U.S. Airways, Inc. v. Sabre Holdings Corp.

• Citation: 938 F.3d 43
• Decision Date: 11 September 2019
• Docket Number: August Term, 2018,Docket Nos. 17-960,17-983
• Parties: US AIRWAYS, INC., for American Airlines, Inc., as Successor and Real Party in Interest, Plaintiff-Appellee-Cross-Appellant, v. SABRE HOLDINGS CORPORATION, Sabre Travel International Limited, Sabre GLBL Inc., Defendants-Appellants-Cross-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

938 F.3d 43

US AIRWAYS, INC., for American Airlines, Inc., as Successor and Real Party in Interest, Plaintiff-Appellee-Cross-Appellant,

v.SABRE HOLDINGS CORPORATION, Sabre Travel International Limited, Sabre GLBL Inc., Defendants-Appellants-Cross-Appellees.

Docket Nos. 17-960

17-983

August Term, 2018

United States Court of Appeals, Second Circuit.

Argued: December 13, 2018

Decided: September 11, 2019

Anton Metlitsky (Andrew J. Frackman, David K. Lukmire, Yaira Dubin, on the brief), O'Melveny & Myers LLP, New York, NY, for Plaintiff-Appellee-Cross-Appellant.

Charles P. Diamond, on the brief, O'Melveny & Myers LLP, Los Angeles, CA, for Plaintiff-Appellee-Cross-Appellant.

Jason Zarrow, on the brief, O'Melveny & Myers LLP, Washington, D.C., for Plaintiff-Appellee-Cross-Appellant.

Evan R. Chesler (Peter T. Barbur, Kevin J. Orsini, Rory A. Leraris, on the brief), Cravath, Swaine & Moore LLP, New York, NY, for Defendants-Appellants-Cross-Appellees.

Chris Lind, on the brief, Bartlit Beck Herman Palenchar & Scott LLP, Chicago, IL, for Defendants-Appellants-Cross-Appellees.

George S. Cary, on the brief, Cleary Gottlieb Steen & Hamilton LLP, Washington, D.C., for Defendants-Appellants-Cross-Appellees.

Before: Sack, Livingston, AND Chin, Circuit Judges.

Sack, Circuit Judge:

The plaintiff, US Airways, Inc. ("US Airways"), brought suit in the United States District Court for the Southern District of New York against the defendants, Sabre Holdings Corporation, Sabre Travel International Ltd., and Sabre GLBL Inc. (collectively "Sabre"). Sabre owns and operates a travel technology platform known generically as a global distribution system: an electronic network that travel agents use to search for and book airline flights for their customers. US Airways alleged that so-called "full content" provisions contained in two separate contracts between it and Sabre, one executed in 2006 and one in 2011, were unlawful restraints of trade in violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, and that Sabre also violated Section 2 of the Act, 15 U.S.C. § 2, by monopolizing the distribution of system services to Sabre subscribers.

Following a motion to dismiss and a motion for summary judgment filed by Sabre, two counts of the original complaint were dismissed by the district court; US Airways's damages were also limited by the court to those arising from the 2011 contract. At trial, a jury returned a verdict for US Airways on Count 1 of its complaint only.

Sabre appeals the district court's order declining to grant its post-trial motion for judgment as a matter of law, or in the alternative a new trial, on Count 1 basing its arguments largely on a recent Supreme Court decision, Ohio v. American Express Co. , ––– U.S. ––––, 138 S. Ct. 2274, 201 L.Ed.2d 678 (2018). Sabre therefore seeks judgment as a matter of law in its favor, or in the alternative, a new trial on Count 1.

US Airways cross-appeals, contending that Counts 2 and 3 of its complaint were erroneously dismissed by the district court for failure to state a claim, and that the district court erred in limiting its damages under the remaining counts to those arising from its 2011 contract with Sabre.

For the reasons set forth below, we affirm the district court's judgment insofar as it limited US Airways's damages; reverse the court's dismissal of Counts 2 and 3 of US Airways's complaint; vacate the jury's verdict on Count 1 of the complaint and the court's order in response to Sabre's post-trial motion; and remand the case for further proceedings consistent with this opinion, including a new trial on Count 1 of US Airways's complaint.

BACKGROUND¹

I. The Parties and the Global Distribution System Industry

Sabre owns and operates a travel technology platform known generically as a global distribution system ("GDS"). A GDS is a computerized network that travel agents, particularly those servicing corporate clients, use to search for and book airline flights for their customers. The plaintiff-appellee is US Airways,² which uses Sabre's GDS platform to list available tickets for their flights, which are to be sold to travelers through travel agents.

