes of the Sherman Act (and the other antitrust laws) and that only damage to competition counts. But in fact conduct that hurts a competitor might also reduce competition (and therefore violate the Sherman Act) if (for example) a cartel or a dominant firm used “anticompetitive” means to discipline, weaken, or destroy a rival.

Paraphrasing Judge Sung, you can’t equate harm to some competitors to an anti-competitive effect. You still need proof that the injury to competitors also injured the competitive process itself.

Yet the “competition, not competitors” mantra unfairly devalues antitrust claims when a competitor brings them. It suggests to competitors, inaccurately, that antitrust laws just don’t protect them, sorry!

It also complements the emphasis that the “consumer welfare” approach to antitrust law places on remedying and preventing harm to consumers. In the consumer welfare world, the market quickly corrects abuses against competitors, and protecting “competition, not competitors” begins to sound more like protecting “competition only for consumers, not competitors.”

“The competitive process”

Judge Sung’s turn of phrase provides a welcome corrective. Just because Microsoft promised it would give more goodies to some video game buyers if the deal went through, she said, that doesn’t mean the merger would have a positive effect on competition. Microsoft still must prove that providing the benefits to some consumers will also enhance the competitive process itself in a lasting way.

Without a showing of improvements to competition, in fact, Microsoft’s beneficence to some gamers looks more like a conflation of a temporary, tactical surrender of some of the profits it expected the merger to yield with durable, competition-enhancing changes to market structure.

A better phrasing would say simply that antitrust law protects “the competitive process”. Judge Sung has shown the way.

The $1.9 billion deal Alaska Airlines signed with Hawaiian Airlines on December 3 would enable the competitors to collaborate on the 12 routes they both fly between the Aloha State and cities on the U.S. West Coast–a small part of their overall networks. Does that mean the Antitrust Division will challenge the deal?

Probably.

I see a couple of ways to assess the odds of action by the Antitrust Division.

The first involves the 2023 Draft Merger Guidelines. Although they haven’t taken effect, they reflect the thinking of Antitrust Division (and FTC) leadership, and several of them seem on point.

Going Through the Guidelines

Guideline 1: Mergers Should Not Significantly Increase Concentration in Highly Concentrated Markets. 

Guideline 2: Mergers Should Not Eliminate Substantial Competition Between Firms.

Eliminating Hawaiian as a competitor in service to and from the U.S. mainland would significantly increase concentration in a market that already at least “moderate” concentration under the Herfindahl-Hirschman Index even if you include flights to and from inland cities. The fact that Hawaiian and Alaska now go head to head in at least 40.1 percent of the West Coast-Hawaii service (and probably significantly more) strongly implies the merger would “eliminate substantial competition between” them.

Guideline 3: Mergers Should Not Increase the Risk of Coordination. 

Guideline 4: Mergers Should Not Eliminate a Potential Entrant in a Concentrated Market.

Coordination on pricing, scheduling, and other aspects of competition becomes easier with fewer competitors, especially in a market that already has only a few large ones. With its West Coast headquarters (in Seattle), Alaska now poses a threat to fly to Hawaii from other coastal cities.

Guideline 8: Mergers Should Not Further a Trend Toward Concentration.

Guideline 9: When a Merger is Part of a Series of Multiple Acquisitions, the Agencies May Examine the Whole Series.  

The fact that Alaska bought Virgin America in 2016–a year after Virgin started service to and from Hawaii–implicates draft Guidelines 8 and 9. That fact that Aloha Air went out of business in 2008 won’t help. The Hawaiian debut of Southwest in 2019, on the other hand, will.

Guideline 11: When a Merger Involves Competing Buyers, the Agencies Examine Whether It May Substantially Lessen Competition for Workers or Other Sellers.

After Southwest started serving Hawaii in 2019, wages for airport workers increased from $13 or $14 an hour to $20. The Antitrust Division has made a point of scrutinizing mergers for signs they would lower wages for workers.

Recent Enforcement History

The second consideration pertains to the Antitrust Division’s recent record with airline combinations. Earlier this year, the Antitrust Division won a court fight over blocking an alliance between Jet Blue and American Airlines. Just today, it finished a trial in which it seeks to enjoin another pending merger–a $3.8 billion deal between Jet Blue and Spirit. And the Division under Jonathan Kanter has often pointed to the industry as one that the more permissive enforcement approaches of previous administrations regrettably allowed to consolidate, with an irretrievable loss to the industry’s competitive vigor. The Attorney General himself promised that the Justice Department “will continue to protect competition and enforce our antitrust laws in the heavily consolidated airline industry.”

