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Important Procedural Developments In Litigation Over Two-Sided Markets
05/21/2020There were two developments in litigation involving the treatment of two-sided markets that, while not groundbreaking themselves, could portend significant implications for future litigation involving two-sided markets.
On May 12, 2020, the U.S. Department of Justice (DOJ) asked the U.S. Court of Appeals for the Third Circuit to vacate a district court decision holding that DOJ had failed to meet its burden to enjoin the $360 million proposed merger of airline booking service/technology companies Sabre Corp. and Farelogix Inc., arguing that the appeal was moot since the parties abandoned the proposed transaction. On April 7, 2020, the district court ruled for defendants after a trial on the merits, holding that the proposed acquisition did not violate Section 7 of the Clayton Act. DOJ filed a notice of appeal the next day. On April 9, however, the United Kingdom’s Competition and Markets Authority (CMA) held the proposed transaction unlawful under UK competition law, finding that it threatened innovation in the travel booking business and could increase fees paid by airlines, travel agents, and UK passengers. Although the parties contested the CMA’s jurisdictional authority over the transaction due to the lack of a UK nexus as well as the merits of its conclusions, they announced on May 1 that they had decided to abandon the acquisition in light of the UK ruling. DOJ argues that, because the decision to abandon the transaction unilaterally renders the case moot and deprives the agency of an opportunity for appellate review, the decision of the district court should be set aside and the case remanded with instructions to dismiss the complaint.
One of the DOJ’s key arguments involves interpretation of the U.S. Supreme Court’s opinion in Ohio v. American Express Co., 138 S. Ct. 2274 (2018). The district court in Sabre found that Sabre and Farelogix compete “as a matter of real-world economic reality,” but concluded that the two companies do not compete in a relevant market as a matter of law because Sabre operates a “two-sided transaction platform,” while Farelogix is a one-sided competitor. Under the district court’s reading of Amex, “[a]s a matter of antitrust law,” only two-sided transaction platforms can compete with other two-sided transaction platforms. As one of the few cases interpreting Amex, DOJ expressed concern that if not vacated, this decision “could have an outsized effect on cases involving competition in the digital economy, where it is not uncommon for multi-sided platforms to face competition from one-sided rivals.” In this case, for example, Sabre Corp. operates in a “two-sided” market, handling the flow of information and orders between airlines and ticket agents, while Farelogix operates in a one-sided market, providing airlines with technology that enables them to bypass intermediaries and connect directly with travel agents. In other words, although Farelogix is not itself a two-sided transactional platform provider, its technology may enable market participants to bypass the incumbent platforms. Although the district court’s opinion, like most opinions in contested Clayton Act cases, was highly fact dependent and, as a district court opinion, had no binding precedential effect on other cases, DOJ nonetheless has serious concerns that the broad language of the district court’s opinion could have long-term consequences in this still developing area of antitrust law. Defendants have not taken a position on the motion to vacate.
Another development that may have important implications for the antitrust treatment of two-sided markets occurred earlier in the week on a rather routine remand of a state antitrust claim for failure to establish diversity jurisdiction. One day before the Sabre decision, the U.S. District Court for the Central District of California remanded to state court a lawsuit alleging that American Express violated California state antitrust law by preventing merchants from steering customers to cheaper payment options. The California law claims were similar to the Sherman Act challenge that DOJ and several state Attorneys General brought against American Express’s contractual restrictions on merchant steering, except that it was based on California’s Cartwright Act and Unfair Competition Law, not federal law. Although DOJ had prevailed at the trial court in the first case, the judgment was reversed in the Second Circuit, whose decision was then affirmed by the U.S. Supreme Court in Ohio v. American Express based on the district court’s failure to properly apply two-sided market principles.
American Express sought to remove the recent California action to federal court on the basis of diversity jurisdiction, but the district court found that it had failed to provide the court with sufficient information for the court to evaluate citizenship and diversity, and so remanded. This litigation is likely, therefore, to present the same issues regarding the treatment of two-sided markets under California antitrust and unfair competition law. In this regard, it is worth noting that while California antitrust law generally follows the same principles as federal law, there are important exceptions, notably in the areas of predatory pricing, resale price maintenance, and indirect purchaser standing, so some divergence from the U.S. Supreme Court’s decision in Ohio v. American Express is not impossible.
The cases are United States v. Sabre Corp., case number 1:19-cv-01548-LPS in the U.S. District Court for the District of Delaware, and case number 20-1767 in the U.S. Court of Appeals for the Third Circuit; and Laurelwood Cleaners LLC v. American Express Co., case number 2:20-cv-02973 in the U.S. District Court for the Central District of California.
Antitrust Litigation