Alaska Airlines, Inc. v. United Airlines, Inc.

• Decision Date: 29 October 1991
• Docket Number: Nos. 90-55162,90-55163,s. 90-55162
• Parties: , 1991-2 Trade Cases P 69,624 ALASKA AIRLINES, INC.; Midway Airlines; Muse Air Corporation, Plaintiffs-Appellants, v. UNITED AIRLINES, INC., Defendant-Appellee. ALASKA AIRLINES, INC, Plaintiff, and Northwest Airlines, Inc., Plaintiff-Appellant, v. UNITED AIRLINES, INC., Defendant, and American Airlines, Inc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 536

948 F.2d 536

60 USLW 2327, 1991-2 Trade Cases P 69,624

ALASKA AIRLINES, INC.; Midway Airlines; Muse Air

Corporation, Plaintiffs-Appellants, v. UNITED AIRLINES, INC., Defendant-Appellee.

ALASKA AIRLINES, INC, Plaintiff, and Northwest Airlines, Inc., Plaintiff-Appellant, v. UNITED AIRLINES, INC., Defendant, and American Airlines, Inc., Defendant-Appellee.

Nos. 90-55162, 90-55163.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 5, 1991.

Decided Oct. 29, 1991.

Maxwell M. Blecher, Blecher & Collins, Los Angeles, Cal., for plaintiffs-appellants.

Roberts B. Owen, Covington & Burling, Washington, D.C., Robert E. Cooper, Gibson, Dunn & Crutcher, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before NORRIS, HALL and TROTT, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Alaska Airlines, Muse Air Corporation, Midway Airlines, Inc., and Northwest Airlines, Inc. (collectively "plaintiffs") brought suit against their two largest competitors, United Airlines and American Airlines (collectively "defendants"), alleging that defendants had individually violated the Sherman Act in operating their proprietary computerized reservations systems ("CRS"). Plaintiffs appeal the district court's grant of summary judgment against them on two of their three distinct claims under Section 2 of the Act. 15 U.S.C. § 2. The district court had jurisdiction under 15 U.S.C. § 2 and 28 U.S.C. § 1331. We have jurisdiction under 28 U.S.C. § 1291. We affirm.

I

In 1974, American Airlines obtained government approval to attempt to persuade the other major airlines to pool their resources and create a jointly-owned CRS. A CRS provides participating travel agents with schedule, fare, and seat availability information for every airline that subscribes to the CRS. Further, a CRS allows travel agents to send and receive airline booking data, book space on flights, and automatically prepare tickets and advance boarding passes. The proposed joint CRS project collapsed in 1976 due to insufficient funding. Three weeks later, United Airlines announced that it would create a proprietary CRS under the trade name of Apollo. American Airlines quickly responded by announcing that it would create its own proprietary CRS, under the trade name of SABRE. Other airlines also developed proprietary CRSs. ¹ American's SABRE soon became the largest CRS. United's Apollo was the second largest.

Shortly after SABRE and Apollo began operations, Congress deregulated the airline industry. See The Airline Deregulation Act of 1978 ("the Deregulation Act"), Pub.L. No. 95-504, 92 Stat. 1705 (1978) (codified at 49 U.S.C.App. § 1301). Deregulation fueled demand for computerized fare and flight availability information, and as a result a substantial percentage of total air passenger bookings were made through CRSs.

The CRS works as follows. The airlines pass flight information to the CRSs, and the CRSs then provide this information to their subscribers, the travel agents. The travel agents in turn use the information to serve consumers, who naturally desire the lowest airfares and the most convenient flights. The CRSs charge travel agents only a nominal fee, or no fee, for the CRSs' services. In contrast, the CRSs charge airlines a substantial amount for such services, in the form of a per booking fee. For example, since the Civil Aeronautics Board ("the Board") ruled in 1984 that each CRS owner must charge its airline customers a uniform rate, American has charged a uniform fee of $1.75 for each booking made through SABRE. ²

