In re Air Passenger Computer Reservation Systems, MDL 667-ER. No. CV 84-8918-ER(Tx)

• Decision Date: 15 December 1989
• Docket Number: No. MDL 667-ER. No. CV 84-8918-ER(Tx),CV 89-0696-ER(Mcx) and CV 86-0697-ER(Mcx).,MDL 667-ER. No. CV 84-8918-ER(Tx)
• Citation: 727 F. Supp. 564
• Parties: In re AIR PASSENGER COMPUTER RESERVATION SYSTEMS. USAIR, INC., Pacific Southwest Airlines, Inc., Aircal, Inc., Ozark Air Lines, Inc., Republic Airlines, Inc., Muse Air Corporation, Alaska Airlines, Inc., Midway Airlines, Inc., Northwest Airlines, Inc., and Western Airlines, Inc., Plaintiffs, v. AMERICAN AIRLINES, INC., and United Air Lines, Inc., Defendants.
• Court: U.S. District Court — Central District of California

727 F. Supp. 564

In re AIR PASSENGER COMPUTER RESERVATION SYSTEMS USAIR, INC., Pacific Southwest Airlines, Inc., Aircal, Inc., Ozark Air Lines, Inc., Republic Airlines, Inc., Muse Air Corporation, Alaska Airlines, Inc., Midway Airlines, Inc., Northwest Airlines, Inc., and Western Airlines, Inc., Plaintiffs, v. AMERICAN AIRLINES, INC., and United Air Lines, Inc., Defendants.

No. MDL 667-ER. Nos. CV 84-8918-ER(Tx), CV 89-0696-ER(Mcx) and CV 86-0697-ER(Mcx).

United States District Court, C.D. California.

December 15, 1989.

Maxwell M. Blecher, Norman Pine, Beverly S. Tillett, Ann I. Jones, Blecher & Collins, P.C., Los Angeles, Cal., for plaintiffs.

Robert E. Cooper, J. Edd Stepp, Jr., Steven C. McCracken, Gibson, Dunn & Crutcher, Los Angeles, Cal., for American Airlines.

Robert B. Owen, Wm. D. Iverson, Wm. E. O'Brian, Jay T. Smith, Covington & Burling, Washington, D.C., Ralph Zarefsky, McCutchen, Black, Verleger & Shea, Los Angeles, Cal., for United Airlines.

MEMORANDUM OPINION AND ORDER

RAFEEDIE, District Judge.

The plaintiffs, a group of ten airlines ("USAir plaintiffs"), filed this antitrust action against defendants United Airlines ("United") and American Airlines ("American"), claiming damages from monopolization or attempted monopolization by each defendant of the Computer Reservations Systems ("CRS") industry. The case was filed five years ago, and a number of the substantive claims were dismissed or narrowed on summary judgment motions. See, In Re Air Passenger Computer Reservations Systems Antitrust Litigation, 694 F.Supp. 1443 (C.D.Cal.1988) hereinafter In re CRS.

Prior to the pretrial conference, the defendants brought a motion challenging the plaintiffs' standing to bring either the monopolization or attempted monopolization claims. This Court ruled that the plaintiffs had standing to bring the monopolization claim under Section 2 of the Sherman Act as consumers of CRS services, and that they did not have standing to bring the attempted monopolization claims.

After the commencement of the trial, the USAir plaintiffs brought a motion to reconsider the Court's ruling that they lack standing to bring the attempted monopolization claims based on the Ninth Circuit's publication of an opinion in R.C. Dick Geothermal Corp. v. Thermogenics, Inc., 890 F.2d 139 (9th Cir.1989).

The Court, having read and considered the papers submitted, and having reviewed its prior rulings on this issue, denies the plaintiffs' motion for reconsideration for the reasons stated in this Memorandum.

FACTUAL BACKGROUND

This case arises out of defendants' ownership of Computerized Reservation Systems. A CRS is composed of computer terminals and printers in travel agents' offices which are telephonically linked to the vendor's computer. This equipment enables the travel agent to send and receive air transportation booking information, book flights and print out a ticket. These CRSs are owned by various airlines and each system contains flight information for airlines other than the vendor airline. The vendor charges the travel agent for the use of its system and they charge other airlines fees for booking air transportation through the CRS.

Defendant American owns the world's largest CRS, SABRE, used by approximately 11,226 travel agency locations in 1986, about 35.3% of locations. Defendant United's CRS, Apollo, has been the second largest CRS, used by approximately 8,187 agencies, with an estimated market share of 25.7% of all travel agency locations. The market also includes SystemOne (or SODA), originally owned by Eastern Airlines, now by Texas Air, with a market share of 16.5%; PARS, started by TWA and presently owned by TWA and plaintiff Northwest Airlines, with a market share of 13.2%; and DATAS II, owned by Delta, with a market share of 9.3%.