Alaska and Hawaiian said they have not spoken to the government about any potentially problematic aspects of their Merger Agreement. Promising to sell some or all of the 12 most concerning routes to a competitor might save the deal, as similar moves have in other cases. The most likely buyer–still scrappy Southwest–might pose its own set of concerns for Alaska. But talk they must.

We round up the most significant appellate decisions relevant to commercial litigation each week.

Welcome to the November 15, 2023 edition of Commercial Roundup. It will catch you up on the latest appellate decisions by federal appellate courts and the highest courts in Delaware, New York, and Texas on antitrust, arbitration, class actions, intellectual property, securities, and other important issues in complex business and commercial disputes.

Last Friday, October 27, U.S. District Judge Amit Mehta overruled an objection by Google’s trial counsel to a question about how much the online search and ad giant pays Apple and other browser providers for making Google’s search engine the default. The lawyer claimed that making the dollar amount public would hurt Google’s negotiating position in future talks on how much it would pay browser providers to rig their browsers to use Google search by default.

The civil antitrust case began on October 20, 2020 when the U.S. Department of Justice’s Antitrust Division and 38 states brought it in the U.S. District Court for the District of Columbia District. The enforcers allege that Google has unlawfully maintained monopolies in markets for general search services, search advertising, and general search text advertising. They seek “structural relief” plus any other “relief necessary and appropriate necessary to restore competitive conditions in the markets affected by Google’s unlawful conduct”.

The trial to Judge Mehta, who will decide the outcome without the help of a jury, started on September 12. I have followed it off and on and mostly have looked for signs the Court favors one side or the other.

Early indication didn’t look good for the enforcers. In ruling on motions to prevent public airing of certain pieces of evidence, Judge Mehta seemed to defer to claims by big tech companies–Google, Apple, and Microsoft, to name three–that disclosing information to the public would cause them “competitive harm”. He also often closed the courtroom for long stretches so he could hear apparently crucial testimony. At times he appeared testy about media pressure for a public feed, and he lavished many hours on making fine distinctions about the sensitivity of particular facts and evidence. All that struck me as erring on the side of giving the big tech companies’ interests in secrecy more weight and attention than they deserved.

The outcome of the case will have immense effects on the public, I thought. Can’t the Court see that people want and need to know the facts?! Keeping evidence secret will erode trust and reduce confidence in the outcome, especially if it favors Google!

So I welcomed Judge Mehta’s ruling last Friday.

In rejecting secrecy, Judge Mehta allowed the public to know that Google paid $26.3 billion for one year of building bias into Safari and other browsers. How do you explain that to the public? Sure, people can still switch search engines, but we now have evidence that the ease of keeping the Google search engine plus the hassle of changing to one of the many alternatives (e.g., Bing, Yahoo!, or DuckDuckGo) had a value of at least $26.3 billion to Google in 2021.

Did paying $26.3 billion to bias browsers in favor of Google’s search engine amount to unlawful maintenance of Google’s monopoly (90 percent) position? It did if it “foreclose[d] competition in a substantial share of the line of commerce affected.” Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961).*

Google contends that biasing browsers didn’t prevent “effective competition” by other search engines. Its success in proving its competitive benignity theory will depend on whether it can convince Judge Mehta that it would have legitimately held onto its monopoly even if it hadn’t paid the $26.3 billion.

Judge Mehta comes from a defense-side background. He favors the status quo. He will therefore need unusually strong reasons to kick Google out of its monopoly position.

But the public now knows he has $26.3 billion worth of them. Will that be enough?

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*Believe it or not, the U.S. Supreme Court has not rendered a decision on the merits of a Section 2 monopolization case in the 62 years since it handed down Tampa Electric.

We round up the most significant appellate decisions relevant to commercial litigation each week.

Welcome back to Commercial Roundup. This installment will catch you up for the last several weeks.

We round up the most significant appellate decisions relevant to commercial litigation each week.

Here you go–Commercial Roundup for the couple of weeks ending September 14, 2023