Illinois Corporate Travel, Inc. v. American Airlines, Inc.

• Decision Date: 19 November 1986
• Docket Number: No. 86-1201,86-1201
• Citation: 806 F.2d 722
• Parties: , 1986-2 Trade Cases 67,362 ILLINOIS CORPORATE TRAVEL, INC., d/b/a McTravel Travel Services, Plaintiff- Appellant, v. AMERICAN AIRLINES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 722

806 F.2d 722

55 USLW 2301, 1986-2 Trade Cases 67,362

ILLINOIS CORPORATE TRAVEL, INC., d/b/a McTravel Travel

Services, Plaintiff- Appellant, v. AMERICAN AIRLINES, INC., Defendant-Appellee.

No. 86-1201.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 16, 1986.

Decided Nov. 19, 1986.

David M. Stahl, Isham, Lincoln & Beale, Chicago, Ill., for plaintiff-appellant.

Steven C. McCraken, Gibson, Dunn & Crutcher, Newport Beach, Cal., for defendant-appellee.

Before BAUER, Chief Judge, and FLAUM and EASTERBROOK, Circuit Judges.

EASTERBROOK, Circuit Judge.

American Airlines does not allow McTravel Travel Services to write tickets good for travel on American, because McTravel will not agree by contract not to advertise discounts. McTravel wants to let people know that it will rebate part of a travel agent's usual 10% commission. American's policy is functionally a price restriction. See United States v. Gasoline Retailers Ass'n, 285 F.2d 688 (7th Cir.1961); cf. Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 649, 100 S.Ct. 1925, 1928-29, 64 L.Ed.2d 580 (1980). This led to McTravel's claim that American has violated the per se prohibition against resale price maintenance established by Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 404-09, 31 S.Ct. 376, 383-85, 55 L.Ed. 502 (1911), and reaffirmed in California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 102-03, 100 S.Ct. 937, 941-42, 63 L.Ed.2d 233 (1980). See also Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 761 n. 7, 104 S.Ct. 1464, 1469-70 n. 7, 79 L.Ed.2d 775 (1984).

The district court declined to issue a preliminary injunction, however, concluding that plaintiff McTravel and other "travel service companies" are genuine agents. Ever since United States v. General Electric Co., 272 U.S. 476, 47 S.Ct. 192, 71 L.Ed. 362 (1926), the agency relation has been outside the per se rule of Dr. Miles. The district court thought that General Electric doomed most of McTravel's antitrust arguments as a matter of law. The only possible exception, according to the district court, would arise if there had been "concerted action between American and some of its agents to put McTravel out of business." After reviewing evidence on this score, the district judge concluded that there was no direct support for a conspiracy; as for the inference of a conspiracy, the district court wrote: "The conspiracy evidence (on the present record) is weak." The court then concluded that McTravel would not suffer sufficient irreparable harm pending a trial on the merits to justify an injunction in the face of its "weak" case on the merits.

Because a district court has substantial discretion to evaluate the "equity" factors in passing on motions for preliminary injunctions, see Lawson Products, Inc. v. Avnet, Inc., 782 F.2d 1429 (7th Cir.1986); American Hospital Supply Corp. v. Hospital Products Ltd., 780 F.2d 589 (7th Cir.1986); McTravel has devoted most of its effort on appeal to an argument that the district court incorrectly assessed its probability of success on the merits. It seeks to bring the case within a rule of per se illegality. American does not deny that it has refused to allow McTravel to write tickets if it also advertises discounts. If this admitted policy is illegal per se, then the district judge surely abused her discretion in denying McTravel's request for preliminary relief. We therefore take up the argument that American's policy is unlawful per se. McTravel pursues its claim in three ways: arguing that Dr. Miles applies, that there was a conspiracy to evict McTravel from the market, and that American's program so obviously injures consumers that it should be deemed illegal per se even if Dr. Miles does not apply directly.

McTravel's principal argument is that General Electric died an unnatural death at the hands of Simpson v. Union Oil Co., 377 U.S. 13, 84 S.Ct. 1051, 12 L.Ed.2d 98 (1964). Before the case was argued, however, we concluded in Morrison v. Murray Biscuit Co., 797 F.2d 1430 (7th Cir.1986), that General Electric is healthy. Employment relations do not violate the antitrust laws; Sears may tell the managers of its stores at what price to sell lawn mowers. Morrison held that genuine agency relations should be treated like employment relations. The owner of a house may tell the real estate agent the minimum price the owner will accept without committing a per se offense. What Simpson held, we concluded, is that a manufacturer may not avoid Dr. Miles by giving the name "agent" to one who serves the same economic functions as an ordinary wholesaler or retailer. The appropriate inquiry, according to Morrison, is "whether the agency relationship has a function other than to circumvent the rule against price fixing." 797 F.2d at 1436.