When the CRSs were developed in the late 1970's, travel agents paid a fee for CRS equipment rental and other services, while airlines were not charged for participating in the CRS or for bookings made through the systems. The plaintiffs contend that this was below cost predatory pricing, utilized by the defendants to illegally acquire monopoly power in the travel agent market.

The USAir plaintiffs also contend that this predatory pricing was subsidized for over seven years from incremental revenues received by the vendor airlines in the air transportation market through "biasing" the system. Biasing is the practice of displaying flight information in a way that favors the vendor airline. The travel agent inputs its client's preferences and the CRS displays, in order of desirability, the various flights. However, each system was biased, to differing degrees, so that the desirability of the vendor's flights would be artificially inflated. The defendants acknowledge that biasing existed in all CRSs, but deny that they actually achieved any incremental passenger revenues from the practice.

In the late 1970's, SABRE and Apollo began signing carriers to "cohost contracts." These contracts provided that the carrier's product would receive preferential treatment in the CRS in return for a fee paid on each booking which the carrier received through the CRS. Beginning in 1981, vendor airlines began entering into individually negotiated contracts with each airline for participation without preferential treatment, and booking fees rose from $0.25 per booking up to $3.00 per booking in some instances.

In August 1984, the Civil Aeronautics Board ("CAB") established a number of rules governing the practices of CRS vendors. Each CRS vendor is required to make available an unbiased primary display, to charge all carriers participating in its CRS the same booking fees for the same level of service, to sign travel agencies for contracts not in excess of five years duration, and to make CRS marketing data available for sale. The CAB declined to regulate booking fees. 14 C.F.R. 255.

In response to the CAB rules, American announced it would charge $1.75 per booking made through SABRE, and United charged $1.85 per booking. The three other vendors are charging similar fees. A five year travel agent contract has become standard in the industry since the announcement of the CAB rules. In addition, all the vendors' contracts with travel agents contain a liquidated damages clause which specifies that, if the travel agent breaches the contract, the agent must pay damages equal to future payments due under the contract, as well as fifty to one hundred percent of the lost revenues represented by the booking fees that the vendor airline would have collected from bookings made by the agent under the contract. In addition, these contracts contain a minimum use provision, under which the travel agent must maintain a specified level of bookings through the system, usually tied to a percentage of the first six months' usage.

The plaintiffs claim that each defendant used predatory pricing in the early years to obtain a monopoly illegally, and that the current booking fees of approximately $1.75 represent a monopoly overcharge. The plaintiffs also claim that the various contract clauses constitute an unreasonable restraint on competition that are used by the defendants to illegally maintain their monopoly power. In its prior ruling, this Court held that the plaintiffs have standing as consumers of CRS services to bring a claim for damages resulting from monopoly overcharging caused by the defendants' monopolization of their respective CRSs. The question presented here is whether, as consumers of CRS services, the plaintiffs also have standing to bring an attempted monopolization claim, claiming the same damages (excessive booking fees paid) in the absence of an achieved monopoly.

THE STANDING ISSUE IS PROPERLY BEFORE THE COURT

The USAir plaintiffs argue that it is too late for the defendants to raise the issue of antitrust standing on the eve of trial, or, in the alternative, that standing is a factual issue for the jury, and should not be resolved by the Court. However, antitrust standing is "a threshold requirement," and, although technically not a jurisdictional question, is one properly raised at any stage of the litigation. R.C. Dick, 890 F.2d at 145. Further, "the issue of status as a proper party in an antitrust suit is a pure question of law." Eagle v. Star-Kist Foods, Inc., 812 F.2d 538, 539 (9th Cir.1987) (cites omitted).

THE LEGAL STANDARD FOR STANDING

In Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983), the Supreme Court set forth the factors which a court must consider to determine whether a plaintiff has standing to bring a case for antitrust violations. They are (1) whether the nature of the plaintiff's injury is the type the antitrust laws were intended to forestall, (2) the directness of the injury; (3) the existence of more direct victims; (4) the risk of duplicative recovery; and (5) the complexity of apportioning damages. Id. at 538-47, 103 S.Ct. at 908-13.

Plaintiffs claim that in Blue Shield of Virginia v. McCready, 457 U.S. 465, 102 S.Ct. 2540, 73 L.Ed.2d 149 (1982), the Court set out a broad standard extending standing to include any beneficiaries of the competitive infrastructure who were impacted by the antitrust violation. However, McCready does not stand for the broad proposition claimed by plaintiffs. Even if it did, the case must be read today in conjunction with the Supreme Court's subsequent narrowing of antitrust standing in Associated General Contractors.

In McCready, the plaintiff alleged that her health insurance coverer, Blue Shield of Virginia, had conspired with psychiatrists to limit the market for psychological services by agreeing to reimburse their insureds for psychiatric treatment, but not for treatment by clinical psychologists. The plaintiff was treated by a clinical psychologist and her claim for reimbursement was denied by Blue Cross. The Supreme Court...