The CRS market's triangular structure makes the market unusually resistant to normal disciplinary mechanisms. A CRS's market share (the proportion of flights that are booked through a given CRS) might ordinarily be thought to depend on both how many travel agents and how many airlines subscribe to the CRS. However, because each and every airline subscribes to each and every viable CRS, the market share of a given CRS depends solely on the number of travel agents who subscribe to that CRS. Airlines generally subscribe to every CRS because the CRSs charge the airline per booking. The $1.75 fee to secure a booking is of little consequence because a $300 or $400 fare may otherwise be lost. This is not to say that a CRS can charge its airline subscribers any fee that it desires, no matter how high. Basic economic theory tells us that an airline will withdraw from the CRS if the cost of using it causes the marginal cost of providing a flight booked on the CRS to exceed the marginal revenue gained by the booking. See generally M. Handler, H. Blake, R. Pitofsky, H. Goldschmid, Trade Regulation App. B (2d ed. 1983) (hereinafter "Trade Regulation"). However, since CRS fees are a relatively small part of the total costs incurred by a "booked" airline when it provides air transportation to a paying passenger, the CRSs have leeway to charge substantial booking fees.

The plaintiffs, each previous subscribers to Apollo and SABRE, were unhappy about the ability of their largest competitors to extract substantial booking fees from them. Accordingly, plaintiffs brought suit under the Sherman Act. ³ Plaintiffs argued that United and American had individually violated Section 2 of the Sherman Act by, among other things: (1) denying plaintiffs reasonable access to their CRS services, which were alleged to be "essential facilities;" and (2) "leveraging" their dominance in the CRS market to gain a competitive advantage in the downstream air transportation market. The district court granted summary judgment in favor of defendants on both claims. Plaintiffs have appealed. ⁴

II

The district court's grant of summary judgment is reviewed de novo. Kruso v. Int'l. Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, --- U.S. ----, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990). We must decide, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant law. Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir.1989).

III

A.

Defendants argue that the doctrine of res judicata bars plaintiffs from pursuing their essential facilities and monopoly leveraging claims in this court. "The concept of res judicata embraces two doctrines, claim preclusion and issue preclusion (or collateral estoppel), that bar, respectively, a subsequent action or the subsequent litigation of a particular issue because of the adjudication of a prior action." McClain v. Apodaca, 793 F.2d 1031, 1033 (9th Cir.1986). Defendants' claim is meritless because this is not a case where plaintiffs, unhappy with the outcome of one action, instituted an entirely separate action either alleging grounds for relief which could have been raised in the prior suit upon the same cause of action, or involving an issue previously litigated in the prior action. Rather, plaintiffs are merely appealing the district court's award of summary judgment in favor of defendants on two discreet issues alleged in the complaint. The doctrine of res judicata prohibits repetitive litigation, not appellate review of claims rejected by the district court. See McClain, 793 F.2d at 1032-33.

B.

Defendants also contend that plaintiffs are judicially estopped from denying that collateral estoppel bars their essential facilities and monopoly leveraging claims. The doctrine of judicial estoppel precludes a party from arguing inconsistent positions to gain an unfair advantage over its adversary. See Russell v. Rolfs, 893 F.2d 1033, 1037-39 (9th Cir.1990) (state may not argue that appellant is procedurally barred from obtaining relief in state court when it had previously persuaded district court to deny appellate review because appellant had "adequate and available" state remedy), cert. denied, --- U.S. ----, 111 S.Ct. 2915, 115 L.Ed.2d 1078 (1991); Rockwell Int'l Corp. v. Hanford Atomic Metal Trades Council, 851 F.2d 1208, 1210 (9th Cir.1988).

Defendants' argument is without merit because plaintiffs' positions are not inconsistent. Prior to trial, defendants argued that plaintiffs did not have standing to assert unlawful monopolization of the market for CRS services to travel agents. In response to defendants' standing argument, plaintiffs asserted that defendants had monopoly power over travel agents and that defendants' monopoly power affected plaintiffs as consumers in that market. ⁵ Now, to support their monopoly leveraging and essential facility claims, on which the district prevented trial by granting summary judgment for defendants, plaintiffs say that defendants have monopoly power over plaintiffs, and that this factual question has not yet been determined. Plaintiffs' positions are not inconsistent because the argument that defendants had monopoly power over travel agents does not preclude the possibility that they might also have such power over airlines. Nor is it unfair for plaintiffs to press this argument on appeal because plaintiffs clearly made the argument below; this is not a case where a party creates a new theory to sustain its argument on appeal.

IV

We turn to the merits of plaintiffs' antitrust claims. The antitrust laws are designed to "safeguard general competitive conditions, rather than to protect specific competitors." Oahu Gas Serv., Inc. v. Pacific Resources, Inc., 838 F.2d 360, 370 (9th Cir.1988).

A

The Sherman Act provides in relevant part:

[Section 1.] Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.

[Section 2.] Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several...