Airlines began using in-house computerized reservation systems, precursors to the GDSs at issue here, in the 1960s. Some were made available for use by independent travel agents in the mid-1970s. Eager to attract travel agents to their respective reservation platforms, airlines began to offer travel agents the option to book tickets on other airlines' flights in addition to its own, charging those other airlines a fee for each booking made using their system. These arrangements often disadvantaged air travelers by driving up fees.

In 1984, federal regulators concluded that this practice was leading to discriminatory pricing in the airline industry. In 1992, the United States Department of Transportation ("DOT") responded by enacting the "mandatory participation" rule. This regulation required every airline to offer the same fares they were offering on its own in-house GDS to every other airline's GDS, which meant that each GDS platform was selling the same content at the same price. Travel agents therefore found it efficient to "single-home," using only one GDS for all their booking needs: They saved nothing by using multiple competing systems, and apparently benefited insofar as it made their operations simpler.

At about the same time that the mandatory participation rule was enacted, airlines began divesting themselves of their in-house reservation systems because they could no longer offer comparatively inexpensive prices for their own flights. Four independent GDS platforms—including Sabre—survived, continuing to serve the same one-stop-shop purpose for travel agents.

In 2004, the DOT deregulated the GDS industry. It acknowledged that deregulation would leave the remaining GDSs with significant market power over many airlines because travel agents practiced single-homing and the airlines depended on the GDSs to reach travel agents. The DOT nevertheless hoped that new technology would create competition in the industry, which would eventually erode that market power.

That hope was in vain. To the contrary, since 2004, the number of independent GDS platforms has decreased from four to three, while no new competitors have emerged since the 1980s.

Sabre is the largest GDS platform in the country, with a market share of more than half. The remainder of the market is divided between the other two surviving platforms, Travelport and Amadeus.

A GDS obtains its revenue by collecting booking fees from an airline whenever a travel agent uses that GDS to book a ticket on the airline's flights. The GDSs do not charge the travel agents for access to, or use of, their services. To the contrary, the GDSs pay the travel agents each time one of them uses the GDS's platform to book a ticket. Sabre structures its contracts with travel agents to include minimum-booking thresholds, which do not allow the travel agents to collect incentive payments unless they use Sabre's GDS platform for a minimum volume of bookings.

Most travel agents therefore cannot afford to divide bookings between Sabre and another GDS, even if they would otherwise prefer to do so. From 2006 through 2012, Sabre paid a total of more than $ 1.2 billion in such fees to travel agents. In 2011, 94% of travel agency offices were single-homing.

In order to reach a specific single-homing travel agent, and by extension that agent's corporate-traveler customers, then, an airline must engage with the GDS with which the travel agent engages. For example, nearly 40% of US Airways's revenue comes from bookings made by travel agents through Sabre. And as a result of single-homing by those travel agents, US Airways would forgo much or most of that revenue if it opted out of Sabre's platform.

II. The Contracts Between the Parties

US Airways signed contracts with Sabre in 2006 and 2011 (the "2006 Contract" and the "2011 Contract," respectively). These contracts were substantially similar in content; both contained four provisions which are central to the claims US Airways makes in this litigation, the "No Better Benefits," "No Discounts," "No Direct Connects," and "No Surcharge" provisions. US Airways, Inc. v. Sabre Holdings Corp. , No. 11 Civ. 2725 (LGS), 2017 WL 1064709, at *5, 2017 U.S. Dist. LEXIS 40932 (S.D.N.Y. Mar. 21, 2017) ; see also 2011 Contract, PX-6, A718-48. They are generally referred to collectively as the "full content" provisions. Most other major airlines entered into similar contracts with Sabre.

The No Better Benefits provision requires US Airways to provide all available US Airways fares to customers through the Sabre GDS. The No Discounts provision requires any fares offered by US Airways through the Sabre GDS to be no more expensive, and no less comprehensive, than fares offered by US Airways through any other forum. The No Direct Connects provision prohibits US Airways from requiring or inducing any travel agent to book on the US Airways website, or otherwise circumvent the Sabre platform. And the No Surcharge provision prevents US Airways from charging higher fees to travel agents for booking through the Sabre platform than for booking through other means.

In 2005, US Airways attempted to avoid signing a contract with Sabre that contained the full content provisions. It was unsuccessful. As the district court explained, citing trial testimony:

Ultimately, US Airways had no choice but to accept them in the US Airways-Sabre 2006 contract for fear of being removed from the Sabre GDS or being retaliated against, for example, through "display biasing," which means reordering search results as they appear in the system to disadvantage a particular airline. When the contract came up for renewal in 2011, US Airways again was forced to accept the full content restrictions.

US Airways , 2017 WL 1064709, at *5, 2017 U.S. Dist. LEXIS 40932 (citations to trial transcript omitted).

III. The Complaint...