Counsel for McTravel conceded at oral argument that if this language in Morrison establishes the legal test, then it loses on its per se argument. The concession was well advised, because the district judge's thorough findings demonstrate that the relation is a genuine agency. Travel service operators do not resell air travel. We set out some of the district court's findings.

An air carrier establishes and announces to the public a price for its service. The airline determines the number and destination of flights and the equipment to be used on each. A traveler may reserve seats directly from the airline or through a travel agent; in either case the reservation is likely to be made on a computer that records the number of seats remaining on a flight and the price of each. The travel agent must obtain the airline's clearance (by computer) to book a flight. The agent does not purchase a seat for resale and does not hold an inventory of seats. (Some seats are purchased for resale, usually on charter flights but increasingly on other flights. We do not deal with seats purchased outright by travel service operators.) The airline or any agent in the country can sell the same seat. It remains available until reserved--and sometimes even after, for air carriers "overbook" to deal with no-shows. The traveler with a ticket goes to the airport and is served directly by the airline. If the traveler does not show up, the seat may fly empty and the airline loses the sale. (Some tickets have cancellation charges, a detail that does not affect the analysis.) The travel service operator takes no risk of unfilled seats or of the many problems, from mechanical difficulties to weather, that may make the airline unable to deliver transportation as promised. The airline takes all credit risks on the credit cards it accepts. True, as McTravel argues, the travel agent loses its commission when the traveler does not show and has his ticket refunded, but this is true of any agent when a sale falls through. The relation of travel agent to airline is not substantially different from the relation of broker to real estate owner, of brokerage house to investor, or of travel agent to hotel, rental car company, or other provider of travel services.

The district court concluded from these facts that travel service operators are genuine agents within the meaning of General Electric. This conclusion is amply supported by the record. McTravel therefore sought at oral argument to persuade us to alter the standard articulated in Morrison. It contended that the standard makes liability turn on the intent of the parties adopting the arrangement. Counsel accurately observed that this court has been skeptical about "intent" tests in antitrust law. E.g., Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370, 379-80 (7th Cir.1986); Ball Memorial Hospital, Inc. v. Mutual Hospital Insurance, Inc., 784 F.2d 1325, 1338-39 (7th Cir.1986). See also VII P. Areeda, Antritrust Law p 1506 (1986). Intent is a slippery issue, because firms may "intend" to harm rivals or acquire monopolies even though their practices, objectively viewed, are beneficial to consumers, "whose interests the [Sherman Act] was especially intended to serve". Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 15, 104 S.Ct. 1551, 1560, 80 L.Ed.2d 2 (1984). We do not believe, however, that the standard in Morrison requires reference to the mental states of the parties. "[T]he agency relationship has a function other than to circumvent the rule against price fixing" (797 F.2d at 1436) when, objectively viewed, the arrangement serves one of the economic functions of agencies in general, such as apportioning risk to the firm best able to bear risk, or lodging pricing decisions in the firm best able to gauge market conditions. In Morrison itself the court found that a food broker is an agent because the principal is in the best position to evaluate market conditions and decide on an optimal selling strategy, 797 F.2d at 1437-38, not because of subjective intent. The same objective approach here supports the district judge's conclusion that McTravel is an agent of airlines and not a reseller. This means that the per se rule of Dr. Miles does not apply. (Of course, conclusions that depend on the record compiled so far might be altered if additional facts adduced at trial show that the district court has mischaracterized the nature of the relation between airlines and travel service operators. Here and elsewhere, we speak only of the conclusions drawn on the basis of the existing record.)

McTravel's second argument in support of per se treatment is based on horizontal collusion among dealers, usually a firm footing for per se analysis. McTravel contends that American conspired with other travel agents to cut off competition from an upstart with a novel way of doing business. (McTravel does not allege that there is a conspiracy among airlines.) We agree with the district court that American and its agents are not the same firm for purposes of Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct....